The mobile broadband conundrum

Last week AT&T Chief Executive Randall Stephenson told the Wall Street Journal that wireless operators aren't prepared for the onslaught of data traffic coming from smartphones, and that the deluge is beginning to clog their networks.

Hence, the operator made several announcements around network improvements: an upgrade to a faster form of HSPA with theoretical downlink speeds of 7.2 Mbps starting later this year, an LTE deployment in 2011, a doubling of the amount of 850 MHz wireless spectrum used for 3G in most metropolitan areas, more cell sites, and an increase in bandwidth at cell sites.

AT&T desperately needs more bandwidth as iPhone users have inundated its existing network with data traffic. Moreover, the operator is positioning itself as the smartphone leader and will aggressively subsidize laptops this summer across the U.S., moves that only will increase traffic.

"I feel like we are closing the gap on this, but we're not there yet," Stephenson said at the D: All Things Digital conference hosted by the Wall Street Journal. "We are about to see these issues manifest themselves industry-wide."

Right now, AT&T appears to be combating the problem by imposing strict data caps with punitive overage charges. More recently, AT&T has found itself defending its network policy that prompted place shifting technology developer Sling Media to remove 3G access from the iPhone edition of its SlingPlayer Mobile video application. AT&T said the application would take up too much network capacity. SlingPlayer for iPhone enables users to stream live and recorded television content from their home entertainment system to their mobile device. In order to earn approval for the application, Sling Media was forced to disable 3G streaming capabilities, meaning iPhone users can only view content over WiFi. The same is true for Skype's iPhone application; it only works over WiFi.

Last week, I moderated a webinar on this very issue. John Jackson of CCS Insight, Larry Socher from Accenture and Adrian Hall from Bytemobile discussed how operators can effectively manage the deluge of data traffic. (You can check it out here.) The consensus was that LTE will solve most of these problems as the technology features a low cost per bit, thereby keeping operators from hitting the 3G wall where data traffic grows faster than revenues.

In fact, Hall quoted a study from Macquarie Capital that indicates if data usage continues to grow, the higher usage will drive beyond profitability within five years. So the challenge is: How do operators control cost and remain competitive while building new revenue streams?

Operators appear to be tackling the conundrum in a variety of ways. Jackson pointed to the many RFPs floating around for femtocells as a way to offload data traffic. And there appears to be much interest in charging variable rates for broadband such as pricing based on peak and off-peak. Indeed, Bytemobile conducted a survey of major global companies in conjunction with The Economist and found about 56 percent of the respondents saw variable pricing as a promising source of revenue. The webinar audience had similar feelings (see this chart).

Enhanced QoS also could be another powerful charging mechanism. Socher pointed out that operators should target strategic vertical markets. Customers of mission-critical applications in the enterprise, for instance, are more willing to pay a premium for QoS capabilities, he said.

This is no doubt a painful new world for mobile operators, but it appears that lots of vendors are coming up with lots of creative ways to ease the pain until LTE arrives. But which ones will operators choose? --Lynnette