The network apocalypse is getting closer
Mobile internet services have gained significant increase in attraction and usage. About 20% of all active on Facebook use the mobile to access the service. 27% of the mobile phone owners browse the Internet, use applications or download content, according to comScore. 3G, smartphones and flat rate data plans are key enablers.
Apple demands that the iPhone is sold bundled with a flat rate data plan to encourage the use of data services. The success of the iPhone gives a good indication for how large the unmet market need is and what can be achieved when services are easy to find, buy, download and use in combination with simple pricing. High quality screens, improved data speed, and flat rates also open up for services that are quite data heavy such as streamed videos, TV and music, for example YouTube and Spotify. The perceived end user value per MB decreases as the users become more advanced and with the introduction multi media services. The dilemma is that the additional value is usually less than the additional cost of production. With flat rates we can expect that the usage of non-voice services will grow rapidly resulting in heavy pressure on the mobile networks, demanding further significant investments.
Flat rates as such are a good thing for the end user giving cost control. The network operator may also initially get an increase in average revenue per user (ARPU) as customers migrate to flat rate data plans, but exponential increase in data traffic drives cost and additional network investments. There is today no incentive for a player like Apple to decrease the data consumption. This situation should worry the network operators as they may be trapped in a situation with competition on flat rate pushing the prices down at the same time as usage increases heavily.
What are then the options for the operator? Trying to avoid introduction of flat rates on the market is probably not an option. To cap “unlimited” data plans is possible but the upper usage limit has to be set at a quite high level not become counter productive. We will also see attempts to increase the price but it may be difficult depending on the competition. Most probably these alternatives will either not be possible or may have a too limited effect. The equation does not add up and we may gradually move into a situation where the networks collapse as it may be impossible to justify further investments. It may be necessary to enter into stage of network apocalypse before we can rebuild the ecosystem on sustainable business principles. Is there then no way out of this situation?
Let’s go back to the original thinking of NTT DoCoMo regarding imode. This success story was created in times of quite limited network capacity. imode was built to maximise the end user value per consumed data volume. The whole system was built based on this basic idea safeguarding that all actors in the value chain should be happy. NTT DoCoMo thereby forced, as they did set up the rules, the content providers to develop services that used as little data as possible. It is now time to once again try to optimise the value for the end user to data consumption ratio, the value density. The operator needs to incentivise the content providers and device manufactures to promote concepts with less data consumption and to develop technology and services to avoid the collapse of the system. Is it too late for this? No, I don’t think so given the options. Flat rates are needed and are welcome but all, including the end user, should be incentivised not to waste data as we today are aware of not wasting any resources in the society.