Unlimited mobile data packages unsustainable

Predicting the future of data pricing models.

2012 studies popping up about growth in Stateside mobile device usage are striking. A Pew study finds that the number of tablets and electronic readers nearly doubled between mid-December 2011 and mid-January 2012.

The tablet reportedly consumes five times the bandwidth of smartphones, and the voice response service in the iPhone 4S doubles the usage of previous models.

And there’s the jaw dropper: even with all these Stateside folks wielding all these smart devices and smarter apps, 50% of all network data usage is consumed by just 1% of users. In fact, 90% of the usage is by 10% of Stateside users. Wow.

Let’s put this in context. Back in 1990 I saw analysis of long distance voice usage: 90% of revenue was generated by 10% of users, 80% by 20% of the users, and then a steep curve down to a large number of people using little-to-none.

Revenue generation 20 years ago on voice networks matched the usage of data networks today. This made sense, as those who used the infrastructure paid for new build outs and repairs.

Such is not the case in the mobile world, for two key reasons. First, data pricing has always deviated from voice pricing. Just as the viability of unlimited mobile data is hotly contested in the wireless industry, unlimited data via broadband connections has long been a source of debate – particularly with the emergence of internet-based VoIP and streaming video services. Second, there is the problem of network congestion.

Only when the iPhone emerged did AT&T begin struggling with capacity issues, and the premiums for mobile data are significant hedges against ever-declining revenues for basic voice services.

AT&T and Verizon have begun capping usage and/or raising rates because their networks became heavily used. Sprint, with network to spare, has the luxury of offering unlimited data plans. It’s a safe bet that if Sprint’s network were to fill, it too would be seeking to keep a tiny minority of customers from slowing the services of the larger customer base.

T-Mobile, no longer being rolled into AT&T, is in a similar position. As handsets and tablets make mobile data even easier and more compelling to use, and networks require significant expansion, updates or repairs, the business model is likely to bring prices closer to usage. Barring the emergence of a technological breakthrough in compression or multiplexing, folks will buy the data they need and pay for what they use.

Judy Reed Smith is CEO of ATLANTIC-ACM. She can be contacted at: judyrsmith@atlantic-acm.com

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