Free article: Are mobile operators rapidly becoming low-cost data pipes?

The widespread introduction of low-cost bundled data tariffs and WiMAX networks could lead to dramatic decreases in the price per megabyte of mobile data, and operators might lose control of the services that they carry.

Sound Partners has defined three plausible scenarios for the evolution of the wireless industry during the next five years: ‘Low­cost Data Pipes,’ ‘Emerging Markets Thrive’ and ‘Cellular Goes Indoors.’ In the ‘Low­cost Data Pipes’ scenario, wireless data becomes a commodity as a result of the widespread introduction of low-cost, unlimited-usage mobile data packages and the deployment of WiMAX networks.

Mobile networks become transparent data pipes, in much the same way as fixed networks, and mobile operators lose control of (and the revenue from) the services that are carried across their networks.

A combination of factors has enabled mobile operators to generate high revenue per megabyte (compared with fixed broadband services) for mobile data services. Pricing on a per-service basis allows mobile operators to charge customers based on the perceived value of services, rather than their data consumption. Furthermore, mobile operators have focused on low-data-consumption services, such as SMS, MMS and ringtone downloads, which generate high revenue per megabyte.

Control over end-to-end service delivery has made it difficult for third parties to bypass popular mobile operator services, such as SMS. In addition, mobile operators have tended to offer access to other services and content through their own, tightly controlled portals, rather than providing open access to the Internet. Many operators have taken steps to maintain this control – for example, by setting relatively high data tariffs and preventing the use of third-party VoIP and instant messaging services over their data services.

However, there have been early signs that the industry could evolve according to the ‘Low-cost Data Pipes’ scenario. The number of relatively inexpensive, uncapped-usage data tariffs from mobile operators is increasing, and these could evolve to pricing that is much closer to fixed levels. If third parties are allowed open access to these data services (without any restrictions to the services that can be carried), it is possible that VoIP and alternative messaging services could cannibalise the revenue from mobile voice and SMS.

 Even if mobile operators are able to maintain control of the delivery of some (or all) mobile non-voice services, the rapid evolution to data-intensive services could dramatically reduce the average revenue per megabyte that mobile operators can generate from their networks, as shown in Figure 1.

Figure 1: Comparison of revenue per megabyte for a number of non-voice services

Mobile operators need to be prepared for the challenges that the ‘Low-cost Data Pipes’ scenario would present, including substantial declines in access revenue in developed countries, and cannibalisation of voice and messaging revenue. However, mobile operators that adopt the latest wireless technologies, such as HSPA+ and 3G LTE, and innovative approaches such as network sharing, could achieve the dramatic reductions in cost per megabyte needed to remain profitable.