Data consumption is soaring, yet revenues are falling. Something's got to give, says mBlox chief.
Which business models will succeed in the new era of broadband content? It’s a massive question, one that the entire media industry – newspapers, music etc – is struggling to deal with.
But the mobile sector has unique challenges. The biggest, I’d argue, is the around the data plan.
Flat-rate charging for access to the fixed internet has powered the mass take-up of broadband.
Until this year, the consensus was that this model would work for mobile operators too, increasing ARPU and creating an environment favourable for digital content and commerce to flourish. The iPhone, with flat-rate data, practically built into its casing showed the way.
A year ago, most operators were still signed up to this vision. But then traffic soared. Ofcom reported that whilst data revenues had grown 2x in 2007-8, data traffic had grown 20x. Networks began to melt under the resulting traffic load, and a basic truth became obvious to all.
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If you sell fixed-rate data plans, and people start using them seriously, you lose money.
Data traffic costs operators money – lots of it. AT&T has said that traffic on its HSPA network costs it14c per megabyte. Factor is that iPhone users already consume over 400 megabytes per month, and the sums speak for themselves.
Add to that the typical consumption of the BBC iPlayer of 600 megabytes per hour, and one can see that a £10/month data plan won’t go very far.
One get-out-of-jail card is the next gen technology, known as LTE. AT&T says this will reduce costs to around 3c per megabyte.
But at $30 a gigabyte even that is high, and the problem is that in order to deliver the goods, operators really need more expensive radio spectrum as well, or else LTE will just clog up their existing channels a bit quicker.
The other alternative – to build loads of new radio base stations even closer together – is being killed off by the NIMBYs.
And as data traffic rises, so operators also have to buy lots more network capacity to connect up all those base stations, including those away from hot-spots: a traditional 2 megabit/second leased line doesn’t really suffice if the odd HSPA user watching streaming video wonders into range.
So, despite LTE, Moore’s Law and the plummeting cost of fibre transmission, getting extra capacity into a mobile network is likely to remain hard work and very expensive.
And al the while, data use among consumers is accelerating. Of course, these consumers buy access to the internet, not volumes of traffic. For this reason, attempts to upsell people onto bigger bundles are unlikely to work.
It’s not a sustainable model, and the operators know it.
That is one reason why I regard Sender-Pays Data, one of mBlox’s flagship projects, as such a win-win for everyone. I’ve written in these pages many times about its advantages for the consumer in terms of pricing transparency, and its virtues to the content provider in terms of consumer trust and confidence, especially for the pre-pay subscriber.
But for the operator, it represents a way – perhaps even the main way – to escape from the flat-rate trap and generate incremental revenues from incremental data traffic.
So perhaps, one day not very far away, consumers will pay a flat-rate charge to access the internet, and in addition the heavy commercial generators of content and service traffic will all pay the operators a sender-pays data carriage charge too. Just like the highly successful and stable models of the broadcast, satellite, telephone and SMS businesses, in fact.
• Andrew Bud is the executive chairman of mBlox, which is currently celebrating its tenth anniversary
