Data networks were highly under-utilized before the introduction of the iPhone. To encourage 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 the unlimited data model would be unsustainable in the longer run and that it would be hard to reshape customers' traffic habits after having offered them all they could eat.
Operators now face a huge problem if data consumption continues to grow at the rate forecasted. A single laptop can generate as much traffic as 1,300 feature phones while the average smartphone creates as much traffic as 10 feature phones. iPhones can even triple that traffic.
Alternative model
Operators need a mechanism 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. 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 1 GB, depending on the total monthly fee, which ranges from £5 to £0.
AT&T has replaced its $30 unlimited plan with two new plans: $15 a month for 200 MB of data traffic or $25 a month for 2 GB. An additional GB will cost $10. AT&T states that just 2% of its customers use more than 2 GB a month.
Verizon Wireless has also indicated usage-based mobile data pricing is in its future. As the operator prepares for its commercial LTE launch later this year, it appears to be battling with the idea of how to charge for mobile data.
Vodafone UK removed its unlimited data plans a few months back. Monthly bundle customers will pay $7.43 for every 500 MB after the first 500 MB. As with AT&T, most of its customers will never reach 500 MB, so it's a realistic limit to put in place.
Sprint Nextel has made a commitment to stick with unlimited wireless data plans but has not ruled out discontinuing them in future. Orange UK is also mulling 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, however, its plans are expected to be more generous than its competitors'.
TeliaSonera is pondering introducing advanced mobile data pricing models 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 a $47 plan. 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 will push a larger group of operators 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, switching to tiered pricing based on data volume is not 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.
Basharat Ashai is a market analyst for APAC and MEA at Maravedis