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The New Business Model for Carriers: Pay-As-You-Surf

Tuesday, February 16, 2010


AT&T CEO Ralph de la Vega has said that it is inevitable that high-bandwidth users will be charged for what they use. Rumors have been swirling for a while that AT&T has mulled tiered data plans for the iPhone, but the carrier has denied such speculation.

The average iPhone user consumers 10 times the bandwidth of a typical smartphone user. 40% of AT&T's network capacity is consumed by just 3% of the smartphone users.

With the amount of strain the current level demand puts on networks, Research in Motion co-CEO Mike Lazaridis said a global "capacity crunch" would emerge, and it has already begun in the U.S.

While one can see where the carriers are coming from, it is still their responsibility to provide a network that can sustain the bandwidth demands. Carriers make investments based on subscription fees. It’s not like they’re losing money by offering a public service. By telling customers that their need to think about 'conserving bandwidth,' it also antagonizes them and suggests the company is out of touch with the mobile reality.

CEO of Vodafone Vittorio Colao said at MWC that Google should not be allowed to control the flow of money through dominating the search and advertising market. To get their fair share, Colao said, carriers could charge customers more for greater bandwidth, or guaranteed high speeds. They could also charge content providers, and guarantee them bandwidth speeds as well.

“Manufacturers had better start building more efficient applications and more efficient services. There is no real way to get around this.” -- Ralph de la Vega

This is only part of the solution. Of course developers need to create applications that are efficient. Carriers could give top developers incentives for light-weight applications. But further infrastructure expansion, pipeline consolidation, and other forms of general efficiency on behalf of carriers are just some of the other initiatives that need to be considered when determining the forces that are responsible for constrained networks. As broadband speeds become faster and carriers are able to cover larger areas,  users are naturally going to consider consume more bandwidth and do it more often. Carriers have to consider these potential trends with the roll-out of next-generation (4G) networks and consider new usage models.

The transition to LTE is expected to cost U.S. carriers an estimated $1.78 billion each in the first year alone.

Google is already up for the challenge. The company has announced that it is working to build a 1 GB/sec test network for 50k-500k people in select regions of the U.S. Their motivation besides wanting to provide customers with network speeds 100 times faster than the average American household is to demonstrate that a carrier could easily manage complex applications that use a lot of bandwidth without sacrificing performance.

Not long after Google’s announcement, Federal Communications Commission Chairman Julius Genachowski declared the agency will propose in an upcoming report a minimum Internet speed for American households.
Dubbed the "100 Squared Initiative," Genachowski said that he hopes to bring speeds of 100 megabits per second to 100 million households, a speed that is significantly higher than what many households receive. The chairman did not provide details on the timelime of the initiative or how the FCC would encourage private sector providers to reach the minimum speeds.

"We need others to drive competition to invent the future," – FCC Chairman Julius Genachowski

I am not sure how carriers are going to be able to handle to pressure of continuing to expand and provide high-speed broadband while sending the message that they want both their developers and their customers to think about conserving bandwidth.

Via AppleInsider, TechCrunch, Boy Genius Report, Reuters


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