Exercising Limits on Data Traffic

In our predictions for 2010, we suggested that mobile data prices may go up in some markets. We discussed this prediction at length before putting it on our list. Many of us have been in the mobile industry a long time and we’ve never seen prices go up. But the sceptics were convinced and the prediction stayed.

A day after we announced our predictions, Ralph de la Vega, CEO of AT&T, commented that his network is under such pressure that it might stop new users from taking out unlimited data plans. Almost every network operator I’ve spoken with in the past 12 months was alarmed by the uptake of mobile data.

Kevin Russell, CEO of 3 UK, recently stated that 95 percent of the traffic on his network is now data. In 2007, it was just 5 percent. Any network that has the iPhone or has been offering reasonably-priced mobile broadband will have seen an explosion in data usage. Even networks without the iPhone will experience huge surges in demand next year as a significant slice of their marketing budgets go toward promoting services beyond voice and text.

In other industries, this level of demand would be seen a good thing. But in those industries, more demand normally means more revenue. In the mobile industry, income’s going down, not up. So operators are facing burgeoning demand with little prospect of additional revenue.

In my view, Mr. de la Vega is right. Unless AT & T and its peers can control growth in data traffic by limiting access to the network, eventually subscribers won’t be able to make a call or send a text. You can’t blame users, though. Operators have been generous with their data plans, and people have responded by using the data networks at an increasing rate. They’ve been encouraged by unlimited tariffs and free access to sites such as Facebook, even on prepaid plans.

Operators need to talk to their local gym owners. The gym business model is perfect for them. Members feel great because they’re part of a gym, but they never use it. Gym owners rely on attracting far too many members for the equipment provided. If they all turned up at the same time, only a few of them could use the gym. Rarely have I been in a gym that busy. It’s a business model that could help operators manage growth in data traffic more effectively.

Networks will find it tough to tread a line between meeting demand without overloading their infrastructure and compromising users’ experience. But it’s becoming clear that operators that accomplish this most effectively in 2010 and beyond will have the edge. To gain that edge, I believe mobile data prices will start to rise next year.