I am not sure if this offer is available nationwide, but the deal is in conjunction of their 3G soft launch in Johor Bahru.
The brochure above(click for larger view) which was tweeted by UMobile claims that if anything goes wrong with the free modem, you need to go to their service centre in Taman Molek, Johor Bahru within 7 days(from the date of purchase) to make the exchange. As the modem does not has any warranty from Huawei, I assume that U Mobile is trying to “clear stock”.
The offer is without contract and only be available starting tomorrow(31st Jan 2010) till 28 Feb 2010. There is an advance payment of RM199 which will used of offset the monthly chargers(more than 2 months of free usage).