Could this be a sign that data is actually starting to pay for itself? Sprint Nextel, the third largest mobile operator in the USA,Â has reportedÂ that its customers are spending more on data plans than they did a year ago. In fact, the average monthly customer bill was up 6.6 per cent to $59.98. The rise, it seems, came from smartphone data plans.
Of course, it is probably too early to start shouting from the rooftops, but the trend is positive and it seems customers are willing to pay a fair price for data services if they perceive they are getting good quality access and value for money, even if the plans are capped or tiered.
The question now is whether the increased revenues can be converted to increased profits. Sprintâ€™s 4G offering will continue to be based on Clearwireâ€™s Wi-Max network until itâ€™s own 4G LTE network launches in six markets mid-year. Encouraging people to move either 4G platform from the 3G network is paramount in reducing the heavy traffic loads caused mainly by the 3G only iPhone.
As a result of Sprintâ€™s unlimited wholesale agreement with Clearwire, the company has more flexibility and willingness to offload its traffic to Wi-Max and continue to offer unlimited data plans to its customers, but how long that will last is anybodyâ€™s guess.
AT&T and Verizon are also reporting higher data earnings but over at AT&T, 41.2 million smartphones are wreaking the expectable havoc. Reports out state that AT&T is seeing a massive increase in data traffic without a corresponding jump in data revenue. AT&T had added a net total of 10 million new smartphones in the past year alone, and the devices now account for nearly 60 per cent of its postpaid subscriber base. Wireless data revenue is tracking about $24 billion per year, growing at a steady rate of more than 20 percent per year.
But AT&T also pointed out previously that data traffic on its mobile networks is actuallyÂ doubling each year. So that means a 100 per cent annual increase in data traffic is being driven by a mere 32 per cent increase in smartphones. This a frightening mismatch, at least in percentage terms. Let me recap, a 32 per cent increase in smartphone customers increases traffic by 100 per cent but revenues are only growing by 20 per cent.
Of course, we do not know the cost structure AT&T works to, and they may not have a clear indication themselves, at least until annual profit or loss figures come out. This raises the issue that must be plaguing all CEOs of mobile networks. What is the exact cost structure for data and can it be extrapolated accurately into a cost per megabyte or gigabyte being delivered? Surely this is essential in determining wholesale and retail prices, and critical in determining how to structure any capped or tiered data plans.
Of course, there are a myriad of other factors that affect market price, not the least being competitive forces. However, any business projections that require continuous capital investment to soup up the data network, plus the cost of extra spectrum, backhaul, internet peering and interconnect should have a base cost to work to. Without this we could simply be sinking good money after bad in the faint hope that data revenues will be optimized at some stage to cover costs and return a reasonable profit.
Maybe â€˜The Insiderâ€™ could be way off the mark here. Just because his sources could not quote â€˜cost per megabyte/gigabyteâ€™ figures or even confirm their existence, does not mean they donâ€™t exist. Different businesses may be using different metrics to reach the same result. Â Hopefully this is the case but the â€˜data tsunamiâ€™ has hit with such speed and with such vengeance, one wonders if anyone has had any time to think about anything else but providing more and more capacity, whatever the cost.
Itâ€™s a worry when journalists such asÂ Kevin Fitchard from GiGaOM write, â€œThe per-megabyte cost we pay for mobile data has actually fallen considerably in the past few years, but we wouldnâ€™t know that by looking at our bills. If carriers from the beginning had set reasonable tiers that actually reflected how customers consumed data, operators could have gradually lowered prices as their networks became more efficient. Itâ€™s probably a stretch to say they would have come off as heroes, but their mobile data policies probably wouldnâ€™t be vilified the way they are today.â€
Kevin may be way off the mark, but if thatâ€™s what the public thinks then we, as an industry, may have to become a lot more transparent in future.
First published at TM Forum as The Insider, 26 April 2012