Tinniam V. Ganesh
31 May 2010
Mobile data traffic is exploding in carrier networks, but this has not translated to a commensurate increase in ARPU.
Traffic globally grew 280% during each of the last two years, a recent report by Ericsson shows, and is forecast to double annually over the next five years.
This exponential growth in data traffic has been fueled by the entry of smartphones, laptops with dongles and other devices hungry for bandwidth. The advent of smartphones like the iPhone, Nexus One and Droid has resulted in several data-hungry applications squeezing the available bandwidth of carriers. Smartphones are no doubt here to stay.
Social networking sites on mobile devices and mobile broadband-based PCs also now account for a large percentage of mobile data traffic. In fact it is rumored that a major carriers’ network started to choke as a result of these bandwidth hungry devices.
But ARPU from data traffic has been relatively flat or at most marginal. One report claims that despite the phenomenal growth in data traffic the ARPU from data traffic has not grown significantly. ARPU from voice traffic continues to exceed that of the ARPU of data traffic.
This clearly defies logic. Despite enormous growth of data traffic, there are no corresponding returns for the service provider. And new devices like the iPad and its soon-to-be competitors will add yet more demands on wireless networks.
One of the reasons for the disparity between ARPU and data traffic growth is the preponderance of data schemes like “all-you-can- eat” or flat-rate charging. Such charging schemes result in excessive usage with little or no consequent increase in revenue generation. To make matters worse over-the-top (OTT) video service and other third-party services place a heavy data load on the networks while siphoning away revenue. Increased demands on the network, meanwhile, necessitate the need to upgrade the access, core and backhaul networks to handle the loads. CSPs are forced to upgrade to LTE/Wimax to improve the access and move their backhaul to the evolved packet core (EPC). CSPs are thus forced to do “more for less” - while they have to increase capex, there is no corresponding ROI for the new hardware.