Data Prices Fall, Usage Booms

Mobile data traffic ramped up between four- and eightfold in 2007 thanks to the knockout combination of dramatically decreasing prices and faster network downlink speeds, according to a new report from Heavy Reading.

The surge in data traffic is extremely good news for operators, but the challenge they now face is how to withstand the reductions in data prices without destroying their business models and becoming mere bit-pipe providers.

In 2007, an eightfold increase in data traffic compared with 2006 levels was common for mobile operators that introduced competitive flat-rate data plans and weren't carrying much data traffic prior to the deployment of HSPA (High Speed Packet Access) technology, according to the report, "Flat IP Architectures in Mobile Networks: From 3G to LTE."

For operators with a lot of pre-HSPA 3G data traffic and without competitive flat-rate data plans, three- and fourfold increases in data traffic in 2007 were common.

Gabriel Brown, Heavy Reading senior analyst and the report's author, says it's "no wonder that data usage is growing because performance is getting better and prices are coming down. 2007 was the breakthrough year. You're getting 1 Mbit/s to 2 Mbit/s downlink routinely, and prices have come down massively." (See Good Times for 3G.)



According to Brown's report, data traffic volumes at Telefónica Europe plc (O2) doubled every quarter in 2007 after it launched a €1 (US$1.59) per day flat-rate service using USB modems in Spain. And T-Mobile International AG recorded a 57 percent increase in 3G data volumes in the third quarter last year compared with the previous three-month period.

Brown stresses that the increase in mobile data usage is primarily due to lower tariffs -- prices declined more than 300 percent in 2007, according to the report. (See table below for examples of dramatic price reductions.)

Now operators have to decide how low they can take their prices, and how they deal with the impact of the data surge on their business plans and strategies.

"Mobile operators are essentially becoming ISPs," says Brown. "They are going down the bit-pipe road. They don't want to do that, particularly, but what should they do?"

In Europe, the price competition is most aggressive in markets where 3 Group is present, such as Austria, Italy, Sweden, and the U.K. Three UK shook up the U.K. market in August last year with a £10 ($20) per month offer for a USB mobile broadband service. The operator is reportedly ready to cut that offer by 50 percent to £5 ($10) per month. (See 3 Heats Up HSDPA in UK.)

— Michelle Donegan, European Editor, Unstrung