Interviews with Digital Media Thought Leaders

Mobile Bandwidth Shortage

Podcast Video | Posted by Phil Leigh on July 12, 2010

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The decision to adopt usage-sensitive data pricing by AT&T Wireless is significant. It is likely to cause a chain reaction fundamentally transforming the Wireless Internet. The changes will create important new business opportunities in both regulated and non-regulated sectors. The reaction sequence will proceed through three steps.

First, most major cellular carriers will follow AT&T’s lead. For example, Bloomberg reports that Verizon will be Apple’s second cellular operator when it launches its 4G network in January. Importantly, the carrier has separately commented that it will abandon unlimited pricing on that network. Although network congestion resulting from past explosive traffic growth accompanying smartphone and iPad popularity is the official explanation, it is also an opportunistic way for the industry to increase average subscriber revenue and thereby profits.

Second, as a consequence of metering charges there will be a dramatic slowdown in the growth of Internet activity on cellular networks. Ten years ago an AT&T Labs researcher investigated pricing trends in the history of communications technologies over two hundred years. He investigated postal, telegraphic, telephonic, and Internet communications. His most significant conclusion is that network usage is markedly sensitive to fixed rates.

Part of his analysis examined how Internet usage changed for three major wired Internet Service Providers (ISPs) over five years from 1996 to 2001. One provider, AOL, switched from metered rates to a flat rate at the beginning of the study period. A second, Telecom New Zealand, shifted from metered to fixed pricing mid-way through the period. Lastly, the French ISPs maintained usage-sensitive pricing throughout. The chart below demonstrates the comparative usage impact in each of the three markets.

Flat Rate Usage Impact

At the end of the period AOL subscribers used the Net nearly three times as much daily as the metered-rate French subscriber. In New Zealand the average subscriber was on the Net more than twice as much as those in France.

Third, users of smartphones and iPad-like devices will anxiously search for ways to bypass cellular systems in order to more actively use the Internet features of their units. For example, AT&T Wireless forbids iPhone-4 owners to use the FaceTime video phone calling feature on its cellular network. Instead users must find WiFi networks. Consequently, we anticipate that merchants will form ad hoc WiFi mesh networks to serve the need.

There are two reasons that merchants will want to participate in such networks. One is that it will draw visitors into their store. Second, when visitors log-on the merchant can present a time-sensitive and location-specific ad. For example, if the merchant is a restaurant, it could offer a meal discount coupon expiring one-hour after the user logs-on.

If you would like learn more about how the mobile bandwidth shortage will impact your business and create lucrative new opportunities our Mobile Bandwidth Crisis research report may be of interest. The July, 2010 report is 18 pages and priced at $395. You can download a free synopsis here.