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How the LTE iPhone 5 will make mobile data cheaper

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After taking a pass with the iPhone 4S, Apple(s aapl) has finally welcomed LTE into its smartphone family. That means faster download and upload speeds to the iconic device, but the implications of a 4G iPhone on the wireless industry and on consumers are much greater than mere speed.

LTE isn’t just a faster technology, it’s a more efficient technology – carriers can pack a lot more bandwidth into any given chunk of spectrum with LTE than they can with older generation technologies. While many of you will laugh at this next statement, the large-scale adoption of LTE will make mobile data cheaper. It won’t happen immediately, and yes, most carriers will resist lowering prices with every fiber of their being, but it will happen. That’s simply the way competition works.

By 2013 we’ll have four nationwide carriers with LTE networks. Given all four LTE networks will have the same ingrained data-delivery efficiencies, it’s only a matter of time before one uses that advantage to start slashing per-gigabyte rates, thus setting off a price war. The carriers may not be saints, but they’re not idiots either. If they can halve their data plan pricing and still make a profit, they will – they just need competitive pressure to help that decision along.

Furthermore, the move from 3G to LTE isn’t a one-time bonus. LTE will beget LTE-Advanced. LTE-Advanced will beget new network topologies like small cells and heterogeneous networks (HetNets) all aimed at pumping gobs of cheap localized capacity into the network. The industry will add more parallel antennas to devices and towers, carriers will design their systems so phones can connect to multiple towers, even multiple networks simultaneously, and interference coordination technology will allow cells to be grouped together in huge clusters without canceling out each others’ signals.

With each new 4G iteration, networks will enjoy accompanying boost in capacity and efficiency. The costs of planning and deploying these networks will be enormous, but so will then increase in bandwidth available to any given subscriber. The same operational cost that goes into delivering a gigabyte of data today will deliver 10 GBs in the next few years. Ten years down the road 100 GBs could be delivered for the same price.

Why Apple is critical to this transformation

Without Apple embracing LTE that shift to cheaper mobile data isn’t going happen. Yes, LTE networks have started popping up all over the world without Apple’s help, but carriers can’t realize their operational efficiencies until they move the majority of their traffic and devices onto those new 4G networks.

The iPhone’s data hunger is ravenous. Network optimization and analytics firm Arieso estimates that the introduction of each new generation of iPhone produces a 40 percent increase in traffic over a carrier’s mobile network. If the iPhone 5’s data deluge doesn’t hit a new LTE network, it doesn’t just evaporate — it floods onto carriers’ 3G networks.

By placing even more burden on 3G, carriers would be forced to keep investing in them their legacy networks. Instead of plowing their billions of investment dollars into 4G networks, they would have to add more 3G capacity and devote more spectrum to maintaining older technologies. And once those investments are made, they’re sunk. Any megahertz devoted to 3G is going to remain 3G for the foreseeable future.

In Europe and other regions of the world behind the mobile broadband curve, a sans-LTE iPhone lessens the urgency to deploy the newest network technologies. If your single best selling smartphone model for the next nine months doesn’t support 4G, why should you? Android(s goog) handset makers like Samsung should be lauded for their efforts in propping up the LTE ecosystem, but Apple was the missing, critical strut. (For a more detailed analysis of Apple’s impact on LTE check out my GigaOM Pro report on the topic, though a subscription is required).

If Apple failed to produce a 4G iPhone, LTE’s progress – and the progression toward cheaper data – would have been hindered, not just for another twelve months but possibly several years. What radios the in the iPhone includes have a big impact on CTOs’ network decisions and CFOs capital investment decisions for the next year. The wireless industry isn’t the internet industry. These are big iron deployments we’re talking about, and those decisions have long-term consequences.

It’s going to get worse before it gets better

Unfortunately, carriers have taken advantage of transition from 3G to 4G to pull some pricing shenanigans. Verizon(s vz)(s vod) and AT&T(s t) both recently launched shared data plans, which lets their customers pool their devices into a single plan (a good thing), but also forces customers to double down on the voice and SMS services they’ve long been abandoning (a bad thing).

Wireless Intelligence’s global breakdown of LTE subscribers

In Europe, there are indications that carriers will charge a premium for LTE access following the logic that faster connection speeds demand higher rates. It looks like carriers are milking their new investments for all they are worth, which is hardly surprising to many observers of the mobile industry. But I don’t think any of these business models are sustainable in the long-term.

It won’t be AT&T or Verizon, but we have two other nationwide operators in the US with plenty of initiative. Sprint(s s) has already extended its unlimited smartphone data plans to LTE where its customers can do far more damage than over its old CDMA networks. T-Mobile hasn’t yet released its pricing plans for LTE, but you can bet it will either match or discount the already cheap buckets of HSPA+ data it offers today (while T-Mobile didn’t get the iPhone today, it’s inevitable it will land the device). At that point we can leave it up to the market to do its work.

19 Responses to “How the LTE iPhone 5 will make mobile data cheaper”

  1. Commenters in this thread are scoffing at the notion of cheaper data pricing but I think we’re already seeing it – just not directly from the big 4. The article below details how Sprint has allowed one of its MVOs (Ting) access to its LTE network. Ting In turn is offering much better pricing and flexibility than the big 4 with that access. As the article details, Sprint is the most aggressive of the big carriers in allowing MVOs to flourish using their networks but both AT&T and T-Mo play this game as well; if Sprints granted access to the LTE network this early in the network’s activation to one of their MVOs, it doesn’t seem likely that they’d withhold it from the others.

    Tying into this article, more and more of the MVOs are gaining access to the iPhone whether it be selling it traditionally out of contract or via a BYOD sim card so it only stands to reason their going to be upping the level of competition as it ties to the iPhone and LTE. More people are being educated about the benefits of MVOs and more and more used but recent generation iPhones are being put on the market which opens the door for users to utilize them as customers on the MVOs via sim cards without the downside of having to pay for an unsubsidized device. Personally, I’m going to finally getting my wife away from Android by handing down my iPhone 4 after I get my 5; she’ll be using it on AT&T’s network with unlimited talk, text, and data for $45 per month using a sim card through Simple Talk.

    It’s only a matter of time before the big 4 start to feel that pressure and, as the article says, it’s just gonna take one of them to head that direction before the others are forced to as well. I find it very exciting!

  2. RaptorOO7

    First pigs are very smart, and equating the carriers with pigs is a good analogy. Carriers know that with LTE, consumers will get used to the faster speeds especially as they move to cut back on 3G devices and push consumers to 4G LTE devices. This will inevitably lead to more data consumption and more profit for the carriers.

    Now when have we (in the US) ever seen a carrier reduce the cost of data (or anything for that matter), and just because Apple deemed us fit for LTE on the new iPhone does not mean data costs will get cheaper for consumers.

    The cost for LTE infrastructure to purchase, install and support let alone cover a specific geography is far cheaper than 3G. Given those facts have you seen the carriers drop their prices, NO! What we have seen is the carriers tie carrots to try and motivate consumers to get off the unlimited data plans (Verizon) by saying pay full retail ($649-849 iPhone 5) or take the subsidized price ($199-399) and take our Share Everything plan.

    We will not see lower data prices just because the iPhone supports LTE, we will in fact see the same or higher data costs from the carriers. They are like pigs, eat and eat and eat.

  3. One of the biggest reasons why mobile broadband pricing went down in Europe was 3. They would enter a market (UK, Italy, Sweden) and just lower the pricing. For example, you can get 15GB in 3 UK for roughly 17 UK pounds. Try getting that here in the US. Unfortunately, they don’t have any plans to roll out LTE network – for that matter, very few European operators will roll out LTE aggressively like the US counterparts. Without these aggressive carriers, I don’t see LTE pricing coming down a lot in the near future.

  4. People will just download more stuff on their phones which means your data plan won’t get any cheaper in the long run.

    Here’s your rule of thumb for energy efficiency. The more efficient sht is the more we use it.

    Got a Prius? Drive it twice as much as you drove your old car because your cost per mile for gas is so much cheaper.

    Got compact fluorescent lightbulbs? Don’t bother turning them off when you leave a room because they are so efficient. Net result is you leave them on 5x as long as you did when you had incadescent bulbs.

    Got LTE? Now you Facetime in HD while sitting on a bench in Central park. and send your deep sea fishing trip video to your Mom before you get off the boat. And you think nothing of watching the big game on ESPN3 while waiting for your kid to warm up with his team at the local soccer field.

    • Kevin Fitchard

      I’m not sure I see your point, Trip1ex, Of course, I’m talking about the per-GB cost of mobile data going down, and I say so in the post. You’re right the amount people pay each month will probably stay the same because they’re adjusting their usage to what they can afford, but that’s hardly a bad thing.

  5. DocSyncNet

    Yes, bandwidth consumption will go up on LTE networks as watching that YouTube video is just going to be more enjoyable on LTE than on 3G networks. So for a while users will be in shock to see their bills go up. At that point Carriers may not have a choice but to revised their LTE plans to offer lower per GB price. However, operators will end up with higher revenue per customer in the end with LTE. This is what a duopoly does and we as users have fewer and fewer choices not just for wireless but also for broadband. Is anyone at FCC watching this market?

  6. Orcas Island TV

    Yes. Carriers are pigs. Pigs don’t end up with the bulk of the admiration nor commitment from the public. Some carrier will come out looking like Apple or Amazon does in the tech space, but in the carrier space. There’s hints that Sprint or T-Mobile might fit the bill.

    Imagine how users would invest in T-Mobile or Sprint if they felt their payment into the company produced faster and better networks, instead of just higher returns to large size investors.

    Apple and Amazon are demonstrating that making the products and services customer want is the way to a more valuable company.

    The ATT/Verizon way – jack the prices up as high as possible and ‘innovate’ by double-charging, cross-charging, inverted charging * 10/pi, where pi is the ‘goodness’ they offer, *is not going to work*.

    When the upstart carrier goes after building faster and faster networks, and busts out to support hardware and apps – they’ll own the minds and more importantly the hearts of users.

  7. I doubt its gonna get cheaper. Especially here in the US. There is absolutely no price competition. Why are Carriers allowed to profit over 95% or greater on a sms? If there was competition sms’s would be dirt cheap but it is not. Unless new entrants into the market, Like Google Fibre, complete changes the landscape nothing is gonna happen. At&T and Verizon will compete a little and T-Mo and Sprint will compete a little. Thats about it.

      • Kevin Fitchard

        Well, you’re both right. The iPhone 5 (AT&T version) is compatible with 1700/2100 MHz for LTE, but not for HSPA+ (the 2100 MHz listed is for European 3G). So T-Mobile current AWS HSPA+ networks don’t work with the iPhone, though its future PCS HSPA+ will. Since AT&T and Canada are both using AWS for LTE, the iPhone will be compatible with T-Mobile’s LTE as well.

  8. Mark Kelley

    Kevin – totally agree that LTE will providing the forcing function to reduce the entire bandwidth delivery chain (particularly Backhaull) such that cost to deliver a GByte to mobile terminal device below $1 in the future. Competition will drive consumer prices down and deployment, RAN and backhaul reductions will permit service providers to remain profitable. This may require significantly more network sharing and other strategies that have, to date, been resisted.