For years now, we've seen carriers pushing customers to adopt smartphones and pay for unlimited, monthly data plans. We've seen commercials of families bonding over streaming video and students exploring the world in new and innovative ways. There's just one problem - if we keep buying into these spiels, adopting smartphones and taking to watching Netflix on the subway ride home each night, the carriers are going to go out of business.
According to Dr. Reinaldo Valenzuela, director of wireless research at Alcatel-Lucent Bell Labs, the problem is part of what he called the "too-much-data paradox". Dr. Valenzuela spoke on the topic last week at the Texas Wireless Summit, describing a situation wherein the constant push for smartphone adoption will prove unsustainable for carriers.
"There's a tremendous amount of relevant content on great devices at reasonably affordable rates," explained Valenzuela, "however, networks have started crashing under this pressure. It's no surprise that just in New York, to address the iPhone, AT&T is spending billions of dollars."
The problem, Valenzuela pointed out, is that just 10% of all smartphone users are using the majority of data. With current smartphone adoption rates, carriers are looking at a situation where soon cost of providing the data being consumed will surpass profit. Dave Gill, the senior director of mobile media at Nielsen, also spoke at the summit and offered similar conclusions.
"You've got to somehow throttle the top end of the spectrum here to make money in this market," said Gill, offering the following chart of mobile data use.
The Solution? Metered Pricing
Here's the part we, as mobile Web users and smartphone owners, don't want to hear. The answer, according to Valenzuela, is metered pricing.
"Inescapably," he said," we're going to have to start metering. If we continue to sell just bytes, we're going to lose money."
In addition to metered data pricing, said Valenzuela, the rates for new apps and services need to greatly increase and "we need to move away from data as the only game in town".
The question, of course, is what will this sort of data pricing mean for innovation? When AT&T introduced its tiered data plans in June, ReadWriteWeb's Marshall Kirkpatrick asked precisely that question. Nearly 80% of our readers said they were concerned by the limitations and Kirkpatrick asserted that most people likely fall under the 2 GB limit, but "what about a future of live video streaming to and from mobile devices, video chat and unforeseeable data-intensive innovations?"
Update: Valenzuela contacted us after this story was posted to offer the following:
"I intended to convey that usage based pricing is one answer. There are many others, like moving away from focusing on higher rate applications and usage based pricing and moving onto content based and new service revenue generation that is not directly tied up with high rate usage." He also said that he did not intent to imply "that AT&T is spending Billions in NYC alone to accommodate the iPhone. I do not know what the number is for NYC alone. I believe they are spending substantially in capacacity nation wide."