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Summary:

The cost of delivering a gigabyte of data will surpass the cost carriers receive for said gigabyte some time in early 2013, according to a chart provided by telecommunications gear vendor Tellabs.

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The cost of delivering a gigabyte of data will surpass the cost carriers receive for said gigabyte some time in early 2013, according telecommunications gear vendor Tellabs. The chart below, which is one of many awesome data points in a paper advocating more lenient spectrum policy, shows how the 2010 revenue a carrier received from delivering a gigabyte was nearly $25, and will drop to about $5 by 2015.

This might be cause for joy for consumers, if the same chart didn’t show the cost of delivering a gigabyte falling from around $20 to about $7 or $8 in that same time frame. That falloff will put carriers in the red, and explains their insistence that the demand for mobile data will bankrupt them without new pricing models. Of course, Tellabs has a stake in carriers making bank, since it sells them gear.

The paper, by economist Thomas Hazlatt, a professor at George Mason University and managing partner at Arlington Economics LLC, argues that making spectrum easier for operators to come will help them meet demand for mobile services. It also says that looser spectrum policy could enable new businesses to form and use the spectrum for alternative mobile services. The paper is worth reading for those interested in spectrum policy. As for the rest of y’all, the chart above sums up what most people will need to know.

  1. Wouldn’t a more lenient spectrum policy drive OPEX and CAPEX down? The larger problem appears to be the revenue per GB. How does spectrum policy affect that? Why is revenue dropping so precipitously?

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  2. Dimitris Mavrakis Tuesday, October 4, 2011

    Hi Stacey,
    the claims of this article are naive. Carriers are well aware that this is coming and are using several ways to increase profitability of mobile data. For example, carriers are using yield management (maximize revenue and profit from a fixed medium), for example with mid- and low-tier Android devices that come with a data plan attached.

    Unless I am mistaken, the Tellabs study is this:
    http://www.tellabs.com/news/2011/index.cfm/nr/142.cfm
    Which is severely flawed. For example CAPEX is not depreciated over an extended period and also OPEX is a fraction of CAPEX (but in reality it’s the other way around).

    There are also so many parameters not included, for example network sharing, infrastructure pricing erosion due to competition, WiFi offload and several others.

    The point is that carriers make close to $700bn with a profit margin of more than 30% in total (2010, Informa estimates).

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    1. I laid out my thought process in posting this below. I appreciate you bringing more clarity to your disagreement with the numbers used ( I suspected this would be contentious) and it sounds like your arguements also fall in line with the ones I discussed in this post here: http://gigaom.com/broadband/analyst-tells-operators-to-quit-whining-about-the-mobile-tsunami/

      Sounds like it’s time for me to go much deeper into the cost models and assumptions in a new post.

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      1. Dimitris Mavrakis Wednesday, October 5, 2011

        Stacey, apologies for the previous comment – it’s badly written.

        In any case, the reality in most cases is somewhere in between.

        Operators are not going to go bankrupt from data demand but growing traffic (especially video) on mobile is a threat and a challenge for healthy networks.

        Happy to discuss further.

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  3. Why on earth would you assume that MNO’s would let the cost to consumers fall below the cost to deliver? Who’s holding a gun to the MNO collective heads to give data away? ***No-One***, that’s who. Just because bananas may cost a bit less to produce next year, doesn’t mean you’ll get them for free. What a total made-up nonsense speculation/extrapolation of a graph, and Stacey, why did you fall for it in the first line of the article?. Yeesh.

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    1. I doubt that carriers would allow their costs to exceed their sales. I shared this because I thought it was a good way to share something that many people aren’t always thinking about when they talk about mobile data pricing — the cost of delivering that data. While, I expect many to quibble with the numbers Tellabs has, I also think it’s a very clear way of pointing out that wireless costs money to deliver and carriers must make up those costs.

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      1. i think what you are trying to tell is that this smartphone my not be entirely good for the telecoms.

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  4. Mabel Sanderson Tuesday, October 4, 2011

    Hazlett is a long time AT&T-funded rent-a-PhD. The per GB estimates in here are way higher than reality. You should exercise a little more skepticism here.

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  5. feels fake, those predictions

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  6. LOL, please look at Northern Europe = Very high mobile broadband traffic, Lower consumer broadband price, small density and high build-up cost and last time I check very happy mobile operators. All this spectrum shortage is non sense. “Data stop been profitable” reminds me when the internet was suppose to collapse because of bandwidth shortage.

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  7. It’s great to see such a debate going on about our study. Our model was reviewed and verified by an independent analyst firm, but of course, each operator has a very different set of circumstances and a very different infrastructure. Our model is based on market data that has been generalized to give an average for each region. We’re not saying that all operators will begin being unprofitable a specific date. But if they continue to invest in the same way, they will be operationally unprofitable in the next investment cycle.

    We’ve seen a healthy debate about the study since we released it at MWC earlier this year. We’re happy to discuss the model in more detail. Please contact me at prnews@tellabs.com.

    Thanks,
    Sonny Waheed
    Senior Manager, Communications
    Tellabs
    prnews@tellabs.com
    @tellabsinc

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  8. Where does this $Rev/GB curve come from? Why would the major carriers ever price themselves to lose $$$? Unless, of course, some of their competitors have a better cost structure and so can afford the lower price. So for individual carriers, that curve may be true and would be a wake-up call for trying reduce their cost structure. Industry wide, this curve does not make sense at all.

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  9. Gladson M. Russo, PMP Tuesday, October 4, 2011

    The market is already aware that the business model around data needs to change. This is valid either for mobile or wireline CSPs. It’s not sustainable anymore having all-you-can-eat unlimited data plans as being the prime mode. The CSPs were the one’s creating this culture of “unlimited” data resources… Now the market needs to be adjusted again to the reality: Data bandwidth is a limited resource, such as eletricity, water, or food.

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  10. Rodrigo Salas-Pombo Prieto-Puga Wednesday, October 5, 2011

    Yeah!!!, I really think that mankind needs more time to travel from New York to Paris now than in the 1800′s. Everybody knows that,as time goes by, we do things worse, more expensive and slower. And also, everybody knows that companies don’t work for profit. I really doubt that the technology won’t be better, faster and cheaper by that time.

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