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Cisco: Tiered Pricing Drives More Data Usage

Sarah Thomas

Mobile data traffic will increase 18-fold between 2011 and 2016, reaching 10.8 exabytes per month, according to Cisco Systems Inc. (Nasdaq: CSCO)'s latest calculations, but the data deluge isn't a result of those unlimited plans left on the market.

Consumers on tiered data plans are using more data than those on unlimited plans, says Thomas Barnett, Cisco's senior manager of service provider marketing.

Cisco has been studying tiered data plans at two global, Tier 1 wireless operators for the past 21 months. While at the beginning, the top 1 percent represented 52 percent of traffic on the networks, now that 1 percent only represents 24 percent of traffic, while the top 20 percent continues to grow in usage, Barnett says.

The wireless operators offering tiered plans all have different ways of dealing with their highest data users. For example, in the U.S., T-Mobile US Inc. throttles once a user reaches 5GB; Verizon Wireless does so only when it has to at a congested cell tower; and AT&T Inc. (NYSE: T) throttles its highest users for an entire billing cycle. (See AT&T's Prices Go Up, Up, Up!, T-Mobile Shakes Up Pricing Sans Unlimited Data and Is Backhaul Bottlenecking Verizon's LTE?)

But, no matter how it is handled, that traffic is harder to manage when it's 20 percent of users causing the backup. Cisco found that traffic on tiered plans increased 169 percent in the past 21 months versus 83 percent for unlimited plans. Cisco predicts that 60 percent of mobile users, or 3 billion people, will use more than one 1GB of mobile data traffic per month in 2016, whereas in 2011, only 0.5 percent did. (See Cisco Projects Massive Mobile Data Growth.)

"You might think they'd grow faster with all-you-can eat, but I think it's a testament to the fact that service providers are educating users more on their impact and IP footprint," Barnett says. "People understand they have a 2GB or 3GB cap or whatever, so they are consuming as much as they can to get their money's worth. Those with unlimited aren't concerned, but aren't using as much."

LTE, Wi-Fi to the rescue
Consumers are likely to flirt with the data cap more once they move to Long Term Evolution (LTE). Now only 0.2 percent of mobile connections are based on LTE, but they are generating 28 times more traffic than non-4G connections. Cisco says the number of LTE connections will grow to 36 percent of the total by 2016. With that will come more high-quality content, more devices, more users and more mobile video, which will represent 71 percent of all traffic by that time.

Luckily for wireless operators, consumers are also turning to Wi-Fi more and more. On a global scale, 11 percent of traffic was offloaded to Wi-Fi in 2011; that will double to 22 percent by 2016. Looking at connected tablets, the fastest growing data category, 60 percent are used on Wi-Fi today. (See Cisco: Tablets Hog More Data Than Smart Phones.)

Without offload, Cisco says the 2011-to-2016 compound annual growth rate of global mobile data traffic would be 84 percent instead of 78 percent.

So, can the wireless operators handle the ongoing flood of traffic? Cisco wants to sell them the gear to do so, of course, but Barnett thinks the answer is yes, with the help of 4G, Wi-Fi and continued infrastructure investments.

"Through a combination of LTE and offload strategies, I think they will be able to handle it," he says. "And, the growth we've seen over the past few years has indicated that they can thrive in this environment."

— Sarah Reedy, Senior Reporter, Light Reading Mobile

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User Rank: Light Sabre
12/5/2012 | 5:42:44 PM
re: Cisco: Tiered Pricing Drives More Data Usage

Lots of numbers here, all subject to interpretation in one way or another. I'm not sure there are many obvious conclusions to reach, beyond the idea that mobile network operators are staring up the barrel at demand that will be almost impossible to meet given current spectrum and technology limits.

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