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Economics of wireless means data prices bound to rise Add to ...

A lot of Canadians look at the cost of mobile data plans in the U.S. and wish the gap between their prices and our prices would narrow. I think the differential may go away eventually, but with their fees rising – not ours falling.

Despite new wireless entrants and exciting next-generation technology, there is a very good chance that over the long term, global wireless data prices are going up. The increasing number of consumers and their thirst for data-hungry smart phones are producing a massive increase in demand for wireless bandwidth. Meanwhile, technology and regulators will only be able to increase the supply by a much smaller amount.

However, that won’t happen for a little while. The cost of Canadian data plans will likely keep falling for the next year or so. New entrants are taking some market share and are causing the incumbents to lower their rates. The fact that all three major carriers offer high-speed cutting-edge network technology (called HSPA) is also having an effect. Consumers are buying lots of data-sucking phones, but are also switching carriers more and paying less.

According to one Canadian wireless executive, these trends are not going away any time soon: he spoke of a “new competitive reality going forward.”

Happy days for consumers, if not for the companies involved. In 2011 and 2012, we expect to see the cost for a monthly gigabyte or two of wireless data continue to fall in Canada. By 2013, not only will prices be lower, but speeds will rise as the next generation of wireless networks gets built out around the world.

This fourth generation (or 4G) technology will be a mix of two technologies: Long Term Evolution (LTE) and WiMax, with LTE likely dominating in North America. The build out will cost global carriers tens of billions of dollars, but will provide much higher speeds and more capacity. The road map for LTE talks about delivering 50 or even 100 megabits per second (Mbps) by 2015.

There are a ton of variables that affect real world download speeds, but if the average 3G data rate is about 1 Mbps, we will be looking at speeds at least 10 times within a few years.

Let’s pause there for a second, and take a look at the number of subscribers to data plans and how much data they use per month, both today and in 2015.

Globally, there are fewer than 500 million devices that connect to the Internet over cellular technology today. Sixty-eight per cent of U.S. smart phone subscribers use less than 200 megabytes per month, and 98 per cent use less than 2 GB.

By 2015, there will be about 2.5 billion smart phones, tablets and netbooks and laptops with modems that will be consuming wireless cellular data. On top of that will be billions of connected devices that are part of the emerging machine-to-machine (M2M) market. Smart meters, digital photo frames, remote video monitors, and so on. A not-unreasonable estimate suggests that the total cellular connected market could be 5 billion, or about 10 times what it is today.

When you look at all the new applications that people plan on using on their devices – especially anything to do with video, which is the biggest consumer of bandwidth – it looks like the average device data usage will be up about a factor of 10, too. By the way, 10 times data growth over 5 years would actually mark a slowdown versus the last 18 months, where data use in the U.S. is up 350 per cent.

So the math is easy: if all the assumptions about usage and devices and prices are right, the world’s cellular networks need to provide about 100 times the capacity in 2015 than they do today.

But although next generation LTE networks will almost certainly offer 10 times the speeds of today’s networks, the technology they use to get the signals from the radio towers to the devices won’t see 10 times the capacity. The effect will be like raising the speed limits on a busy highway during rush hour: the signs may say 900 km/h, but without more lanes the traffic jam doesn’t get any better.

So enjoy the lower rates for data while they last. Within the next five years, carriers are going to have to act like the folks who operate the toll roads.

Massive congestion leads to usage-based billing: higher tolls in congested areas, higher tolls at certain times of day and higher tolls for time-sensitive traffic like video.

It isn’t about carriers or regulators or anything else. When it comes to wireless spectrum, over the long term, we simply have more demand than supply.

Follow on Twitter: @dunstewart

 

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