Could the mobile data tsunami be reduced to a trickle?

I was reading the latest Cisco report (click here) on the growth of data and it was some pretty interesting reading. The growth on mobile saw a 2.5-3 times increase during 2010 compared to 2009. 24% of phones sold in 2010 were smartphones so 76% weren’t, meaning more growth is sure to come. Cisco are predicting it’s going to get a whole heap bigger by 2015 and specifically global mobile data traffic will increase 26-fold between 2010 and 2015. Mobile video traffic will exceed 50 percent for the first time in 2011. Yep I can believe the growth forecasts here without hesitation, but only in a scenario where something doesn’t constrain demand.

But something will constrain demand and that is the customers willingness to pay and quite possibly the operators ability to build such a large increase into their networks. One caveat I’ll add right up front is how do you define mobile traffic. For the purposes of this discussion I’m going to take an extreme view that mobile data is traffic going over mobile cellular networks i.e 2G+3G+4G. If traffic is going to grow 26 fold between 2010 to 2015 then that means we need to increase capacity by that amount in the mobile networks, BUT, I don’t see customers willing to pay 26 times more (or even 5 times more for example) for this increase in capacity – demand side won’t pay significantly more. Conversely I don’t see operators being able to drop prices so significantly that the 26-fold capacity increase can be absorbed without passing it onto the customer. Remember that operators’ margins for data are already considerably lower than voice and the demise of “unlimited” tariffs has shown just how unsustainable the business case for unlimited data really was. So operators will¬† increase prices and/or introduce caps to keep the margins at an acceptable level, which means customers have two choices, either pay for more capacity or reduce consumption on mobile networks (or a bit of both). The question that arises is are customers willing to pay more? Do customers value mobility enough to pay more or can they even afford to pay more for mobile data? I am not convinced getting a much greater share of the customer’s disposable income is possible. If I’m paying the phone bill would I surf for convenience on mobile or can I wait till I find a local wifi hotspot or wait till I can access my fixed data pipe at home or work? Many people will of course value the convenience of mobility and pay, for example remote workers or company employees who don’t pay the bills and therefore are insensitive to cost, but there’s a whole bunch of people who can’t or won’t pay. In that case then is there a big enough pool of people willing to pay to make it worthwhile for carriers to continuing investing in mobile network capacity?

So how can demand on mobile grow by 26-fold given these supply conditions? There are a couple of things that could help the situation:

1. A new earth shattering technology arrives that means you can deliver 26 times more data at the same price

2. A new mobile network topology and deployment is used to reduce cost

3. Operators use aggressive traffic shaping and policing to reduce peak throughput

4. Charging for delay sensitive data such as video is priced higher than non delay sensitive data such as email

5. Operators charge by time of day with the peak periods being more expensive than off peak periods, very much like the way electricity charging works

6. More offloading of mobile data to WiFi hotspots

Personally I don’t see some earth shattering technology round the corner to allow 26 more times data at the same price – no LTE is not going to cure famine and rid the world of Aids. At best LTE will give a 20%-30% improvement in efficiency, but the radio electronics aren’t the biggest cost component of operators networks, it’s the number masts that operators have to deploy, which won’t reduce with the advent of LTE. Network topologies and deployments could change to reduce cost, for example greater use of Femto technologies, but Femto mobility has its challenges and handing calls between cells as you move will be difficult. Aggressive shaping and policing could help to reduce peak throughputs by throttling lower priority traffic. Charging for delay sensitive data is something that’ll constrain demand because suddenly those free YouTube videos won’t look so free any more and the consequence is a reduction in the demand for video. Operators charging by time of day could be something that would flatten the peaks of usage and make people consume during less busy periods but then that sort reduces the value of mobile data if you can’t use it when you want to use it . Offloading mobile data to wifi means its not strictly mobile data any more right? It’s now public hotspot wifi data isn’t it? None of these in summary is going to close the gap between what a 26-fold increase in traffic will cost to deliver and what customers will be willing to pay.

As an aside, 2011 is going to be an interesting year for Wifi. Virgin have announced the launch of a wifi services, Sky have bought The Cloud and O2 are rolling out a wifi network too. The impact of these wifi hotspots on the mobile network will be interesting as the density and number of hotspots increases rapidly. Will wifi hotspots provide just enough mobility to deflect demand from the mobile networks? Will most of the future demand go over WiFi rather than mobile cellular technology? Will consumers adopt public WiFi hotspots technology? Clearly there are a number of parties who think so.

So how do we get to a 26-fold increase in mobile data traffic? I am sure that the overall increases in data (fibre+ADSL+cable+mobile+wireless etc) will occur, but how much and what proportion of it will go over mobile networks is not clear to me at all.¬† When I figure it out I’ll let you know.

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