The use of laptops and smartphones on mobile networks is a key driver for traffic growth. According to Cisco a single laptop can generate as much traffic as 1300 basic-feature phones, whereas the average smartphone creates as much traffic as 10 basic-feature phones. Due to their sophisticated functionality, iPhones can even triple that traffic.

Data networks were highly under-utilized before the introduction of the iPhone. Mobile operators had invested huge sums of money in 3G networks, and due to low data usage were finding it difficult to recover their investments. In order to encourage data usage, they started to offer flat data plans, while some (AT&T, Verizon Wireless, T-Mobile USA, Vodafone, Orange UK, O2, etc.) went a step further by providing unlimited data plans. 

The current 3G networks were not designed with unlimited data in mind. Mobile operators did not realize that in the long term the unlimited data model would be unsustainable, and that it would be hard to reshape customers' traffic habits after having offered them all they could eat. 

Monthly Data Usage (MB) by Type of Device using Mobile Broadband (2009)

Source: FCC Broadband Report

Operators now face a huge problem if data consumption continues to grow at the rate forecasted. According to many projections, video will be responsible for the majority of traffic growth going forward. Operators need to have a mechanism in place to address this data tsunami; most will be left with two choices: increase data capacity by upgrading their HSPA deployments, investing in newer technologies like LTE, or stop offering unlimited data plans. Given the immaturity of LTE, it is likely that they will select the latter, easier choice.

Mobile operators have started to adopt usage-based pricing schemes to address the increase in traffic usage. O2 for example announced a revised set of data tariffs for new and upgrading mobile customers in the UK. Customers will have a choice of smartphone tariff plans with a bundled data allocation of 500 MB, 750 MB or 1GB, depending on the total monthly fee, which ranges from £25 to £60. 

AT&T has replaced its US$30 unlimited plan with two new plans. One costs US$15 a month for 200 MB of data traffic, the other is priced at US$25 a month for 2 GB. Additional GBs will cost US$10 each. AT&T states that just 2 percent of its customers use more than 2 GB a month and that the new data caps have been set accordingly. These new plans could seriously affect applications that stream high-bandwidth video and route phone calls and face-to-face video chats over the Internet. Verizon Wireless has also indicated usage-based mobile data pricing is in its future. As the operator prepares for its commercial LTE launch later in 2010, it appears to be battling with the idea of how to charge for mobile data. 

Vodafone UK has removed its unlimited data plans a few months back. Monthly bundle customers will pay US$7.43 for every 500MB after the first 500MB. As per Vodafone UK large number of its customer base, if not most, will never reach 500 MB, and therefore that is a realistic limit to put in place. Sprint Nextel has made a commitment to stick with unlimited wireless data plan but has not ruled out discontinuing it in future. Orange UK is also mulling over ending unlimited data plans. 

Clearwire continues to support all-you-can-eat plans since its vast spectrum assets offer enough capacity for its relatively small subscriber base. It is expected Clearwire might be forced to change its strategy in the future, however its plans are expected to be more generous than its competitors’. 

TeliaSonera is pondering to introduce advanced mobile data pricing model that involves bundling the network usage charges with the cost of mobile content used into a single pricing plan. Rather than paying for a certain volume of data, users would pay for the content (movie or streaming music) and network resources they consume. 

Korea Telecom is providing unlimited data plans to customers who subscribe to high-end packages. It has introduced an unlimited data usage plan for its smartphone users who have subscribed under a monthly payment plan of over US$47. This is staging a head-to-head fight with rival SK Telecom, which has also launched a similar plan.

The efforts of major mobile operators like AT&T, Verizon, Vodafone and O2 will push a larger group of operators throughout the world to move quickly in adopting tiered data pricing; perhaps more quickly than originally planned. It is now only a matter of time before users have to accept the death of all-you-can-eat plans. However, there is a problem with switching to tiered pricing based on data volume. It is not very consumer friendly. Subscribers cannot be expected to keep track of their data usage. Data caps are also odd because they are an ill-fitting solution to the real problem — which is not the heavy data usage. The real problem is congestion on the airwaves. 

The question is how do operators pacify network congestion without forcing subscribers to use their services less? One solution could be offering data pricing with extra GBs priced at peak and off-peak rates. This way, users would be able to make better decisions regarding their usage.

Carriers should also make an effort to provide content-centric consumption measurements for their data plans so end-users will feel more confident when selecting the right mobile data tariff.

MARAVEDIS is a leading analyst firm focusing on disruptive technologies including smart networks using WiMAX, IEEE, and 3GPP/LTE. Maravedis works with system and service providers, vendors, regulators, and institutional investors. Learn more at www.maravedis-bwa.com.

Author: By Basharat Ashai, Market Analyst, APAC & MEA