As telecoms continue 4G equipment rollouts, one question looms: Will wireless data revenues keep pace with services...
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Many analysts say no, unless telecoms find a killer, money-making 4G service.
"I've always noted that what it really takes [to drive 4G revenue] is an application that needs to consume that bandwidth," said Mike Jude, a program manager of consumer communications services at Stratecast. "Currently, I think most LTE and 3.5 [later generation, faster 3G] to 4G deployment plans depend on this notion of mobile Web access or mobile data access as being the driver. But really, if you're looking at the total population of total users of wireless, not that many of them use that much data."
And not many are currently wiling to pay much more just for that higher bandwidth.
Instead, Jude and others believe, some basic models such as the all-you-can-eat flat-rate need to be fundamentally rethought or at least subsidized with high-margin services.
"Everybody's looking for services that they can provide [for] high margin that would depend on that kind of bandwidth requirement," Jude said. "If it's a service that people want and it requires that kind of bandwidth, presumably they'd pay for that."
If wireless providers launch 4G services without a clear idea of exactly what those ARPU-driving services are, wireless providers may face the same crisis the wireline providers are facing: Plumetting revenue-per-bit even as infrastructure upgrade costs skyrocket and entrenched consumers protest any change to the revenue model status quo.
H. Paris Burstyn, a senior analyst with Ovum, said wireless carriers need to embrace the death of the minute and move past it in terms of billing.
"Carriers are ... fixated by minutes of use, and that's a terrible way to think about digital service because it's not about minutes of use, it's about megabits, and a growing quantity of data," Burstyn said. "The key is to figure out how to move the payment metric from minutes to megabits, and then tiers of service beyond that, which spills into net neutrality, and dealing with power users."
These are sensitive areas, to be sure: Time Warner Cable faced public backlash and threats of corrective legislation when it tried moving to tiered bandwidth in some test markets.
But with the wireless Internet still emerging, service providers have a chance to set, or at least shape, consumer expectations. Already, "unlimited monthly usage" plans have been almost universally capped at 5 gigabytes. Jude said that there is some time to adjust, particularly with 4G.
"We really don't have any 4G networks on the horizon yet," he said. He noted that WiMax was closer to wide deployment but was not technically approved as 4G, while current implementations of LTE also have not yet been recognized by the 3GPP as official 4G. "We currently have very capable 3G networks transitioning into 3.5G networks, and we've got a perfect opportunity to test the [economic] theories right now. If there are services that would be killer services for 4G, they can mostly be deployed on the networks we have today, enough to test whether there's an increased uptake in the services."
So far, however, a rational business plan has yet to emerge that will match the costs of 4G capital and operational expenses with revenue, Jude said.
Telecoms, long seen by analysts as innovation dinosaurs, have shown a greater willingness to experiment recently. Perhaps spurred by Sprint's successful partnership with Amazon on the WhisperNet service, which partitions Internet access on a per-book-download basis, AT&T recently partnered with Jasper Wireless to provide wireless connectivity for devices ranging from navigation systems, e-readers and mobile Internet devices to netbooks, healthcare and tracking systems, many of which might be able to tie 4G to more differentiated, less utility-like services.
Whatever the answer, it won't be found overnight.
"It's a very complex problem, and monetizing it is the big issue," Burstyn said. "Moving the consumer and the billing paradigm to something that's linked to the amount of data you use is going to be a very complicated and evolutionary step-by-step kind of thing."
Contact article author Michael Morisy with your own thoughts, questions, or story ideas.