It is estimated that in four years, we will be consuming an exabyte (1 billion gigabytes) per month of data on mobile broadband networks. Affordable, data-centric devices along with mobile broadband air cards, netbooks and USB modems have jumpstarted a culture of mobility, creating a welcome reliance on mobile data services.
To put this new demand into perspective, industry estimates compare data consumption from a single smartphone to approximately 30 feature phones; and one wireless/tethered laptop or netbook to the equivalent data consumption of 450 feature phones. These comparisons lead us to the issue of data overload, now a major concern to mobile operators around the world.
Demand is accelerating so quickly that operators may need to revisit some of their underlying assumptions about growth models if they want to survive and thrive in this new environment.
The broadband Internet has taught the world some bad habits. In particular, the overwhelming assumption that content is free “at the point of consumption” has already put content and network providers in a serious bind. Most consumers falsely assume that ad-supported business models successfully cover the online cost of content production.
In the mobile world, the same assumptions are leading to the same mistakes, the results of which could be extremely damaging for network operators. Conservative estimates say that 75 percent of all mobile traffic will be video within a couple of years. If services like YouTube and Hulu become the primary beneficiaries of this traffic, they will leave a trail of crippled network operators, cable companies and telcos in their wake, while barely making profits themselves. In this environment, no one wins.
Activists may argue that the consumer wins, but that is a short-term view. Quality content and quality content delivery require money and resources upfront. Over time, a struggling, unprofitable ecosystem will topple over and produce a poor and unreliable user experience.
So the question remains, who should pay for mobile broadband?
Today we have three clear candidates: carriers, content providers and consumers. The prevailing assumption is that carriers will be the ones to swallow the cost, and today they are. I believe that investments in LTE and 4G networks will to some extent temporarily alleviate the bandwidth crunch, but next-generation hardware is not the silver bullet. With data traffic surging, consumers enjoy a largely competitive market where carriers are too afraid of churn and price elasticity to raise fees.
Content providers in an open network today are generally not required to share the costs related to mobile broadband infrastructure. The FCC’s recent pronouncements on net neutrality were generally met with a collective lack of enthusiasm by carriers. Many carriers responded by stating that net neutrality is a good idea in principle, but further noted that “wireless” services have a different cost basis than fixed/wireline Internet services, so caution around over-legislating should be respected.
In the past, carriers have looked at their network assets and associated traffic as a cost center, and focused on measuring and then optimizing it. But these market dynamics do not allow them to use their network assets to generate revenue commensurate with the value created.
It is human nature to resist paying for something that one previously received for free. Revolutions have started for less. So maybe therein lies the solution. Perhaps carriers need to consider selling (or trading) something of value to content providers and consumers that they are not currently offering. The two most precious things that carriers have to trade upon are their vast, customizable networks and the insights they have that are based on their customer relationships.
Carriers have a great deal of value that they could leverage with some of the largest content providers. Through mobile analytics, carriers can leverage anonymous click-stream and demographic data to provide behavioral insights that can help content providers better target their offerings to the most relevant users. The combination of a mobile carrier’s analytics results and the crawling and indexing technology of search providers may set off a powerful chain reaction: Relevant search results improve the user search experience, which drives additional traffic and click-through rates for content providers and search engines.
For video providers in particular, carriers can provide video compression and acceleration to improve the user experience. Carriers are also device and context-aware and can adapt content for an improved user experience.
Thankfully, the debate on who should pay for mobile broadband is starting to gather more attention. It needs to. Carriers are already struggling with the increase in data usage and it is only going to become more challenging moving forward. Carriers and content providers are all part of a common ecosystem with a singular goal: Provide the right content and information to the right people. Fairness dictates that the various players in the ecosystem work together to find solutions to the challenges that face the industry. In order to get there, we are going to need collaboration and creativity to allow all parties to benefit from the unprecedented wave of mobile data demand. And as always, leaders must step forward to initiate the collaboration and creativity. Keep watching this space.
Ken Denman is CEO of Openwave Systems.