There are two goals that have bipartisan support in Washington: increased broadband infrastructure investment and greater broadband adoption. Expanding mobile’s share of the video market can help accomplish both goals and free data is vital to that effort.
In the last five years, video has been the main driver of mobile growth and investment. According to CTIA’s most recent annual survey, the wireless industry spent $152 billion in 2011 through 2015 on capital expenditures. In that period, it added 81.6 million subscribers, 55 thousand cell sites, and migrated its technology from voice-friendly 3G technologies to data-friendly LTE. In 2010, smartphones and tablets constituted only 32 percent of the devices served by the industry, but by 2015 that number had more than doubled to 73 percent. The main reason for all that growth: mobile video.
Between 2010 and 2015, while voice traffic increased by 26 percent and messaging remained flat, data traffic grew by 2374 percent. In other words, the key driver of wireless growth and capital investment over the last five years has been the twenty-four-times increase in data. That, in turn, has been driven by the growth of mobile video which, according to Cisco VNI’s most recent U.S. report, constituted 61 percent of U.S. mobile data traffic in 2015.
Room to grow
There is plenty of room to grow mobile video, which is still a very small piece of both IP traffic as a whole and of the video industry as a whole. In 2015, mobile IP constituted only 2 percent of all U.S. IP traffic, and mobile video constituted only 1.2 percent. Long-form video, in particular, has barely made a dent in mobile IP. In Sandvine’s 2016 Global Internet Phenomena Report: Latin America and North America, which lists the top ten fixed and mobile application by the percentage of peak-time traffic they constitute, the two top fixed applications are Netflix and YouTube, at 33 percent and 17 percent of the traffic respectively. However, on the mobile side, YouTube is the top application at 19 percent and Netflix, which has far more long-form video, is only eighth with 3 percent of the traffic. The applications listed in between generally combine short-form video with other forms of data.
Similarly, mobile video is still a very small player in the overall video universe. Nielsen’s Total Audience Report Q2 2016 shows weekly time spent on various forms of entertainment. The average adult aged 18 or higher spends 32 hours and 32 minutes per week watching either live or DVR time-shifted TV, 1 hour and 49 minutes watching video on a PC, and 24 minutes watching video on a smartphone. Thus, for the average adult, video over a smartphone constitutes 1.2 percent of total video time. Even for adults aged 18 to 24, the age-group most oriented to mobile video, it constitutes only 3.6 percent of their video entertainment.
Of course, different surveys using different demographics show some variation, but the bottom line remains that mobile video still has very small share of the total video market. It is not surprising that media analysts keep wondering when over-the-top video in general and mobile video more specifically will begin to have a meaningful impact on traditional video providers.
A survey conducted by Yahoo in November 2015 explored disincentives to mobile video viewing. The survey participants skewed tech-savvy and young. The participants owned many Internet access devices: 93 percent had smartphones, 77 percent had tablets, and 93 percent had PCs or laptops. Adults aged 18-34 comprised 36 percent of participants. For the average participant, screen size and battery life were the two greatest disincentives to watching mobile video, on either a smartphone or tablet. However, cost of data was also a factor, especially for the millennials–for them it was the third most important deterrent.
The first wireless carrier to encourage viewing of mobile video by offering free data to consumers was T-Mobile with its Binge On service. T-Mobile has said at various analyst conferences that the program which began in 2015 with 24 content providers now has over 100. Consumers who use the program, according to T-Mobile, have doubled the amount of video they watch. Other programs that include free data have followed.
Most recently, AT&T announced DirecTV Now, which provides consumers a choice of various bundles of channels at different price points available for access over any device the user chooses, including mobile. DTV Now offers free data to AT&T mobile customers. In turn, AT&T Wireless makes this sponsored data program available to any content provider on the same terms, enabling each provider to tailor the program to its specific needs and preferences.
The role of free data in mobile video growth
As the Yahoo survey showed, free data is likely to be important to the young. As studies by the Pew Research Center have repeatedly shown, free data is also likely to be important to others. African American and Hispanic households as well as low-income households are more likely than the average U.S. household to rely on smartphones for their Internet connectivity. For those with a low-income, free data has a double benefit. It provides greater access to content on the Internet. And, like any other buy-one get-one-free offer, it reduces the strain on a household budget that is stretched to cover rent, food, healthcare, and other essentials. As a result, it provides an inducement for both broadband adoption and greater use of broadband, once it has been adopted.
Free data, also known as sponsored data or zero-rated data, has found some resistance among those who argue that not all content providers will be able to afford to sponsor data. But there are counterpoints to that argument. First, not all free data programs require payment from the content provider. Second, any promotion that offers free or reduced-price goods could raise that issue. Artisans who create content face the same challenge as those who make food or clothing. Their finances can’t match those of YouTube and Netflix just as the others’ finances can’t match those of General Mills or The Gap. That risk, however, should not override the benefit to consumers and to the economy as a whole.
Given mobile video’s current small share of both IP traffic and video consumption in the U.S., it is the natural engine for wireless broadband growth. Mobile video has already proven to be a key driver of investment in wireless infrastructure. Especially for those consumers who are young or whose income is low, free data makes mobile video appealing. For some who have not yet adopted broadband, it will provide the incentive to do so. The resulting increase in mobile data traffic will accelerate the already high level of investment in wireless networks.
Anna-Maria Kovacs, Ph.D., CFA, is a Visiting Senior Policy Scholar at the Georgetown Center for Business and Public Policy. She has covered the communications industry for more than three decades as a financial analyst and consultant.
