AT&T confirm video to be the ‘wrong sort’ of ‘killer app’ for the wireless industry, but are silent on how to monetise content successfully

Posted by Jamie Moss Thursday, April 8th, 2010

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At CTIA this year, the issue of the increasing dislocation between wireless carriers’ network traffic and the service revenue that they generate was a key talking point. Beneath the wealth of statistics cited by top-ranking AT&T executives - designed to emphasize the importance of the USA in the global mobile broadband market - sat the most vital issues currently facing the wireless industry. Namely, how to handle the anticipated growth in network traffic resulting from content consumption over the cellular air interface, how to pay for that provisioning; and how to monetise those new network resources to the carriers’ maximum advantage.

Broadband connectivity – so much potential is it but already becoming unmanageable?

AT&T’s Ralph De La Vega began the first day keynotes by stating that the wireless communications industry stands at the ‘threshold of a revolution’, courtesy of the empowering ability of mobile broadband connectivity. There are infinite potential applications for mobile broadband connectivity - through which there are infinite opportunities for the wireless communications industry to literally embed itself and become integrated with other, once entirely separate global industries. All for the creation of new and enhanced enterprise and consumer service offerings.

In the safety-first American services market, it was the combination of wireless connectivity with the healthcare sector that was given pride of place as an example of such a fusion. With AT&T citing the market potential for connected breathalisers to wirelessly authenticate that a driver has not consumed too much alcohol before being allowed to start the engine of their car. In one form or another, be it accident prevention or patient monitoring, the healthcare market is being widely touted a key vertical for service development in the expectant M2M services market.

But broadband connectivity has a more literal definition in North America and refers to any device that wirelessly consumes data at ‘broadband’ speeds. Consequently AT&Ts reference to ‘mobile broadband’ not only encompassed the sale of dongles and embedded modems for Internet access on laptops, netbooks and other connected devices (as a European audience might assume), but included the broadband consumption of data by mobile phones as well. An increasing number of which, according to AT&T, will be generating large quantities of data traffic and accessing high-bandwidth on-demand streaming media in the immediate future.

This assumption is due in part to the precedent set by the usage of the iPhone in the USA, a device that AT&T has, very publicly, had issues with since its launch on their nework, regarding the amount of traffic that its users generate. Consequently much of AT&Ts efforts in rolling out additional infrastructure will be purportedly for the sake of enabling greater sales of smartphones, so that consumers will be able to download more mobile applications. It will also be part of a strategy from AT&T to expand mobile applications usage beyond just smartphone owners into the feature phone market as well - thereby provisioning for the far greater addressable market of the non-smartphone longtail.

This strategy highlights the fact that it is not just the device but also the available connectivity options that are crucial to enabling the take up of wireless data tariff plans - and ergo mobile data service growth. It is also a strategy that emphasises that even ‘less capable’ devices, once coupled with broadband connectivity, can make a valuable contribution to wireless carrier service revenue generation - and which may even make a higher margin contribution, due to the lower cost of wholesale purchase and/or device subsidisation for the carriers.

During the CTIA keynotes AT&T stated that up to 80 percent of CAPEX may be earmarked to fund the deployment of mobile broadband-enabling infrastructure, half of which will be dedicated to the roll-out of wireless-specific infrastructure (although what portion of that would be explicitly for cellular, as opposed to other radio access technologies, was unspecified). Furthermore, the US market overall is also apparently anticipated by AT&T to account for a third of total global expenditure on LTE deployment during 2010.

Strategies for meeting capacity demands

But these bold statements about infrastructure deployment cannot hide the fact that mobile applications provision alone is not a genuine service provision strategy, nor in itself is it an actual revenue generating strategy – beyond compelling more wireless subscribers to purchase all-inclusive mobile internet data plans. Futhermore, as with mobile broadband service provision for Internet connectivity on laptops and netbooks, mobile internet provision based on current tariff plan pricing strategies has limited revenue generating potential.

Once every wireless subscriber on a network has an unlimited mobile internet data plan, no more revenue can be generated - as there is no opportunity to ‘upsell’ from ‘unlimted’. Meanwhile usage will only increase on a per user basis, causing the kind of dislocation between traffic growth and revenues that has already been seen with dongle-based Internet services. Indeed, potential revenues from the Mobile Internet may even decline, as carriers find that they the need to compete more and more on price in order to retain custom – price being the only remaining means of service differentiation for data plans these days - causing revenue per user to fall.

According to AT&T the broadband use of cellular connectivity is outpacing all other forms of broadband service growth period, both fixed and wireless. Quoting from the Cisco Visual Networking Index, De La Vega also confirmed that it is video content that will, increasingly, be responsible for consuming the bulk of cellular networks’ bandwidth. Although unfortunately no actual carrier network analytics could be presented by AT&T to confirm these expectations. AT&T correctly went on to state that ’spectrum is lifeblood of industry’, but we have to ask that, with the limited potential returns, how can adequate capacity possibly be provided cost-effectively?

There is apparently ‘no silver bullet to answering how to meet demand’, but in the ‘need to find sustainable models’, four possible solution exist that, in combination, may suffice to provide adequate capacity affordably. They are 1) increased spectrum, 2) greater network efficiency, 3) the use of complementary access technologies and 4) greater application (i.e. software) efficiency. Increased spectrum is arguably the most powerful and fundamental enabler, however in most markets it is an unrealistic luxury; and even in the USA where an additional 500 MHz of spectrum is likely to be made available, a minimum of 800 MHz is estimated as actually being required.

Greater network efficiency can be accomplished through new data protocols with lower error correction and greater throughput (however deploying LTE, for example, will be a very expensive undertaking). While complementary access technologies like Wi-Fi will be important for providing a channel to offload part of the cellular traffic burden, as well as providing extra coverage to increase the ubiquity of service availability. Lastly, application efficiency can encompass anything from better quality application coding, to intelligent content adaptation and content optimisation of data within the network prior to transmission.

But where is the money?

However as a strategy for managing traffic - and more importantly for monetising cellular bandwidth as effectively as possible - suggestions about future content and service pricing models were conspicuously absent. At no point was the cost for wireless carriers mentioned, nor how carriers can possibly fund the developments that are required. Yet surely this is the crux of the issue. If improved capacity is necessary to fulfil consumer desire to access content and applications, especially video, then the satisfaction of that requirement has to be worth money to carriers for it to be worth their while.

A shift from capacity-based pricing models for data to quality and content based pricing must surely be necessary. With traffic being intelligently managed and service premiums being derived through 1) offering differential rates for data at different times of the day, 2) by charging extra for the guaranteed provision of higher throughput rates; as well as 3) charging extra for the routing of content-specific information such as audio or video packets. This is a strategy that may potentially be enabled by the installation of Deep Packet Inspection solutions and dynamic policy management systems.

AT&T’s Randall Stephenson expanded upon De La Vega’s earlier exposition by stating that considering the historical performance of previous telecommunications technologies it is most likely that, as high as industry projections are for cellular traffic growth are, they are likely to have been underestimated. The investment required to overcome the problem of mobile broadband traffic would, he admitted, be large and the payback would only come over a long period of time; the three most critical factors, in his opinion, being liberal regulation, more spectrum and greater industry collaboration and innovation. But for the sake of ensuring the wireless data services market becomes a profitable one, we also need to hope that the evolution of the carriers’ content and service pricing models is a higher priority for them than is being made immediately obvious.