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Flat-Rate Mobile Broadband Pricing Is Dead, Thanks to YouTube and Apple

Wednesday, February 10, 2010

It's no secret that video consumption is driving the projected increase in both mobile and wired broadband. Unfortunately, this proliferation of video is creating a major problem for mobile operators. As strange as is sounds, consumers will soon find trouble accessing video with ease. Mobile operators have long faced traffic congestion thanks to forces such as the growth of P2P traffic and the widespread availability of video (and recently high-quality video) in a variety formats that the average consumer can watch. This natural phenomenon is causing mobile operators to rethink their pricing plans. In short, YouTube and Apple may be the death of unlimited mobile broadband.
YouTube can be accessed by anyone on a number of different devices in just a few clicks. As such, YouTube traffic accounts for 10 percent of all the traffic on mobile broadband networks, and 32 percent of all HTTP streaming traffic. And it rose 90 percent between the first half and second half of 2009.
Streaming traffic is more difficult for operators to manage simply because, as opposed to a video download, streaming is also an ongoing process. Such real-time consumption of video during streaming has big implications for mobile operators’ networks, notably in that it can cause problems during periods of the day when other people want to use the same mobile network to surf the web, make phone calls or check email.

Carriers will keep racing to keep margins high for mobile broadband as usage increases. But according to a forecast from Cisco, the average amount of data consumed on mobile devices will rise to 7 GB per month by 2014 from just 1.3 GB per month today — a 438 percent increase.

Another contributor to this trend of increasing bandwidth consumption is thanks to Apple and the iPhone. Never before have users been able to access such a large amount of rich content on a mobile device, anywhere, at anytime. AT&T was not prepared for such a high demand for bandwidth. Combine this with the fact that AT&T has the largest number of iPhone subscribers worldwide (thanks to their initial exclusivity of the the device), and the result is an incredibly constrained network with poor service for all AT&T customers.

Apple's most recently launched product, the iPad, came with the stunning announcement that customers would be able to purchase bandwidth bundles by the month rather than be forced to lock themselves into a 2-year contract. Although it is nice to not have to worry about early termination fees (Google initially charged a ridiculous $350 for those who voided their T-Mobile contracts, but has since dropped it down to a tolerable $150), the pricing change will have subtle effects on the way mobile and wired broadband customers will pay for bandwidth in the future. Who knows how constrained AT&T's network (and other networks woldwide) will become with the introduction of more and more connected devices for accessing rich media. It wouldn't surprise me to see 'brown-outs' in the near future....days in which the internet is not accessible thanks to clogged bandwidth pipes.

Hopefully the development and deployment of 4th generation networks such as Long-Term Evolution (LTE) can help ease some of the congestion woes carriers and customers are experiencing with the current 3rd generation variety. Sadly, widespread coverage and adoption of 4G networks are still at least a year away, and when that time comes, there is still no guarantee that operators drive the cost of bits. Given that mobile resources are constrained by a variety of things, including the spectrum allotted to carriers, it’s likely that mobile broadband providers will eliminate flat-rate pricing for mobile broadband as away to keep profits and network quality up while data use expands. When that happens should we blame YouTube and Apple — or profiteering mobile operators?


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