ISP Rebate Scam

Oscar Sodani is a founder of Help2Go and owner of Help2Go Networks, an IT consulting firm in the Washington D.C. area. Oscar holds the CISSP certification as well as industry certifications from Microsoft, Cisco and Novell.

We've all seen these incredible deals -- $400 rebates on brand-name PCs at your local computer superstore. At my local Best Buy, I saw an IBM Pentium III computer with 17" monitor (normally $1600) selling for only $1199.99! CompUSA and their web site, cozone.com, are selling Toshiba notebooks for $1300, $400 lower than their normal price. Mentioned in these ads is that you get a $400 "rebate", and for details, you should read the fine print. Hmmm.... Maybe we should examine that fine print carefully.

The Fine Print

Take a look at Best Buy's fine print, which, to their credit, is displayed on all of their circulars and on their web site. The catch is immediate: to get this amazing $400 rebate, you must sign a 3-year contract with Prodigy to use their Internet Service. Three years! With CompUSA/cozone.com's amazing laptop deal, you must sign a 3-year contract with Compuserve.

Even so, it may sound like an OK deal -- I mean, you are getting a $400 rebate, right? That's a lot of money. But to see what is so wrong with this deal, we must examine the math (*cough*). Read on-- I promise I won't make you fall asleep like your 11th grade Trigonometry teacher did.

The Math

Let's say you were going to buy a PC that was originally priced at $1600. With the "rebate", you are only paying $1200.

With these contracts, Prodigy or Compuserve is going to charge you $21.95 every month for the next three years. Over the life of the contract, you will fork over $790.20 to them. We'll add this number to the $1200, and you end up paying $1990.20 for a PC with 3 years of Internet access.

Can you get a better deal? We say yes.

Gateway and Dell offer one-year contracts for their Internet service when you buy one of their PCs. One year costs about $130 -- multiply by three years and you get $390.

My local ISP sells their Internet service for $11/month. Multiply by 36 months, and you are paying $396 for 3 years of service.

Add $390 to the full $1600 price of the PC, and you get -- $1990 -- exactly what you would have paid with that great deal! You are not saving any money at all by taking that $400 rebate. In fact, by avoiding the rebate, you are gaining some advantages:

No 3-year contract
With no contract, you are not stuck with Prodigy or Compuserve forever. If you don't like your Internet service provider, you can switch. If you tried to get out of your Prodigy or Compuserve contract, they'd charge you a $50 fee plus they'd take back part of that precious $400 rebate!

Online services in decline
Have you noticed that the Internet service providers offering these deals are the ones that are in decline? Compuserve's heyday was in the pre-Internet 1980's. Prodigy peaked out in the early 1990's. Now they are grasping for new subscribers, and their marketing people came up with this deal. Don't fall for it. You'll get better service and better features with a reliable provider like AT&T or your local ISP.

Fast access
With a 3-year contract, you will not be able to upgrade to the newer, faster access options that will be widely available within the next year. I use a cable modem to access the Internet at higher speeds than a standard 56K modem. DSL lines are quickly gaining acceptance as the next high-speed standard. The choices are many, but only if you are not stuck in a contract.

Cheaper access
Why pay $21.95 a month for Internet access when access is getting cheaper all the time? Look for local companies that offer cheap Internet access, some for as little as $9.95 per month. Dial-up phone access is fairly cheap and easy to provide for local phone companies, and they tend to provide better service than the big guys.

Conclusions

There's no reason why you should buy a PC with one of those "rebates" -- it's a marketing scam that just wants to lock you in to a 3-year contract. It forces you to overpay for Internet service, and the service you get is from a has-been. We still recommend buying directly from a reliable manufacturer, like Dell or Gateway. You'll be happy you did.

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