$699 with contract? Good luck, HTC Jetstream tablet

On Wednesday¬†AT&T announced the HTC Jetstream, the company’s first Google Android (s goog) tablet that will support the carrier’s upcoming LTE network. Similar to other tablets running Android 3.1, the Jetstream uses a 10.1-inch display, but with a twist: The capacitive touchscreen works with the HTC Scribe digital pen accessory for note-taking and drawing.

AT&T (s t) is supplementing the Jetstream with a new 3-GB data plan that costs $35 a month. Customers who agree to a two-year contract on the new plan will be able to purchase the Jetstream for $699, a subsidized price likely to put many consumers off.

To a gadget addict like myself, there’s much to like about the Jetstream on paper: a 1.5 GHz dual-core Snapdragon (s qcom) processor, support for today’s HSPA+ mobile broadband networks as well as future LTE networks, a new version of HTC Sense software for improved usability and dual camera sensors, including an 8-megapixel rear camera, to name a few key specifications.

But AT&T seems to be betting on LTE as a key differentiator here and perhaps as justification for the relatively high subsidized price of the Jetstream. I think that’s a mistake. We’ll see when the tablet hits stores on September 4, at $699 with contract, reportedly $849 without.

AT&T needs only to look at the tablet pricing of its rivals Verizon (s vz) and Motorola Xoom (s mmi) to get an idea of how well a tablet with a two-year contract will sell at $700 or more. Simply put: It won’t, at least not well. Granted, the Xoom certainly faced other issues outside the initially high price, because it was rushed to market with some key flaws: general instability, a limited number of tablet-optimized applications and a promised LTE hardware upgrade where “coming soon” meant six months later. In a sense, LTE support for the Jetstream is also “coming soon,” because AT&T hasn’t yet launched its LTE service. And when it does, it will only be in 5 markets to start and 10 more by year-end.

While I expect that HTC’s hardware and software won’t face the same problems as the Xoom, it still needs to answer a key question: What justifies the price premium over an Apple iPad 2, (s aapl) which can be had without a contract?