The apps that ate the mobile Internet will change 3G pricing

Streaming video, VoIP, and Twitter are consuming more mobile bandwidth, degrading service, and pushing carriers to raise 3G prices

If you're a person of a certain age, you might remember that Pogo used to say, "We have met the enemy and he is us." I've been very vocal in my criticisms of wireless carriers, but as broadband traffic continues to soar, and unlimited data plans go the way of that ancient comic strip, I'm beginning to think that we video- and VoIP-happy users are becoming our own enemy.

Consider these statistics from a report issued by Allot Communications, a traffic management vendor based in Israel:

  • Video streaming continued to show significant growth in the first half of 2011 with a 93 percent increase, and it remains the single largest application taking up bandwidth, accounting for 39 percent of mobile bandwidth used.
  • YouTube remains the single most popular mobile Internet destination, accounting for 22 percent of mobile data bandwidth usage. (A separate study by Pew Research found that 70 percent of adults who use the Internet -- desktop and mobile -- use video-sharing sites.)
  • Mobile bandwidth consumed by Twitter and Facebook grew by 297 percent and 166 percent, respectively.

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Given those numbers, the next statistics in the report should come as no surprise: A majority of the 50 carriers surveyed by Allot have dropped all-you-can-eat 3G data plans, and nearly one-third are implementing application-aware pricing.

Paying for usage is fair -- there's no free lunch

It's not popular to say it, but users can't expect to consume unlimited amounts of bandwidth and not pay for it. Carriers, though, certainly bear some responsibility. All you need to do is watch a few ads for AT&T, Verizon Wireless, or T-Mobile touting all the terrific new things you can do on their networks. "The carriers are bearing the brunt of increased demand, but at the same time, they're doing everything they can to spur it," says Michael Voellinger, executive vice president of Telwares, a telecommunications consultancy.

What's more, the carriers -- particularly AT&T -- need to work harder at optimizing their networks and adding capacity to meet the demand they've helped create. Peak-time users are already noticing congesting, and as available spectrum gets sucked up, we're about two years away from seeing a significant 3G bandwidth shortage, says Voellinger.

There's another subtle factor at play: Because spectrum is not yet in very short supply, some companies are buying it on the cheap and essentially hoarding it in hopes that prices will spike in the future, says Voellinger. When that happens, costs will increase for everyone.

Bye-bye, QoS
Are we in a crisis? Not yet, but we're moving in that direction. And the crisis will hit enterprise IT along with consumers.

The most obvious impact will be on quality of service (QoS). More and more businesses allow employees to use their smartphones at work, and workers are doing a lot more with them than playing Angry Birds. As slowdowns and even outages become more common, business will suffer and management will expect IT to help -- even though IT has nothing to do with bandwidth.

Meanwhile, traffic from VoIP and IM applications increased by a massive 101 percent in mobile networks over the past six months, Allot found. Not only does that surge place a burden on networks, both mobile and wired, it reduces traditional sources of carrier revenue, such as SMS text-message charges. What will the carriers do about it? Raise prices, of course.

That just happened in the Netherlands. KPN, the country's largest carrier, posted weak first-quarter earnings as its mobile data customers flocked to Skype and other Internet-based messaging services. That undercut the company's more expensive offerings, so to make up for the loss, KPN is charging more.

Interestingly, KPN at first was going to use application-based pricing to charge more for VoIP calls. But that move was met with outrage, and the Dutch parliament then passed a bill barring companies from hindering competitors or giving preference to their own traffic on mobile networks -- in other words, a Net neutrality act.

Consumer groups hailed the law, but E.U. guidelines allow companies to charge more for certain services as long as they do not do so in a discriminatory fashion. You'll probably see that happen in the United States as well, so already tight budgets will be hit with higher mobile data bills.

New pricing models on the way
There is, though, an upside for business and consumers in application-based pricing: "Corporate users don't want to have to carry around two phones, and segmenting personal and business use of one device is much more easily accomplished with an application-aware network," wrote Chris Hoover, vice president of telecom service tools provider Openet, in a blog post earlier this year. "Operators have the ability to offer enterprise users the option to use their personal smartphone as a business device, without any party worrying about potential fraud."

In any case, it's clear that the tidal wave of video traffic is going to force changes in addition to higher prices that will affect carriers and users alike.

Google is already in talks with carriers about how to manage YouTube traffic, and an option called traffic shaping is being discussed within the wireless industry. Allot's marketing director Jonathan Gordon explained in a recent interview that much of the video traffic on the network isn't optimized for the device it's being sent to, resulting in a lot of data being tossed out once it reaches its terminus. "The network can recognize the type of device on the fly and, for example, transmit to an iPhone a lower-quality stream than it would, say, an iPad," he said. Or carriers could start offering incentives for using networks at off-peak hours, sort of a happy hour for broadband, he told me.

How this will play out is unclear, but we have to recognize that our unending appetite for new data-intensive applications comes with a price.

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