Mobile data traffic is exploding in carrier networks, but this has not translated to a commensurate increase in ARPU.
Traffic globally grew 280% during each of the last two years, a recent report by Ericsson shows, and is forecast to double annually over the next five years.
This exponential growth in data traffic has been fueled by the entry of smartphones, laptops with dongles and other devices hungry for bandwidth. The advent of smartphones like the iPhone, Nexus One and Droid has resulted in several data-hungry applications squeezing the available bandwidth of carriers. Smartphones are no doubt here to stay.
Social networking sites on mobile devices and mobile broadband-based PCs also now account for a large percentage of mobile data traffic. In fact it is rumored that a major carriers’ network started to choke as a result of these bandwidth hungry devices.
But ARPU from data traffic has been relatively flat or at most marginal. One report claims that despite the phenomenal growth in data traffic the ARPU from data traffic has not grown significantly. ARPU from voice traffic continues to exceed that of the ARPU of data traffic.
This clearly defies logic. Despite enormous growth of data traffic, there are no corresponding returns for the service provider. And new devices like the iPad and its soon-to-be competitors will add yet more demands on wireless networks.
One of the reasons for the disparity between ARPU and data traffic growth is the preponderance of data schemes like “all-you-can- eat” or flat-rate charging. Such charging schemes result in excessive usage with little or no consequent increase in revenue generation. To make matters worse over-the-top (OTT) video service and other third-party services place a heavy data load on the networks while siphoning away revenue. Increased demands on the network, meanwhile, necessitate the need to upgrade the access, core and backhaul networks to handle the loads. CSPs are forced to upgrade to LTE/Wimax to improve the access and move their backhaul to the evolved packet core (EPC). CSPs are thus forced to do “more for less” - while they have to increase capex, there is no corresponding ROI for the new hardware.
Avenues for CSPs
There are four ways to turn this bandwidth crunch into an opportunity.
The first technique is to study the usage patterns of the subscribers. The CSPs need to identify the applications that are most frequently used and have high-bandwidth demands. CSPs may be required to perform deep-packet inspection (DPI) to determine the kind of traffic in the network. They can then apply premium charging for high-bandwidth traffic.
CSPs need to have policy set that apply different policies based on the type of traffic. This provides the opportunity to charge a premium for specific kinds of traffic usage based on the policies set. The downside is that it may not go down well with subscribers used to flat-rate charging.
The second method is mobile ads, which avoids charging customers more. Carriers can subsidize data services by running ads. The mobile ads should be non-intrusive and non-distracting to the user. They can be displayed at the top or the bottom of the screen – for example, when the subscriber is looking through his/her contact list. Subscribers using data intensive applications such as video streaming may be required to watch a 30-second commercial prior to the start of the clip.
The third technique is to enter into an innovative business model with content providers or owners. Some lessons can be learned here by the models adopted by successful enterprises like Google, Yahoo, eBay and PayPal. These organizations receive a fee for facilitating a particular service, be it hosting an ad on a web page or facilitating a payment.
Carriers should enter into a business model with content owners whereby a small fee is received by CSPs for providing the network infrastructure for the music or video service. This would be akin to paying a toll for using a well-maintained highway.
Lastly, carriers can cut out the middleman. CSPs should consider maintaining app stores that provide not just downloadable applications, but also content such as music and videos. Carriers can then generate revenue from providing both the content and the infrastructure for transport of the content to the mobile.
Tinniam V. Ganesh is a 20-year telecom veteran, with experience at Nortel, Lucent, Motorola and Telecordia