It’s coming: The emergence of second-class mobile citizens

Your bits may travel by coach.

Your bits may travel by coach.

Carriers in the U.S., Europe and Japan are building out LTE networks to deliver faster mobile data connectivity in droves. According to the GSM Association there are 1 million LTE connections today and there will be 300 million by 2015. These networks are heralded as good enough for watching movies, video chat and even as a transmission medium for television news! But marketing is beginning to meet reality as people realize that their blinding fast connections come with a catch–a data cap.

But carriers are preparing ways to change their pricing to charge by applications or services. And as they do, consumers will lose — namely because carriers will offer a variety of their own services that could strangle the quality of anything one might consider over-the-top.

Caps are crap, and operators know it.

Some folks see the caps and think that the speed with which someone hits the cap makes 4G service pointless — a recent report by Public Knowledge likens 4G data plans to “magic beans” and shows how someone hits the 2GB data cap imposed by AT&T (which currently doesn’t have an LTE network, only an HSPA+ network it markets as being 4G) in less than an hour of continued use. The more technically savvy point out that even without the caps LTE isn’t really a great solution for delivering the HD video that mobile operators like to show off as hall marks of their service.

Source: Public Knowledge

Operators aren’t dumb, and are testing products to reach their end goal — charging folks not for buckets of data, but for services. So a consumer might buy a data package as well as a video chat package for $5 more a month. Shubh Agarwal, VP of Marketing for Mavenir Systems (see disclosure), says that carriers believe that the transition to LTE is really their last chance to avoid becoming a dumb pipe delivering data. Mavenir sells gear to telecommunications providers that delivers quality assured video chat, presence and other services.

The tools for changing the pricing paradigm are here.

He says carriers like his company’s gear because it allows them to control the quality of the customer experience for high-bandwidth consuming services such as video chat. As an example, because the carrier knows how many people are trying to video chat at a single tower, it can lower the quality on the calls to ensure everyone has some connection. An over the top service on the other hand may just refuse to work. Or as explained in this blog post from Allot Communications on the Mythbusting: Top Three Misconceptions about LTE:

Mobile data charging is a pickle for most operators. When offered quota-based plans, subscribers react with confusion (not at the least alleviated by data plan calculators and other visualization aids). Frustration comes next, when they are offered ‘unlimited’ data plans, but those are too slow or get throttled. Selling bits and bytes simply doesn’t cut it anymore. Strand Consult is already predicting pricing model failure, suggesting that “any operators that believe they can increase prices by [simply] introducing LTE are in our opinion naïve.”

Forget about a Facebook phone, what about a Facebook broadband plan?

Allot goes on to suggest what will emerge is a quality of experience metric for showcasing how content looks on various networks as a means of differentiating between them and thus making one more “valuable” than others. So instead of call quality or “fewer dropped calls” networks might advertise their video quality, with those buying the carrier’s service getting the best-quality picture. It also suggests that carriers will charge by applications.

So while most operators implement tiered plans or claw back benefits consumers enjoyed under unlimited plans, there’s a bigger game at play.

Charging for services creates a mobile broadband class system

This week Sandvine, a maker of deep packet inspection and ISP billing gear, released software for mobile operators that can track every bit and bill for it appropriately through custom plans. From its release on the update to its software:

Additionally, the new release allows operators to create a virtually unlimited number of service plan offerings, by enabling operators to differentiate the service plans using combinations of application, location, device awareness, access technology, and volume or time metrics.

The net neutrality debate will never die.

The tools are there and operators will deploy them. So what does that mean for consumers? When it comes to services such as video chat, Tango, Skype or others aren’t going away just because a carrier might use Mavenir’s gear to offer its own branded service which delivers a higher quality of experience. When the FCC implemented its network neutrality rulesit said operators can’t discriminate against over the top services in the video and voice space but it also said problems would be dealt with on a case-by-case basis. But as carriers charge users for services, it creates the potential for carriers to optimize their pipes for their own services and leave a smaller section of bandwidth available for over-the-top services.

This debate was brought up and then ignored in the debates over wireline network neutrality and it’s likely that regulators will shy away from trying to control how operators control their pipes or what types of services they can offer. Which then means that for consumers that don’t want to pay a la carte for carrier-supported products when there’s an existing OTT option, may only have the threat of competition from other mobile broadband providers to keep their mobile broadband provider honest. Which is yet another reason AT&T swallowing T-Mobile could be bad for consumers.

Mavenir is backed by Alloy Ventures, an investor in GigaOM’s parent company, GigaOmni Media.

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