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Summary:

Smartphone users are consuming 89 percent more data than they did last year, but the cost per megabyte has dropped to 8 cents. But these stats miss the subtle economics of running a network, and aren’t caught up with pricing changes hitting the mobile ecosystem.

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On average, smartphone users are consuming 89 percent more data than they did a year ago, but the cost paid per megabyte has dropped nearly half, to 8 cents, according to data out this morning from Nielsen. The stats company has provided a blog post detailing how those using data plans have really embraced the mobile broadband lifestyle; those already using the most data have increased their usage by 109 percent. The blog post paints this as worrisome, noting that only 37 percent of U.S. subscribers have a smartphone, which means the likelihood of the usage continuing to rise is pretty high, even as the costs (and revenue for the carriers) fall.

However, the folks at Nielsen may be missing a few subtle details in the economics of running a network, and its data may not have yet caught up with pricing changes filtering through the mobile ecosystem. For example, the last time it released this data, AT&T had just changed its pricing to eliminate the unlimited plan for its iPhone and other smartphones, which means iPhone users may have started using less data on the network as they worried about overshooting their caps. The Nielsen data tracking iPhone data usage shows a nominal slowing in the percent of growth, but in that same time frame, Verizon released the iPhone with unlimited data pricing, making a correlation hard to draw.

However, this summer Verizon has promised to change the way it charges for mobile data pricing, suggesting some type of tiered plan is in the works. Thus, in another year, we may see the cost per MB rise and data usage to slow. What happens to the data tsunami in that scenario? Does it peter out to become a normal and predictable wave? If so, then we get to the subtleties of network economics that operators don’t want to talk about.

A lot of traffic isn’t always a problem; in fact, it’s a nice way to ensure the network capacity, which is a fixed investment, is used and ultimately paid for. The real problem is peak traffic, because that’s where congestion sets in. It’s during rush hour when everyone on your train is trying to commute home and watch YouTube clips. Thus, as a recent report from Strategy Analytics pointed out, operators might not have the crisis on their hands that they think they have. The report noted that while overall traffic was increasing, building out the network infrastructure to manage peak traffic wouldn’t cost operators more as a percentage of revenue than it does today.

Additionally, if operators really want to limit peak traffic, they have an incredible tool at their disposal in the form of congestion pricing — or charging people more based on the time of day as opposed to the total number of megabytes consumed. This isn’t something carriers want to do, as charging per MB controls consumption and means every bit that transfers across their networks generates the most profits. Wall Street will like this, but consumers — and even app developers — may not (GigaOM Pro report; subscription required).

So while Nielsen’s data so far looks good for consumers, carriers and app developers, we may see the picture shift in six months or a year as carriers move to adjust their pricing and we possibly see one less player in the mobile ecosystem as AT&T gobbles up T-Mobile. I wonder if the prices indicated in the chart below will continue to go down. I hope so.

  1. The Data consumption Graph at the bottom of the post seems out-of wack. $.08 /MB = $80 /GB, or $240/mo for 3GB. AT&T plans are $30 for 3GB, or $0.01 / MB.
    I am I missing something?

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    1. My guess is that some people are on higher priced plans, such as the 200 MB plan or other. more expensive options from different carriers.

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  2. hi Stacey!

    200MB is entry level plan for ATT. It cost $25/mon = $0.125 /MB

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  3. the graph shows total data charge / data consumption
    means people don’t use what they pay for, much less. more money for carriers

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  4. Stacey-

    While we don’t disagree that carriers are taking action to curb growth in data, I disagree with your assertion that the problem has been solved, or that the economics have changed drastically.

    Tiered pricing alone can’t and won’t solve the problem. Many of the heaviest users (myself included) have either kept their unlimited plans or chosen unlimited carriers. Tiered pricing has been extremely effective in bringing new consumers into the space, but less effective in terms of converting existing smartphone subscribers (who also tend to be the heaviest users). Add tablets and other video-friendly devices to the mix and managing data consumption remains a challenge for the carriers well into the foreseeable future.

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