Welcome to ZenUnwired; a blog dedicated to tracking developments in technology and strategy, and to deciphering the impact of these developments on wired and wireless ISP's, device manufacturers, OS and application developers, and most importantly - you.

Wednesday, March 10, 2010

Wireless Data: A high level overview of the problems and solutions

The Rise of Wireless Data:

The last 18 months have seen a huge upswing in the adoption of wireless data globally, especially relating to mobile broadband (MBB) usage through 3G USB "dongles", high-end smartphones like the Apple iPhone, Android devices, etc. Looking forward, many in the mobile industry are now expecting other data-intensive products and user scenarios to drive revenues further. For example – NetBooks, smaller "mobile Internet devices" (MIDs) and embedded-3G notebooks are all currently being offered by wireless carriers. Further out, there is the potential for a vast array of other devices from the realm of consumer electronics or M2M (machine-to-machine) sectors to pervade the airwaves. The chart below shows the exponential rise of data, the world over.

Figure 1: Global Data Subscribers

The downsides of popularity:

The Profit Element: In some cases, the revenues from data services, especially in the MBB space are not even covering the costs of delivering data to the users. The current business models are broken – especially if they also need to provide enough cash flow for further network upgrades and expansion. Despite the wishes of marketing departments, it seems like expensive "mobile" broadband capacity is being wasted at giveaway prices, in an attempt to compete head-on with fixed broadband services.

Data Surge & Congested Networks: Despite the success, PC users generate so much data traffic that networks that were empty just two years ago are now congested. Originally designed to cope with small-screen devices used occasionally, data networks have to now cope with laptop-sized video downloads, hours-long social networking sessions and rich Web 2.0 sites which download content "in the background". Extra smartphone usage compounds the problem.

Figure 2: Global 3G data traffic by device type

Source: Telco 2.0, Disruptive Analysis estimates

How to address the problem?

Unfortunately, there isn’t one ‘silver bullet’ that will magically solve the problem, but rather the problem has to be addressed with a portfolio of solutions that will jointly get the job done. At a high-level, these solutions fall into the following buckets.

  1. New pricing models (revenue generation focused): At present, the majority of mobile broadband subscribers are engaged through traditional monthly contracts, typically over 12-24 month periods. This is true for both 3G dongles and embedded-3G notebooks. There are also some prepaid offerings that are essentially in the flavor of the postpaid offerings. But as devices with wireless access proliferate, pricing models will have to evolve. In fact, there is already chatter in the wireless industry that flat rate data plans are not longer sustainable, and that tiered pricing is the way to go. But instead of these ‘band-aid’ solutions, carriers must think comprehensively about their entire portfolio to optimize pricing. Some examples of these new pricing models/pricing innovations could include:
    • Session-based access, similar to the familiar Wi-Fi model;
    • Bundling of mobile broadband with the customers other services (E.g.: sharing of a data and voice buckets across phone, MBB card, devices)
    • "Comes-with-data-included" models (E.g.: Amazon Kindle)
    • Revenue-share model, where the carrier provides data access at subsidized rates, and then takes a share of ongoing sales (E.g.: Carrier takes a share of App sales revenues)
    • Freemium models, with ad-supported mobile access subsidized by "upstream" parties like advertisers or governments, rather than direct end-user payment.
    • Data offload (cost containment focused): Shifting data traffic off a congested mobile network and onto another access technology fundamentally changes the economics of delivering that data. Offload is being implemented by operators to manage the total data throughput with, typically, two flavors: offload to Wi-Fi and offload to femtocells. In some regions like the US, WiMAX deployments are also becoming crucial to an offload strategy. The cost savings associated with offload are significant according to data provided by Chetan Sharma Consulting. Operators deploying a mixed multi-access offload strategy can expect savings in the range of 20 to 25 per cent per annum. In the US market, operators will save between $30 and $40 billion per annum by 2013 through an offload strategy alone.
    • Evolution to 4G (cost containment focused): Infrastructure evolution to 4G lowers the cost-per-bit for data throughput on the network, thereby reducing overall costs. However, significant investment in new infrastructure is required for the move to 4G. The capital intensive nature of 4G, which offers around 40-50 per cent cost-per-bit benefit, means that some operators will choose a strategy of sweating current infrastructure assets with a longer term plan to evolve to 4G as relevant spectrum becomes available.
    • Network Optimization (cost containment focused): Network optimization, through techniques such as compression and caching also adds incremental savings by reducing the total number of bits traversing the network. Typically, Sharma reports, operators can generate savings of five to 10 per cent by 2013 through this strategy.

    Implementation of these changes will not be easy. There are questions about user preferences and education, development of distribution, billing and support models, development of alliances, etc. Operators and vendors will need to face up to these challenges as soon as possible.