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The Real Reason Wireless Broadband Costs More, for Less

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An article in BusinessWeek today claims that wireless data demand is exceeding capacity, which is causing carriers to limit services and charge higher rates. But that just doesn’t jibe with what carriers — or applications developers — are telling me. The real reason carriers are limiting services and charging more is to maintain control of what people can do on their networks.

Poor network coverage is becoming obvious thanks to rising 3G demand, but that can be fixed with capital upgrades the carriers are already undergoing. In the meantime, according to a panel of carriers at last week’s Mobilize, network operators are still actively encouraging the growth of data use on their networks. In fact, earlier this month I spoke with application developers at DEMO, who said that rather than charging them to put their apps on the network, carriers were trying to pay them to do so, primarily to increase data usage.

Carriers, especially in the U.S., are trying to avoid becoming dumb pipes. Efforts such as limiting P2P on wireless networks and capping data use at 5 GB per month are attempts to keep the barn door shut before the horses run out. It’s too late for broadband access through DSL or cable, but a variety of factors, from limited spectrum to the early nature of 3G, means wireless broadband could stay under carrier control for years to come.  For example, the article quotes a T-Mobile executive that says carriers are encouraging applications that use less bandwidth:

T-Mobile USA, owned by Deutsche Telekom (DT), will demand a higher minimum payment from developers whose paid applications use up more of the carrier’s network capacity. “We’ve aligned a set of incentives for our partners to do what we believe is right for the consumer while being mindful of constraints of the mobile world,” says Ian McKerlich, director of mobile Web and content services at T-Mobile. The carrier will also prohibit developers from offering free applications that use up more than 15MB per user per month.

T-Mobile is only now rolling out a 3G network, so this may be an effort to keep data use in line until the network is fully operational, but it also could allow T-Mobile to offer its own applications that it can control and price. An example of such a carrier-controlled services is texting, which nets operators incredible profits.

Services for music, social networks and photo sharing are other potential gold mines if carriers can figure out how to control their distribution on their networks. Orange may have figured out one way by pricing data costs into its subscription music plans. Data caps and limiting the bandwidth an independent application uses is an easy way to do it. And by doing it now, carriers condition consumers to accept limitations on their wireless broadband. However, offering unlimited wireless broadband might harm a carrier’s bottom line in the long run.

Wireless broadband has limits (and is certainly more expensive when it comes to transferring bits), but the real threat to wireless broadband isn’t that data use will overload the network, but that carriers won’t be able to walk the line between delivering compelling services at a price point that makes them money and keeps users surfing.

15 Responses to “The Real Reason Wireless Broadband Costs More, for Less”

  1. John Thacker

    In fact, earlier this month I spoke with application developers at DEMO, who said that rather than charging them to put their apps on the network, carriers were trying to pay them to do so, primarily to increase data usage.

    I don’t see how this is necessarily a contradiction. Cable companies and other TV broadcasters claim that there’s a limit to TV bandwidth, but rather than charging networks to put their channels on the signal, the carriers pay the networks to do so.

    That there’s a limit to the amount of bandwidth and throughput possible, and that the companies have priced it within that limit so that it’s profitable, are not contradictory.

  2. There really is a limit to how much data the 3G networks can carry — they are inherently limited by the amount of spectrum being used, and the narrow channels dictated by the technologies. That is why the big carriers shelled out big bucks for 700 MHz spectrum: its nationwide, relatively large channels, combined with the promise of LTE, gives Verizon and AT&T the hope for a real wireless data network, someday. The bet now is to keep 3G users either capped or happy and hope that Clearwire and friends don’t lure users away with WiMax’s promised broadband speeds. For users, should be an interesting battle especially if it means real competition for a change.

  3. i have no doubt that the real ‘killer app’ at the end of the day will not be any service tailored for a mobile handset. it will be broadband for laptops over 3G. just about everyone sees it as a fact that they will eventually do away with there cable/DSL in favor of wireless broadband. the question is not if but when. this requires a completely open and unlimited subscription model. the first telco to fully understand and endorse that concept will be the winner. the technical limitations will eventually be sorted out through new exotic codecs, transmission methods, RF techniques and lots more spectrum and towers.

    my bets for now are on clearwire. verizon, AT&T and the others will have a lot of catching up to do fast if they want a piece of the action.


    p.s. an economic slowdown means less subscriptions per person. those with fixed(DSL/cable) and mobile(3G laptop cards/dongles) will be dropping the fixed. thus even more demand on the networks.

  4. Ram Krishnan

    Mobile broadband is actually cheaper than fixed broadband in a lot of European countries (Sweden, Austria, Ireland etc.) and is actually getting cheaper.

    All the operators have quota-based broadband plans which is not something new. The intent is to discourage peer-to-peer users from abusing the network. Verizon Wireless has explicit restrictions on how their laptop users can or cannot use the service. The US has always been one of the most restrictive countries as far as mobile broadband is concerned.

  5. 3G-based wireless is going to be a dead end in the long run. There’s only so much bandwidth available, period. Slicing it up into tiny time segments and doling it out on a first-come/first-serve basis won’t work for long. Battery life on wireless devices, while going up, has caps as well. But the long term problem is more users + fixed bandwidth space = trouble.

    When I jumped on Voicestream’s GPRS network way back in the day, I would have no doubt that I was one of the only users in Chicago using it right away. Before that, I was using some ultra-expensive GPRS provider whose name I can’t remember and who went out of business shortly after 9/11 (after trying to charge me $7000 for using my “unlimited national” GPRS during the 9/11 shutdown of the airports). Even back then, it was obvious that there wouldn’t be enough bandwidth overall to support the users that would eventually jump on the network.

    3G isn’t making it any better. So called cloud or hive networks aren’t going to help. GPS’s with 3G, iPhones, and notebooks are jumping on the cell networks at record pace, surely. How are they going to handle doling out bandwidth when there might be hundreds of users on just on tower, competing with cell calls, VoIP over 3G, etc?

    It ain’t going to happen. Overuse and abuse will happen. When my Comcast cable went out at one of my offices, I plugged in my iMate Ultimate 6150 (AT&T 3G) to the network and let my employees work that way. I can’t imagine how much data 6 users might have used in 3 business days before restoring the Comcast network. It’s an ugly topic.

    I do believe that the providers can, and should, sell the bandwidth based on the user’s location and demand for bandwidth in the particular area the user is in. Developing software that would let the user monitor the going rate for data transmission real time is not difficult to develop at all. Until we get the jackboot thugs at the FCC to open up more bandwidth in general, we’re going to hit walls with 3G and all mobile technology (except maybe the femtocell stuff). WiFi doesn’t handle massive congestion of other routers well, and I don’t put my hope to any other wireless technologies out there.

    I’ve been with T-Mobile since the day Voicestream hit Chicago, and they’ve promised 3G for years — too many years. We’re still with them for our voice minutes, but I use AT&T for the 3G service which works surprisingly well and I even get HSDPA speeds in many locations. My primary vehicle has an HSDPA/WiFi router 24/7 so clients and employees can go nuts while being driven to meetings, etc. But I do see speed drops consistently, especially during busy lunch breaks in Chicago proper or the 4pm rush to get work done.

    In my opinion, mobile wireless is going to be hamstrung by the FCC, primarily, and by monopolization by the Big Three secondly. I’m taking advantage of it while I can, while looking at other realistic options. Currently my PDA phone jumps on FON routers first, open WiFi routers second, and 3G third. It’s a bit of a PITA, but it works decently. Battery life sucks, though.

  6. @Stacey,

    I’m personally at a loss as to why developers are going the way of dedicated applications. Services which work in the cloud support the efforts of the carriers to push their data services, lower the capacity burden placed on their own servers, and provide developers a bigger footprint based on mobile browser support.

    Why take on the overhead of this approach???

    Best regards,