U.S. wireless carriers let the data usage genie out of the bottle when they created unlimited mobile broadband plans. Flat revenue streams from those all-you-can-eat data plans won't capitalize the network upgrades needed to support the swift and dramatic growth of smartphone data traffic. Pricing models will almost certainly change, but analysts say a data "fast lane" -- charging a premium for customers who want prioritized data traffic -- has too many faults to be a viable solution.
"They've been waiting for the mobile data market to pick up for so long that they finally gave it all away to make it happen," said Benoit Felten, a principal analyst at Yankee Group. "They're now looking desperately for ways to segment what was a completely unsegmented offer."
Under mobile broadband usage plans today, all packets are created equal and unlimited mobile broadband plans queue transactions on a first-come first-served basis. Verizon Wireless and AT&T Inc. impose no cap on unlimited mobile broadband plans for smartphones, according to representatives from both carriers.
In this environment, carriers have seen a very small percentage of mobile broadband customers account for an unusually large portion of overall mobile data traffic. Three percent of smartphone users are consuming 40% of AT&T's network capacity, investors heard last month from Ralph de la Vega, director of consumer services, according to The Associated Press.
Streaming video and audio were the top bandwidth hogs, de la Vega said, but he hinted that pricing models would change. He did not elaborate on specifics but told investors at a UBS conference in New York that AT&T planned to give power users incentives to "reduce or modify their usage."
Mobile broadband usage 'fast lane' unlikely solution to wireless ARPU woes
Selling quality of service to customers who don't want to wait in line seems like a logical way for carriers to up their wireless average revenue per user (ARPU) -- but only in theory, according to Steven Hartley, a principal analyst at Ovum.
"In practice, I think there is a fundamental flaw with that premise, and that premise is the mobile network is a shared resource. There are a lot of variables that impact performance," Hartley said.
"In a coffee shop, my service might be terrible. At a park, my service might be brilliant," he added. "You can't prove it. What are you supposed to do? Run around the park asking people, 'How's your service? How's your service?'"
Carriers would have to demonstrate to premium customers that their data rate was faster, and it is unclear what the point of comparison would be, Hartley said. All U.S. customers? All customers on a given cell tower? Other customers within a certain radius?
Traffic management of unlimited mobile broadband plans poses too many problems
Even if carriers could find a way to present that data in a way customers would understand -- such as an application that showed premium versus standard performance -- doing so quickly steps into privacy issues, Hartley added.
Telecom consultant Tom Nolle, president of CIMI Corp., said the concept could easily rub net neutrality advocates the wrong way and backfire on carriers looking to undo the damage unlimited mobile broadband plans have done to their bottom lines.
"As long as you have reasonable expectations of decent performance, you as the user are probably going to roll the dice, which means that no one will ever subscribe to anything fast unless their alternative is bad," Nolle said. "But if you do something to make the alternative bad, you immediately collide with regulators."
Meanwhile, carriers are lukewarm about using traffic management alone as a means of increasing wireless ARPU, he added.
"There are really a lot of problems with it, and I think it would be fair to say the equipment vendors have been pressing it more than the service providers have," Nolle said. "The unit cost of capacity is falling, so we're kind of getting to the point where it is very doubtful that any investment made in traffic management would actually profit you anything relative to just building in the capacity."
Unlimited mobile broadband plans here to stay?
Despite the hits wireless ARPU has taken, carriers will be hard pressed to disassemble unlimited mobile broadband plans, said Yankee analyst Felten, who says so-called fast lane options may not be totally unreasonable.
"It's going to be very hard to introduce variable pricing again. I think a premium plan could be more expensive, but just as all-you-can-eat with faster traffic," he said.
"What would be very hard to sell on the market is reintroducing a pay-as-you-go plan," Felten added. "There's no other way out of this. They have to introduce some form of segmentation to make heavy users pay more than casual users."
Let us know what you think about the story; email: Jessica Scarpati, News Writer