Communications & New Media - Industry News
| There's a limit to unlimited data plans |  |
November 06, 2009 8:32 PM ET
By Sharon Armbrust
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The writing is clearly on the wall. Wireless network operators, and fixed broadband service providers as well, should and will have to start instituting tiered, usage-based pricing plans for broadband access. Carriers' traditional business models, geared to selling single-tier "unlimited" packages of broadband access with some services bundled in and additional paid services layered on top, are out of sync with the new reality of over-the-top application and service offers, which are multiplying like rabbits. Some of the most innovative and disruptive come from garage-front developers, others from the Internet heavyweights. Case in point: Google Inc.'s turn-by-turn voice-direction service on the new Motorola Droid phone. Verizon Wireless, a joint venture of Verizon Communications Inc. and Vodafone Group plc, and Google's new partnership could point to a way to re-craft business models and give carriers new ways to compete beyond the devastating price cuts that have poisoned the prepaid well. Verizon is playing ball with Google on Droid, which went on sale Nov. 6, effectively holding its data-access price steady and forgoing at least one additional service-sale opportunity by bundling Google's free GPS-enabled voice navigation into the phone sale. Even with the open operating system, carriers still have the opportunity, using their core network management expertise and billing relationships, to integrate and bundle compelling applications to compete for revenue effectively with third-party options. But they also get a clearer path to separate the value of access and let the attributes of speed and throughput be measured for the differentiator value they deliver to users who gobble up all those slick applications and innovative services the carriers are not selling directly. Especially in mobile, where capacity is finite and will always have peak speeds many multiples lower than wired broadband networks, there is a legitimate premium to attach to various mobile broadband capacity tiers of service. Today data traffic is already 15x to 20x the level of voice traffic on data-capable devices, according to Ericsson. And Cisco Systems Inc. projects that by 2013, more than two-thirds of global data traffic in mobile wireless will be video, with video traffic growing at a compound rate of 150% through 2013. The inverse relationship in mobile between the cost per bit and the revenue per bit associated with various services underscores how critical it will be for network operators to define the value of their broadband delivery capabilities. The monetizable value per bit of messaging traffic is far more to an operator than the value per bit of video transport. Yet video uses exponentially more bandwidth, i.e., cost. Consumers value messaging highly and have come to expect a charge for the service. Yet, consumers are loathe to pay much, if anything, for video entertainment, because they have grown up having it subsidized by advertising. The conundrum: You have traffic growing sixfold over the same time frame in which revenue is only doubling. The solution to that real problem has to come from multiple directions, including better network utilization; the overlay of more efficient, lower-cost 4G networks; the off-loading of traffic via a family of underlay networks such as Wi-Fi and femtocells; and, equally important, from revised revenue shares via new business models and partnerships. Meanwhile, carriers continue to invest capital at $18 billion to $20 billion per year to support the breathtaking growth in mobile broadband traffic, even as an ever-greater share of the monetizable content being delivered bypasses the operators. Google sees itself, according to CEO Eric Schmidt, as a platform for monetizing its partners' content. It makes a substantial return on investment on that revenue-sharing business model and does not see the need to produce or own the content as well. Analogously, network operators are transporting and powering the service and software providers' platforms. Moving to usage-based, tiered access pricing for broadband delivery will help safeguard a reasonable ROI on that business model. Wireless Investor is a regular feature from SNL Kagan, offering exclusive research and commentary. | 
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