By Kyung Mun
In today's telecom market, where data is increasingly transported over IP in either wireline and wireless networks, it is interesting to note which network is carrying the load and who benefits. In the latest VNI report, Cisco reports that in 2015, over 96 percent of internet traffic in the U.S. was carried over fixed networks and the small remainder was carried over mobile networks. Meanwhile, the large gap in service revenues derived by mobile operators and fixed providers is startling. The ratio of service revenue pulled in by U.S. mobile operators is over twice that of fixed cable operators. Based on these revenue and traffic loading stats, it is clear that consumers value mobility. They seem more than willing to pay a premium for mobile access versus (Wi-Fi and) fixed access. So, what is this mobility premium?
Since the fixed and mobile broadband offerings are priced so differently, it is tough to make an "apples-to-apples" comparison in estimating the premium. Typically, mobile broadband products are priced based on usage (e.g., "$100 for 18 GB per month") while fixed broadband products are priced based on speed (e.g., "$39.99 for download speeds up to 25 Mbps"). In other words, the value of mobile access is framed upon data volume or usage while the value of fixed access is framed upon speed, not necessarily on usage. Fixed operators have tried to change this value framework. They have carried out usage-based pricing trials in few select markets in the past years but have met with public outcry and regulatory scrutiny.
Based on the latest retail pricing of popular family share plans of major mobile operators, we note that the U.S. market is currently pricing mobile access at $9 per GB. This figure is derived from calculating the weighted average, based on the number of postpaid subscribers, of "$ per GB" of popular share service plans of the four major mobile operators. (It should be noted that the top two operators are roughly pricing at $10 per GB while the other two are pricing around $5 per GB today.)
There are two ways to calculate pricing for fixed access:
1. Option 1 is to calculate "$ per GB" from retail pricing of high-speed Internet standalone product ($40-50 estimate) and apply a 300 GB monthly data allowance. (Note that several high-tier fixed broadband plans have now extended this allowance to 1 TB.) Based on this crude analysis, we estimate that the mobility premium based on popular retail data plans is roughly 60 times that of fixed access on a per-GB of data use.
2. Option 2 is to calculate pricing in terms of actual average usage (i.e., 3.7 GB of monthly smartphone traffic according to the latest Ericsson Mobility Report and estimated 80 GB per month for the average fixed subscriber) in the U.S. In this case, the mobility premium falls to about 20x.
As noted earlier from Cisco VNI, a direct Internet access over mobile networks represented less than 4 percent of all Internet traffic in the U.S. last year. Yet, consumers seem willing to pay a hefty premium (20-60x) for that mobility. Perhaps, consumers may be viewing this premium as a good insurance policy in those few instances when they need access to the data, voice, and even mobile video services when they are on the go or in remote places away from stationary wireless access points.
As we predict a possible rise of fixed-mobile convergence and competition between mobile and fixed operators, we expect this mobility premium to decrease over time. Competition is heating up, and new technology options like LTE-U/LAA, 3.5 GHz CBRS access, and 5G will give the mobile operators a path to lower cost-per-bit economics. At the same time, OTT players and other new entrants will find new paths to enter and partner in the evolving telecom landscape. Keep your eye on the mobility premium, which will be a sign of how competitive the market really is.
Kyung Mun is a seasoned technology strategy and product development professional at Mobile Experts LLC. Mobile Experts is a network of market and technology experts that provide market analysis on the mobile infrastructure and mobile handset markets. Over the course of his career, Kyung has contributed to the advancement of mobile communication and telecom industry and learned from colleagues at Motorola, Texas Instruments, Alcatel-Lucent, CableLabs, and a few start-ups in between.