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2013: The year mobile data stops being profitable

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 (s tlab). 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.

16 Responses to “2013: The year mobile data stops being profitable”

  1. Rajeev Gambhir

    The cost per GB already factors technology advancements as reflected in the dropping curve. To maintain profitability, CSPs have to maintain a healthy Rev per GB. The question then would be, with rising usage does the user end paying a higher percent of their income on Access,and do we need to factor this in the various projections of future data usage growth.

  2. Harry Sampson IV

    The problem is finding a proper balance between profitability for the companies and feasibility for any consumers other than the rich to afford the data plans. The more restrictive companies become on data plans, the less users can afford smartphones. The key to profitability for the companies is to do what they think is the WRONG course of action, aka make it so more people can afford the plans, by maybe making plans a bit more expensive, but have higher data caps.

  3. Rodrigo Salas-Pombo Prieto-Puga

    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.

  4. Gladson M. Russo, PMP

    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.

  5. 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.

  6. heathervana

    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 [email protected].

    Thanks,
    Sonny Waheed
    Senior Manager, Communications
    Tellabs
    [email protected]
    @tellabsinc

  7. 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.

  8. Mabel Sanderson

    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.

  9. Mike Stead

    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.

    • 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.

  10. Dimitris Mavrakis

    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).

  11. 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?