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People at the SoHo New York Apple store try out Apple Inc's new iPad on April 3, 2010 in New York City. Hundreds lined up in front of the technology company's flagship New York store on the Avenue to be among the first in the world to acquire the device. The much heralded iPad looks to be a bridge between a laptop and smartphone.

Spencer Platt/Spencer Platt/Getty Images

Three years ago, a small research firm in Toronto set out on a simple quest. It wanted to discover how much it would cost a mobile-phone user in Canada to download one gigabyte of wireless data - roughly the amount required to transmit a two-hour film.

No cellphone plan in 2007 envisioned the need for such capacity, so analysts at the SeaBoard Group consultancy had to include penalty fees for exceeding capped limits. The cost for one gigabyte was a staggering $2,600.

Today, downloading the same amount of data can cost as little as $5. Even that number is dropping - fast - as new companies push into Canada's wireless market with flat-rate, unlimited plans that are driving prices lower.

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For consumers, plunging prices are great. For wireless carriers, though, new pricing pressures constitute a brutal challenge. They are being forced to deliver ever-increasing amounts of data over their networks for less return, even as revenue from people talking on phones declines.

The effect of cheap data plans is being magnified by the soaring popularity of smart phones, which are designed for videos, music, games and other bandwidth-heavy content.

Wireless companies are at a crossroads: They must either take unpopular steps to clamp down on the traffic created by devices such as the iPhone and new iPad or watch their profit margins wither.

On Wednesday, AT&T the second-largest wireless carrier in the U.S., eliminated unlimited data plans for smart phones, phasing in a tiered pricing system for data with capped limits. Other carriers may follow suit as they wrestle with the so-called "iHog dilemma" caused by the iPhone and other advanced smart phones. Apple Inc.'s device can eat up to seven times more bandwidth on a network than a regular voice phone. Even more voracious are the iPad and other tablet computers, which chew through at least twice the network space as the iPhone.

ATT introduces capped smart phone data plans Read more

As networks in the U.S. struggle to cope with the new devices, a data crunch is resulting in dropped calls, spotty access and slowed download times.

Canada hasn't seen the data crunch yet. But problems loom as consumers' insatiable demand to download more data jams up the carrying capacity of the system. "The fact that we trail the rest of the world means we're going to see it a little later," says Dawood Khan, a Toronto-based telecom consultant.

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U.S. users like Andrew Pierce provide a glimpse of what may lie ahead. The frustrated 21-year-old student in New York sometimes has to try three or four times before AT&T's network connects him. He puts up with two or three dropped calls each day.

"It's kind of ridiculous when you think about it, because AT&T's only job is to just let me make calls," Mr. Pierce says. "They're having problems keeping up."

Frustrated with the "runaround" he got from the company, Mr. Pierce joined Operation Chokehold, a consumer protest. At noon on Dec 18, 2009, he and thousands of others agreed to simultaneously run bandwidth-hogging applications like Ustream, hoping to clog the network - and bring wireless services crashing down.

AT&T got the message. About a month later, it announced it would invest $2-billion (U.S.) in upgrades for its strained network, then followed up by abolishing unlimited data plans.

Canadian carriers may be headed in the opposite direction. Dvai Ghose, a telecom analyst at Canaccord Genuity in Toronto, believes competition is pressuring the industry to cut data prices and offer unlimited packages.

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Last December, Wind Mobile introduced Canada's first unlimited data plans for $35 (Canadian) per month. The plans have led to unprecedented usage rates. Wind's heaviest user reached 118 gigabytes in one month, roughly the equivalent of downloading four full-length movies each day.

But if there is network congestion, Wind Mobile slows download speeds for users that exceed five gigabytes in a month. This type of network "traffic management" will become even more crucial as devices become more powerful and users become conditioned to use more data.

Top 10 heaviest users on Wind's network

  • (The amount of gigabytes downloaded by heaviest users in one month. A gigabyte is roughly the equivalent of downloading one full length movie.)
  1. 118.56
  2. 95.12
  3. 55.32
  4. 51.70
  5. 44.51
  6. 39.21
  7. 33.72
  8. 33.59
  9. 28.94
  10. 26.85

Source: Wind Mobile

Mr. Ghose believes the established giants will eventually take over the upstarts and readjust prices. But acquisitions can't occur until at least 2014, when a government prohibition on such takeovers expires.

Until then, a data crunch seems likely in high-traffic areas. "Let's say, around Union Station, around King and Bay, or Front Street and Spadina [in downtown Toronto]… Wherever you have a high concentration of people in a small area all doing data-intensive things, you definitely will see some congestion," says Ronald Gruia, a telecom analyst at Frost & Sullivan. "The good thing is that we're not as bad as the U.S. But we're not far from that, either."

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