Widespread availability of mobile broadband and handsets that can take advantage of it is about to translate into a serious operator dilemma: squeezed margins and a business case that does not support network improvement. Cheap and cheerful the data landscape will not be, if things continue as they are, and billing changes may be impossible to avoid.
To wit, between 2009 to 2015 mobile data usage in Western Europe and North America is expected to increase at a compound annual growth rate (CAGR) of 42 percent and 55 percent, respectively, according to ABI Research. However, mobile data revenues are expected to grow at a CAGR of about 18 percent in North America, in sharp contrast to the increase in usage. That’s because the proliferation of unlimited or fixed-price rate plans don’t allow carriers to capitalize on usage. It also kills the ROI for pouring additional funds into upgrading the network to handle the traffic growth.
“Mobile voice has already been surpassed by mobile data traffic on some networks, and this trend will only accelerate," said ABI Research wireless analyst Bhavya Khanna. In 2010, the average North American user is expected to consume 159 megabytes of data – up from 100 megabytes in 2009.
To add insult to injury, the growth in data traffic comes at the expense of voice revenue: It’s no secret that minutes of use are on the decline in developed markets in North America and Western Europe as users turn to texting and mobile messaging as their preferred means of communication.
Meanwhile, carriers are nonetheless planning capex spending for making the transition to 4G, squeezing the business model even further. Pyramid Research forecasts that the mobile broadband market worldwide will reach 1 billion connections during 2012, segmented by 3G and 4G network technologies. Mobile operators around the world will invest billions in the spectrum and network infrastructure to deploy 4G networks, but are struggling to keep pace with the existing 3G data traffic growth driven by the use of smartphones and USB dongles, as well as bandwidth-intensive video content and applications.
"Operators planning to deploy 4G networks face many technical, strategic, and business complexities in how to manage their network evolution and critical questions on how to get a return on their investments," says Berge Ayvazian, senior consultant, Heavy Reading, and director of its 4G consulting practice. These challenges require a transaction-based business case that allows them to more fully monetize the broadband traffic generated by mobile Internet services, content and applications, he added.
Many operators have noted that a switch to usage-based or tiered billing is an inevitable move; Sprint-Nextel Corp. CEO Dan Hesse has noted that usage-based approaches are the only way forward. AT&T Inc. has already implemented new billing tiers for mobile data, as has Orange. Even so, competitor operators like Clearwire Corp. are on the record as saying that flat-rate pricing will be a part of their model for the foreseeable future, muddying the competitive waters.
Even so, it’s not to say that cellcos are losing money. During the first quarter of 2010, AT&T’s mobile data revenue was up nearly $1 billion, surging $947 million to $4.1 billion, up 29.8 percent over last year’s Q1. AT&T says its wireless data revenues have nearly doubled over the past two years. Postpaid subscriber ARPU grew 3.9 percent year over year to $61.89 – the fifth consecutive quarter AT&T has posted a year-over-year increase in postpaid ARPU. Postpaid data ARPU when segmented out reached $20.13, up 21.9 percent over Q1 2009.
