Withdrawal Syndrome for Unlimited Data Plans
Recently, O2 announced a revised set of data tariffs for new and upgrading mobile customers in the UK. Customers will have a choice of “smartphone tariff plans” with a bundled data allocation of 500MB, 750MB or 1GB, depending on the total monthly fee, which ranges from £25 to £60. Earlier this month, AT&T had withdrawn unlimited data plans from its network. If the AT&T and O2 are any indicator of the future, the unlimited data plans could soon be a thing of the past.
In April 2010, Opera Mini users generated over 398 million MB of data for operators worldwide. Opera compresses the data by up to 90% and despite that this huge data was consumed by its users. Opera has close to 26.23% market share as per a report from Statcounter as of June, 2010. This means that the total data consumption across the world is much larger than 1150 million MB (Cisco estimates it to be closer to 2000 million MB) and this has been growing at over 100% annually. Cisco has predicted that the mobile data usage would continue to grow at over 100% CAGR until 2014.
If the data consumption continues to grow at the rate forecasted, the operators have a huge problem at hand. The increasing market share of iPhone and Android (Android has reached 10% share of smartphones in just 6 quarters) is likely to make the situation worse than Cisco’s forecast. In the figure below, it is clear that though Apple and Android have just 25% share in smartphone sales, they consume almost 67% of the total data traffic. This means that the average data usage on iPhone and Android based phones is a little under 3 times than that on any other phone.
The data networks were hugely under-utilized before the launch of iPhone. Operators had invested huge money in 3G networks and the due to low usage, they were finding it difficult to recover the investments. In order to increase usage and adoption, the carriers started to offer flat data plans and some of them went a step further by giving unlimited data plans. This was a great strategy on part of carriers and the analysts lauded it profusely and even lectured the carriers that were not offering unlimited data plans on its value proposition. With the advent of iPhone, the mobile Internet usage shot through the roof as the applications became more data intensive and the users started to download full track music, use peer-to-peer (P2P) file transfer and streaming services.
In US and some European countries, iPhone has really high market share putting extra strain on the carriers in those countries. O2 revealed that less than 0.1% of its subscribers account for a third of all network data traffic. Just 3 percent of users on smartphone tariffs account for 36 percent of its smartphone data traffic. The disproportionate data network usage by smartphone users (especially iPhone) meant that the other users were subsidizing the data usage of smartphone users. This is not only unfair but also unsustainable. O2 has been spending around £1m a day to upgrade its network to cope with the “exponential demand” for data on smartphones. AT&T had also claimed similar numbers on data usage.
It is getting increasingly clear that the operators in most of the countries would be left with two choices: either increase the data capacity by investing in the newer technologies like LTE or stop offering unlimited data plans. Given the financial health of the carriers and the maturity of LTE, it is likely that the carriers would adopt the later approach, i.e. stop offering unlimited data plans to consumers. Alternatively, the carriers can adopt the approach of promoting and offering incentives on handsets like Nokia and RIM that are either more data efficient or the data usage is lower by consumers on these phones.
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Many operators have been captives of their marketing departments. In the past many mobile operators were able to ignore the admonitions from their network strategy architects who said that data use would ramp as web enabled devices and video and P2P services became widely used. The predictions of the bottlenecks are far from new. However, the iPhone and other WebPhones accelerated the curve to the point that the issue could no longer be ignored even if that meant setting a new trend in the operator’s particular market ie. AT&T’s dilemma in competition with Verizon and Clearwire.
I’ve suggested that bandwidth/spectrum constrained operators consider offering rate-shaping plans. For instance, they might offer a plan with an overall usage cap but with ‘free’ time periods or toggled periods. The free periods would be off-peak time slots. The ‘toggled’ periods would be based on usage in the particular cell: plug-in iPhone, Android, Symbian etc. apps would show a green, (and amber?), and red light for use of the network without usage caps. An app is available for the iPhone, I’m not sure about the other platforms.
However creative operators may become in traffic shaping, many will face the need to impose caps. Clearwire says that the usage has soared to about 8 Gb per month and is still growing. The new EVO 4G and similar devices include higher resolution screens and cameras including front-facing cameras for video phone, conferencing and posting that is expected to add further to the ramp in BB traffic per user. And operators, including Verizon, have said that the typical peak-hour periods usage patterns for voice do not apply so much for data traffic: file sharing, video downloads and viewing and other heavy hitters tend to occur more evenly around the clock.
Caps are inevitable for those operators most impacted by the set of competitive and heavy usage factors. The push-back from the marketing departments can be more creative marketing around that: in addition to those mentioned, operators can offer higher temporary caps for making referrals to new subscribers upon sign up: 1 Gb higher cap for one month. Also ‘rewards programs’ – buying dinner or a new laptop or wide-screen TV from a merchant that advertises through the mobile phone might be given extra bandwidth for 1 or more months. In other words, operators can look for ways to turn a negative into a positive marketing ploy: instead of having to just tell users that bandwidth is capped, tell them instead that they can get around caps by bringing in new subscribers which would otherwise be expensive to the operator. By involving the user in a process that implies that network capacity is a benefit that they either must pay for or earn, not a God given right, the operator also encourages the type of interaction that will lead to higher profits in the long run. Operators should be shaping usage habits beyond the reactive/protectionist stance we are seeing.
Going forward there are new methods that will be used to help relive the problem: more use of distributed data storage and servers that keep traffic off of the core network. More use of femtocell-picocell and hierarchical network topologies which also works with the distributed network elements to deliver bandwidth closer to the user, thus more efficiently. However, that requires greater capex and is not a complete answer. Making the network (user) pay for reasonable use in ways that benefit them is the goal.
regards,
Robert