Mobile Broadband: Pricing for Profits

1Executive Summary

Mobile broadband is a cash cow for carriers at the moment, helping them offset losses in their landline business or at least stay afloat. So far this year, AT&T and Verizon have pulled in $14.1 billion in wireless data revenue, which helped boost their respective wireless operating income margins to 23.8 percent and 28.8 percent in the second quarter. However, as more people splurge for data plans, they’re also using them for data-rich applications, leading to the erosion of profits from mobile broadband.

A combination of better pricing plans, higher-quality smartphones, and the rise of applications that encourage wireless Internet consumption made mobile broadband the story for the last few years, but in the coming years, the increase in use is expected to come from connected PC-like devices such as netbooks or laptops using mobile broadband dongles. Chetan Sharma released a paper earlier this month, detailing how subscribers using smartphones, and especially dongles attached to laptops, are driving up data usage, and how that may drive down profits. I wrote about the same issues when I asked what carriers will do when the gravy train derails.

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Cisco estimates that data traffic will grow to 63 times its volume in 2008 by 2013, while a report out from Acision, a company that provides messaging and network management products for operators, estimates that the number of subscriptions will increase only seven-fold between 2008 and 2013. What’s grim for carriers about the Cisco report is that it speculates that mobile broadband users will seek the same type of services that wired broadband users consume. As more people are consuming more mobile data, it’s those who are using the PC-like devices that could cause problems. People tend to use mobile broadband on such devices as if they were using wired connections, which means they expect to use high-bandwidth applications such as streaming HD video.

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  1. I thought that everyone with mobile broadband had a cap and paid overage charges — that ought to take care of it. Another observation I have is that my Verizon broadband speed seems related to location and not to EVDO signal strength. This might indicate backhaul problems from particular cell sites. On the other hand, my city is completely wired for Verizon FIOS, and a Verizon cell site should never be more than a stone’s throw from Verizon fiber. Some places north of Dallas have -70dbm EVDO signal and no throughput.

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