Friday, October 24, 2008

Mobile broadband: is it any good?

Takeup of mobile broadband services has exploded over the last twelve months or so, as these figures from Ofcom reveal:

new mobile broadband connections
Source: The Communications Market 2008
This is a staggering amount. From the same study: "In the five months from February 2008 (the first month for which data are available), an estimated 510k mobile broadband connections were sold by the UK’s five mobile network operators, 425k of which were contract connections (an average of 85k contract subscribers a month)."

Also interesting, again from the same study, are the numbers of users employing a mobile broadband connection as an alternative to a fixed connection, shown across different user age ranges in the chart below:

mobile vs fixed broadband

...but, despite this, there are some interesting question marks over whether these services actually deliver an acceptable level of service, and, perhaps more significantly, whether they will actually provide any significant new revenues for mobile operators.

Again, to quote from the same Ofcom study:

“Revenue from mobile broadband contracts is typically between £10 and £20 per month, while nearly half of all mobile contract connections sold with a handset in Q1 2008 were in the £30-£40 bracket, and average revenue per connection for mobile contract customers in 2007 was £33.06.

Clearly, therefore, although mobile broadband may come to represent a significant new revenue stream for mobile operators, in terms of both volumes of subscribers and revenue per subscriber it is dwarfed by current voice and text revenues from mobile phones. A projection of three million subscribers accessing broadband via a mobile dongle in the next couple of years at an average of £15 a month per subscriber would generate a total of £540m per year – or just over 3.5% of the £15.1bn total retail revenue generated by the UK’s mobile operators in 2007.

It is also worth noting that, compared to voice, the revenues from mobile broadband are massively disproportionate to the network capacity required; T-Mobile announced in April 2008 that data traffic already exceeded voice traffic on its network (Informa, Mobile Entertainment, April 2008).”

Coupled with this, there are also a number of concerns over the performance of mobile broadband services, which often seem to provide much less than what it says on the tin:

T-Mobile, Virgin broadband ads fall foul of watchdog,1000000085,39518866,00.htm

To quote:

"The Advertising Standards Authority has taken issue with claims that mobile broadband is interchangeable with its fixed-line, 'home' equivalent.

The Advertising Standards Authority's (ASA's) adjudication follows a complaint from a member of the public over a T-Mobile flyer that stated: "All the benefits of home broadband, on the move. No wires, no waiting, no worries". The ASA said the flyer may mislead consumers into thinking mobile broadband would deliver the same speed and quality as traditional home broadband.

T-Mobile, however, said the leaflets referred to the capacities of mobile broadband, not its speed, and "maintained that they did not make any claim that implied a direct technical comparison to fixed-line broadband", according to the ASA.

The ASA, however, disagreed with T-Mobile. "We understood that mobile broadband was unlikely to offer speeds comparable with those of a high-speed, fixed-line service and that, due to the technology's reliance on obtaining a signal from mobile-telephone networks, it could not guarantee the same continuity of service," the ad watchdog said in its adjudication.
"In particular, we were concerned that activities such as streaming, downloading and online gaming were unlikely to be available to mobile-broadband users to the same standard as to fixed-line broadband users," the ASA added."

The coverage and performance of mobile broadband services seems to me to be at best variable and at worst unusable. Some of this may be down to network coverage, but it may also be that these services are simply victims of their own success: it's simply the case that the existing mobile network infrastructure can no longer cope with rising demand.

A recent example: at the recent city hotel conference venue, the performance of mobile broadband services was outstripped by far by the BT Openzone hotspot available throughout the venue.

But if mobile broadband services aren't profitable, where is the incentive to upgrade networks to address these coverage and performance issues? This from Guy Kewney, writing for The Register earlier this year:

"The mobile broadband revolution, in short, could be a bubble. If the carriers could provide ADSL-standard broadband for half the price of ADSL indefinitely, then the market would simply grow and grow. But it can't, and nobody in their right mind imagines they can; at some point, the bandwidth they offer will be swallowed up and they'll have to find more from somewhere. And that will cost real money."

Guy offers more evidence to confirm the rapid growth in mobile broadband traffic, citing the growth in T-Mobile's traffic mentioned above and others too:

"T-Mobile reported in April 2008 that the volume of data traffic on its network in the UK had exceeded that of voice traffic for the first time in the first quarter of 2008. Mobile broadband pioneers, 3 UK and Vodafone, are likely to announce a similar trend this year. 3 UK reported a seven­fold increase in the volume of data traffic on its network in the six months to March 2008."

As stated in the above Ofcom study, the margins on tenner-a-month mobile broadband are very small, and those could quickly turn into losses if punters start using all the bandwidth available to them. And if they're not profitable, how will these services ever improve?

Perhaps we might want to consider the role mobile broadband services might play in home access initiatives in the light of all this; this is certainly far from being a mature market as yet, and on this evidence it could be doubtful it'll ever become one.

Finally, there are some issues to consider about mobile broadband tariffs too. Some services are described as "pay as you go", but unlike a PAYG mobile phone, which stops working once you've used up all your credit, mobile broadband services just keep right on going, allowing user to ramp up some very hefty bills if they're not careful. An example, albeit an extreme one:

Do we really want to be committing disadvantaged groups to a connectivity approach with such potential financial pitfalls for the unwary?

It always seems ironic to me that PAYG services, the most expensive mobile telephony option by far, have the highest takeup amongst disadvantaged groups, as they may the only connectivity option available to users that don't have sufficient credit worthiness for either a contract mobile service or a conventional landline service.

Funny old world.

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