From iPad to bandwidth crunch

With bated breath, the world waited on pins and needles at the end of January for the latest and greatest invention from Apple. Speculation was high that Steve Jobs would roll out a tablet computer, but once he unveiled the iPad and people finished oohing and aahing over the thin form factor, big screen and compatibility with iTunes and the App Store, the real scrutiny began.

And I’m not just talking about its sometimes-ridiculed name, but about the ramifications of the iPad on the communications industry. The good news is we’re living in a time when it seems every other week some cool new device – like the iPad or the latest smartphone from Nokia – hits the market. The bad news is it’s mostly the communications service providers (CSPs) who are left holding the bag as all of these data-hungry devices chew up bandwidth faster than it can be added to the network.

It’s crunch time

You can see this battle intensifying over the next couple of years as prices come down and smartphones and other devices become much more accessible to the average person. A tipping point for the industry was when Apple launched the iPhone 3GS and at the same time dropped the price of its base iPhone 3G from $199 to $99 in the US. That seems to be the magic number for many consumers and really helped spur sales of the now-ubiquitous device.

But as a high-level executive at AT&T’s operations division said recently, his company has experienced a 5,000% increase in mobile data traffic in the past few years – with the iPhone largely responsible for driving that growth. Sure iPhone was great for driving customers to operators who had an exclusive deal in the early days, but now that many networks are providing iPhone it’s looking like it represents a lot of cost and not a lot of new revenue.

And this crunch is now accelerating faster than ever. We’ve gone from “having lots of mobile data traffic would be a nice problem to have” to being faced with overloaded networks for a relatively small percentage of users. And for CSPs, the options are severely limited – charge for mobile data by volume and users are scared of using it; charge a flat rate and people use it all day every day.

The growth of mobile data traffic and network demand seems absolutely unstoppable and will run away like crazy in the next couple of years. And in the swirl of all this, there’s one certainty in life for CSPs: they’ve got to provide a lot more capacity for not a lot more money. More for less – whatever next! Sounds like Moore’s Law to me (excuse the pun!).

So how do you do that? If you hope to survive this new world order of huge amounts of bandwidth on-demand, you have to severely cut your operating cost base. But as I’ve been saying about cost-cutting for years now, you have to be smart about it. For instance, if you cut back on customer service representatives or maintenance staff, you could ultimately end up losing customers.

While I’ve been espousing the concept of the “lean operator” for a while, I’m now hearing from service provider CIOs that there’s no longer any debate about whether it’s advantageous to become lean; it’s moved from if we’re going to do this to when, how and how fast.

Against a wall

With total telecom revenues forecast to increase by less than 2% globally in 2010, it’s clear that many markets around the world are just barely holding it together while others are actually in decline. CSPs that are seeing their fixed line markets rapidly shrinking and mobile services barely hobbling along need to take drastic measures to stay afloat. Reducing operating costs, automating processes and anything else they can do to take costs out of the business, without sacrificing the ability to offer future services such as 4G, are critical to the delicate balancing act they all face.

Keith Willetts is chairman and CEO of TM Forum