Getting What You Pay for on the Mobile Internet - NYTimes.com

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By KEVIN J. O'BRIEN

BERLIN — When TeliaSonera, the Nordic telecommunications operator, switched on the world’s fastest wireless network last December, customers quickly ratcheted up their consumption of mobile data tenfold.

Besides reaffirming the soundness of the operator’s investment in the new technology, called Long Term Evolution, or L.T.E., the data smorgasbord confirmed another truism: the days of flat-rate mobile data rates are probably drawing to a close.

All-you-can-eat plans — as they are known in the industry — were introduced when the mobile Web was in its infancy and demand was profitable and manageable. But with traffic booming, reflecting the growing popularity of smartphones, social networking and downloading music and video, network operators fear that flat-rate plans will eat into profits or even fail to cover costs.

The result is likely to be higher prices for consumers.

“Finding a way to make mobile profitable in the medium and long term is one of the industry’s big priorities,” said Mike Roberts, an analyst at Informa Telecoms & Media in Chapel Hill, North Carolina. “We are now at the early stages of figuring out a way forward.”

Even before it spent 500 million Swedish kronor, or $70 million, to switch on its L.T.E. network last year, TeliaSonera began introducing pricing plans with download limits as advances in the third-generation technology that preceded L.T.E. led to an explosion in traffic.

“In 2009, the mobile data on our network in Sweden increased by 200 percent but the number of subscribers increased just 60 percent,” said Anna Augustson, vice president for communications mobility services at TeliaSonera in Stockholm. “Clearly, it was not a sustainable model from a business perspective to have a single, flat rate.”

Last year, TeliaSonera began selling a series of 3G mobile broadband data plans with monthly limits ranging from 2 gigabytes to 20 gigabytes a month, for 39 to 319 kronor.

TeliaSonera is selling an introductory L.T.E. network plan with unlimited downloads for 4 kronor a month. But by July, the operator plans to limit downloads to 30 gigabytes and charge 599 kronor for the service, almost twice the cost of its 20-gigabyte 3G plan.

In exchange, TeliaSonera’s L.T.E. users will get download speeds of 20 to 40 megabits a second, about 10 times those on its 3G network.

“We feel it is important for our customers to have a choice,” Ms. Augustson said. Instead of all you can eat, the new industry mantra, she said, is: “You get what you pay for.”

At least one major operator is doing likewise. In Spain last November, Vodafone, the largest European carrier, introduced Calidad Oro — Gold Quality — a premium plan for business users for €49, or $66, a month that guarantees fast service without monthly limits on downloads.

The advent of tiered pricing for mobile broadband is new, but, in a sense, it is also a throwback to the early days of the technology, when operators imposed often unrealistically high download fees that scared off consumers and delayed the development of the mobile Web.

Eventually, operators began selling all-you-can-eat plans, first in the United States and then in Europe, to ease consumer angst about running up big bills. The plans attracted users and helped speed the technology’s development. Now, some operators are moving toward sophisticated forms of metered pricing based on speed and consumption, striving to balance profitability and consumer satisfaction.

Soon, the biggest operators are likely to follow with plans that redefine how most consumers purchase wireless data. Top executives at AT&T, Verizon Wireless, Vodafone, Deutsche Telekom and Telefónica have all recently called on the industry to move away from flat-rate data plans, although only Vodafone so far has attempted a tiered pricing plan.

At AT&T, the No.2 wireless carrier in the United States, after Verizon Wireless, the use of mobile data surged 5,000 percent from 2007 through 2009 after the operator became the exclusive U.S. seller of Apple’s iPhone, which has helped popularize the mobile Web. But it has also strained AT&T’s wireless network at peak times in urban areas in New York and California.

“In light of the limited natural resource of spectrum, we have to look at the ways of conserving spectrum,” said Mark Siegel, an AT&T spokesman in Atlanta. “We have had to invest billions in our network to keep ahead of this demand. This may also require a different way of looking at pricing on the part of the industry.”

Operators do not disclose whether their mobile data services are profitable, although analysts say they are and point to the industrywide move to build L.T.E. networks, which are essentially mobile broadband networks, as the future for a business where revenue from voice services will play an ever-shrinking role.

Mobile data traffic levels are expected to continue climbing as the use of bandwidth-eating smartphones increases and operators around the world follow TeliaSonera’s example and install their own L.T.E. high-speed networks.

The number of mobile broadband users worldwide is forecast to increase 55 percent this year, to 437.8 million from 282.5 million in December 2009, according to Informa, the telecommunications research firm. By the end of 2014, the number of mobile broadband users is projected to reach 2.1 billion.

Over the same period, the level of mobile data traffic on the networks of the world’s carriers is expected to rise 22 times, to 15.1 billion gigabytes from 674 million gigabytes. But without changes in pricing, operator revenue will rise 12 percent a year through 2014, according to Informa, just a fraction of the 49 percent projected annual increase in subscribers or the 86 percent annual increase in data traffic.

Operators are just beginning to link the price of a service — in this case mobile broadband — to the costs to a mobile network, said Kenneth Frank, the president of solutions and marketing for Alcatel-Lucent, a network equipment maker. “There is going to be so much creativity about pricing. We are only seeing the beginning,” Mr. Frank said.

Steve Smith, an analyst at Coda Research Consultancy in Guildford, England, said unlimited flat rates would not disappear but would become much more expensive. “Operators will have to work hard to get their tiers ‘right,”’ Mr. Smith said.

Over time, consumers will have many options for buying customized wireless broadband plans, said Pat McCarthy, a vice president for global marketing at Telcordia, a maker of bandwidth management software for operators based in Piscataway, New Jersey. Those may not mean higher costs for the average user, but heavy users may face higher bills.

“The problem with mobile broadband so far has been most of the revenue it has generated has gone to over-the-top Internet content services, not to the operators,” said Mr. McCarthy, who is based in Galway, Ireland. “That’s what they are trying to change.”

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Flush With Cash and Fearing Tighter Rules, Major Carriers Shun Broadband Stimulus

By Cecilia Kang
Washington Post Staff Writer
Friday, August 14, 2009

The Obama administration made a national priority of spreading high-speed Internet access to every American home and offered stimulus money to help companies pay for it, but the biggest network operators are staying away from the program.

As the Aug. 20 deadline nears to apply for $4.7 billion in broadband grants, AT&T, Verizon and Comcast are unlikely to go for the stimulus money, sources close to the companies said.

Their reasons are varied. All three say they are flush with cash, enough to upgrade and expand their broadband networks on their own. Some say taking money could draw unwanted scrutiny of business practices and compensation, as seen with automakers and banks that have taken government bailouts. And privately, some companies are griping about conditions attached to the money, including a net-neutrality rule that they say would prevent them from managing traffic on their networks in the way they want.

"We are concerned that some new mandates seem to go well beyond current laws and [Federal Communications Commission] rules, and may lead to the kind of continuing uncertainty and delay that is antithetical to the president's primary goals of economic stimulus and job creation," said Walter B. McCormick Jr., president of USTelecom, a trade group that represents telecoms including AT&T and Verizon.

Yet those firms might be the best positioned to achieve the goal of spreading Internet access to underserved areas, some experts say.

"If you want to get broadband out, you have to do it with [those] who brought you to the dance in the first place, and in this case it is the incumbent cable and telephone carriers who have 85 percent of lines in the country," said Robert Atkinson, president of the Information Technology and Innovation Foundation, a Washington tech policy think tank. "This is not basket weaving. This is really complex and intensive technical stuff that takes a fair amount of sophistication and scale to be able to do right and to continue to upgrade."

Obama has pushed for universal access to broadband since his presidential campaign, saying it would underpin the country's economic future. The stimulus funds target homes and businesses in the hinterlands that have largely been overlooked by broadband providers because of the hefty costs to lay down fiber-optic and other broadband pipes to small communities.

At the same time, the government has promised more scrutiny of industry practices that seem to limit consumer access to services, such as Comcast blocking the peer-to-peer file sharing service BitTorrent in 2007 and Apple's recent decision to block Google's voice service and the free Internet calling service Skype on the iPhone.

Those efforts have alarmed the major carriers. Specifically, some of the biggest firms fear that a clause in the stimulus plan that says recipients of the grants cannot "favor any lawful Internet applications and content over others" -- the concept known as net neutrality -- could lead to more rules down the road.

This condition goes beyond guidelines at the FCC that have been criticized by consumer advocacy groups as too vague. Carriers have pushed to keep current rules in place and see the condition on the stimulus grants as a potential precursor for additional rules at the FCC on how carriers can manage content over the Web.

The companies paint dire scenarios where new rules would lead to networks getting clogged with spam and too much video content, slowing down service for all users.

"It's not cost-effective for the big network operators to play in rural [markets] in the first place, and if they take federal money that comes with all these strings attached to it, they are opening themselves up to being regulated even further," said Roger Entner, head of communications research for Nielsen IAG.

McCormick said net-neutrality conditions on the grants are fuzzy and may give network operators pause before investing in long and expensive projects that could end up in a tangle of technical and legal hang-ups over how the firms oversee their networks.

"Clearly, it's causing potential applicants to reflect upon the uncertainties," McCormick said.

Verizon said it decided not to apply before conditions were announced. Comcast, which mainly serves urban and suburban areas, said it would also abstain. AT&T said that it likely would not apply but that it is open to partnership with state and local governments who win the grants.

Corporate officials have also said it would look bad for a company like AT&T or Comcast to come to the government with hat in hand when they are among the few companies in the economy flush with billions of dollars in cash reserves.

One official at a large network operator said on the condition of anonymity that once taken, government funds incite a "mob mentality" that could preclude sponsoring golf tournaments or giving executives bonuses, for fear of political backlash.

Some public advocates and analysts say the carriers never had a compelling reason to seek the grants.

"They weren't going to apply," said Ben Scott, head of policy at public advocacy group Free Press. "They are using this as an opportunity to grandstand against net neutrality."

Rebecca Arbogast, head of tech-policy research at Stifel Nicolaus, notes that the biggest carriers would be less inclined to deploy networks in rural areas because there is not enough demand to justify the ongoing financial investments. She said the companies should have expected stronger net-neutrality conditions because it was mandated by Congress in the stimulus act.

"With a few exceptions, the net-neutrality provisions were not a great departure from what I think was already out there and is consistent with the path that most recognize we were already headed down," Arbogast said.

The Commerce and Agriculture departments, which are handing out a total of $7.2 billion in broadband stimulus grants through 2011, say the plan to bring high-speed Internet to the hinterlands and urban poor can be accomplished without the big carriers. Companies like wireless broadband provider Clearwire and small cable and telecom operators may introduce more competition into the industry by using the funds to build networks that could compete with AT&T, Verizon and Comcast, analysts and government officials say.

"I think if the big carriers want to participate and play by the rules, great. If not, I'm not that concerned," said Mark Seifert, a senior adviser for the National Telecommunications and Information Administration, which is overseeing grants for the Commerce Department.

Seifert said the rules for broadband grants were not written to favor any size or kind of network operator. Further, the $7.2 billion is not intended to complete Obama's goal of spreading broadband to every home; rather, it is a "down payment" on a larger plan being crafted by the FCC, he said.