Gateway, Comcast team on high-speed Net

Gateway, pummeled by a slow PC market and brutal price-cutting, is turning to the country's third-largest cable operator in an effort to mine new revenue sources. The PC maker already offers bundled broadband services in some markets, but the Comcast @Home service will allow it to expand into 45 percent of cable-accessible homes, Gateway said.

The deal is "part of an ongoing strategy to shift to a services model," said Deepinder Sahni, vice president of consulting company Access Markets International. "They must have some kind of sharing model with Comcast, so whatever customers they push to Comcast via the Country stores will probably give them some sort of recurring revenue stream."

Terms of the deal were not disclosed, and neither company could immediately be reached for comment.

The move aims to reduce the headache factor associated with upgrading to high-speed Internet access by offering a package that includes installation, equipment and ongoing support.

Consumers can visit Gateway Country stores to preview broadband access, giving them an opportunity to decide whether it's worth the plunge. If customers buy a new PC, they get a free cable modem and free installation. If they want to upgrade their current PC, the cable modem costs $149, though installation is still free. After a two-month promotional period of service for $9.95 a month in both instances, the monthly fee will be $39.95.

The service will be available in 16 states, mostly on the East Coast and in the South.

"Our broadband initiatives and alliance with an industry leader like Comcast play a central role in fulfilling our vision to become...(a) local provider of integrated technology solutions,'' Mike Flanary, a Gateway vice president, said in a statement. "Our Gateway Country stores serve as a resource center for people who want to try before they buy, ask questions and get support from a knowledgeable, friendly face in their own neighborhood."

The new, new digital home
Gateway CEO Ted Waitt said in an interview last week that Gateway plans to sell high-speed access in conjunction with home networking as part of a new, less revolutionary way of thinking about the digital home. In the past, Gateway had focused on the idea of a home with PCs connected to a variety of Internet appliances. However, the company is pulling away from selling standalone appliances for surfing the Web.

"You can't have an appliance that costs more and does less," Waitt said. He added that a need still exists for a machine that acts as a second way to get onto the Internet. "In a lot of cases that can be an old PC," he said.

Waitt added that he does see a market for certain appliances, such as a device to shuttle music and video files throughout a broadband-connected home.

Offering bundled Internet access service is hardly a new strategy. PC makers such as Dell Computer, Compaq Computer and Apple Computer have offered bundled deals to connect to the Web through Internet service providers such as America Online, MSN and EarthLink. But those services mostly involved lower-cost telephone dial-up access. Now with more costly broadband access becoming increasingly popular, PC makers are hoping for a stronger revenue stream.

There are more than 5.5 million cable modem users in the United States--or about 8.5 percent of the 65 million homes able to access the service, according to a survey released Monday from the National Cable and Telecommunications Association.

In the past year, Gateway has faced declining sales and has closed some its Country stores. The company is also considering closing some of its factories and pulling out of overseas markets in an effort to return to profitability.

News.com's Ian Fried contributed to this report.