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The Destiny of Mobile Data

It is already well established that the usage of mobile data services is growing fast. This traffic is generated mainly by smartphones and laptops with PC-card or USB modems. It is safe to assume the demand for mobile data will continue to grow in the forseeable future. The natural evolution is that laptops and netbooks with embedded mobile modems will become common. It is also clear that more and more people will learn to surf the web from their handset and will very soon discover the convenience of using the web applications they love whenever they have a spare moment, no mater where they are.

This trend puts mobile operators in a painful dilemma. On one hand they are very happy to see the increase in demand for their new services as the market of traditional voice minutes matures. On the other hand their networks are already starting to choke on this excessive traffic, and the investments necessary to increase their capacity are huge. They are faced with the phenomenon of revenue-cost decoupling (see diagram), where the increase in revenue cannot cover the added cost.

Data Revenue-Cost Decoupling

According to a recent article in the New York Times AT&T is among the first to face this dilemma. It is the exclusive United States carrier for Apple’s iPhone, whose owners are big users of data services. It is already experiencing degradation in service quality for both voice and data.

Apparently, there are just two ways to go – increase revenue and reduce cost.

  • On the revenue front, there are basically two sources – data traffic, and advanced services. The basic service of mobile data connectivity is doomed to be a dumb-pipe service, just like landline data connectivity is. Subscribers pay a monthly fee and receive simple data conenctivity over the mobile network. The question of whether traffic volume caps are applied is a detail, and in any case if the volume cap is generous enough only a very small fraction of the users are affected. Opportunities do exist in advanced services, such as the sale of content, application stores, location based services and so on. Mobile operators are best positioned to offer such services, the same way landline DSL operators offer additional services such as IPTV.
  • On the cost front there are three fundamental sources – natural decrease of equipment cost as it matures; improvement in technology that increases the capacity of the wireless channel, e.g. LTE; and increasing the reuse factor of the wireless spectrum, e.g. by using smart antena technologies and space diversity, and by deploying smaller cells.

The bottom line is that mobile data services have many years of growth ahead of them, and the operators that make the right investment decisions along the way will be the ones to enjoy it.

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