Usage Caps and Restrictions May Slow Demand for Mobile Broadband

April 24, 2009

Joining a growing number of the world’s MNOs, AT&T has begun selling computing devices (laptops, netbooks, MIDs) with an embedded 3G modem in a bundle with mobile broadband service for $60 per month. In select US markets, the operator provides a lineup of lightweight, broadband-embedded laptops with subsidies and mail-in rebates that total as much as $350 — as long as the customer agrees to a two-year contract. This is a steep cost considering that the subsidy equals 24% of the service revenue collected over 24 months. One of its cheapest laptops (after subsidies) is the $99 Acer Aspire One netbook: Not a bad price considering it has a 160GB hard drive and 1GB of RAM. Big news emerged from this offering after a customer received a $5,000 phone bill and filed a lawsuit. Apparently, the customer was uninformed about AT&T’s 5GB data limit. Fine print reveals that extra usage costs $0.00048 per kilobyte, but it’s unlikely that the average customer would do the math and realize that this equates to $480 per gigabyte!

Operators around the world are managing 3G capacity limitations in different ways. In Brazil, Vivo reduces speeds when a customer exceeds the usage cap. Vodafone Hungary slows bandwidth to 2G speeds during peak traffic hours and gives customers the option to pay extra for continual 3G service. Others try to use communication and usage tracking services to get customers to budget their data consumption. In fact, tables like the one below are increasingly being used by MNOs.

In our recent report on mobile broadband computing, we argue that usage caps can make the value of mobile broadband plans inferior compared with fixed broadband plans that offer similar data rates at a similar price. However, we also argue that the perceived value of mobility is not measured so easily. Subsidies on devices certainly help, but any way you think about it, an operator is unlikely to gain substantial market share with a service that offers less value than an equal substitute. What it really comes down to is that mobile operators will demand new technologies that offer a lower cost per bit, higher spectral efficiency, more capacity and faster data rates. These upgrades will enable service pricing that is affordable and competitive enough to stimulate mass-market uptake. To find out what the chances are of the emerging LTE standard satisfying those conditions, check out our upcoming Insider on LTE.

— Daniel Locke, Senior Analyst

Related resources:

Emerging Opportunity: Boom Times Ahead for Mobile Broadband in Africa & Middle East
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The launch of 3G services in much of Africa and the Middle East means that its Internet market is now on the brink of a similar makeover. We expect the subscriber total to increase at a CAGR of 33% to reach 32.2m by 2014, but mobile broadband will generate only a modest 5% of total mobile revenue regionally by 2014. This report looks at the use of mobile broadband as an Internet access technology for PCs, identifying the factors that affect adoption in markets across the region. It focuses on three key markets: South Africa, Morocco and Saudi Arabia.

Global Mobile Data Forecast, Q1 2009
Forecasts published March 2009
Updated on a quarterly basis, this Mobile Data Forecast product provides a complete picture of demand trends for the global market. The Excel output includes five years of historical data and five years of market projections for metrics such as penetration, mobile subscriptions (by type of package, by operator or MVNO and by network technology), users of specific data services (SMS, music, etc.), MOU, ARPS (by operator, by subscription type, by service, by application) and revenue (by messaging and non-messaging applications). The Forecast is based on extensive field research and uses a consistent methodology, aiming to capture the total spending on mobile data services on an aggregate global level. Mobile Data Forecasts are also available for 81 countries and for six regions: Africa & the Middle East, Asia-Pacific, Central & Eastern Europe, Latin America, North America and Western Europe.

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Mobile Broadband/PC Bundles Take Off in Latin America with Movistar
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In late 2008, Movistar Argentina launched a mobile broadband/PC bundle featuring a WiFi-enabled laptop with embedded 3G — the first major instance of a Latin American mobile operator offering this type of bundle. This Perspective explores whether this will be a widely adopted strategy by the regional mobile operators and which ones will benefit most from the new business model.