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August 26, 2010

It's now officially confirmed: mobile data traffic has surpassed voice and it will continue to grow in the same fashion for many more years to come, according to The Yankee Group.

As a consequence, wireless operators need to find new ways to not only support this new category of important traffic, but they also need to find new methods to profit from it as well. And to that end, content delivery platforms (CDP) can help them achieve their goals.

The Yankee Group defines CDPs as software used to bring content from its origin, through the wireless network and on to the ultimate end-user to create the best content viewing experience for the wireless user.

However, and this is where it gets a bit more complicated, CDPs don't just make content easily accessible for subscribers-- they can also help mobile service operators leverage advantages networks already have to create new services and generate new revenue streams from more than one single direction.

Overall, CDPs are increasingly on operator's radar screens now that mobile data traffic is on the rise so much in the last few months. While data still trails voice when it comes to total revenue, it is making up ground in the percentage of total mobile revenue versus voice, and this is what has the industry taking notes.

But unfortunately, and this is of some concern to more than one, some wireless operators aren't seeing massive revenue increases to go along with such high traffic and usage, and as a result, some don't think that the trend is strong enough to sustain itself any reasonable lenght of time.

But most wireless industry analysts we spoke to disagree on that one.

Wireless carriers are charging subscribers for data plans, but the data is becoming more dynamic without the plan charges following suit. Since mobile users are accustomed to getting these services at the current rates, any significant price increases will certainly be met with disapproval and will run the risk of driving customers away, which is not an option for most operators.

Instead, The Yankee Group predicts total annual mobile data revenue will grow by close to $60 million from last year to 2013. While that won't surpass voice revenue, the real growth story is in data's continuing percentage share gains of total mobile revenue versus voice.

Less than five years ago, mobile data traffic made up less than about 15 percent of all total mobile revenue.

But in 2013, when Yankee Group forecasts total mobile phone revenue to reach over $1 billion annually, data revenue will represent about 23 percent of the returns.

Voice traffic may continue to bring in the majority of revenue, but it will gradually lose ground to data. The overall traffic figures for data will only keep growing, requiring more attention from vendors and wireless operators that are serious in growing their business.

So if they wish to really succeed, wireless operators today must instead begin to embrace new ideas and solutions beyond their traditional business models when it comes to content delivery.

Earlier this month, new numbers came in that reveal that mobile data traffic in the U.S. has more than doubled in the last six months, and the trend appears to be increasing.

According to new numbers from Chetan Sharma Consulting, overall revenues from mobile data grew 6.2 percent in the second quarter from the previous quarter and climbed no less than 22.1 percent from the year-ago period for most of the U.S.

In the second quarter alone, revenues for mobile data eclipsed $13.2 billion.

Chetan Sharma is thus confidently holding firm to its initial estimate of $54 billion for 2010.

Those are no small numbers. Verizon Wireless is still on top with almost 100 million data connections and Sprint Nextel Corp. had its first positive net-add quarter in three years, according to the research firm.

During Q2, AT&T Mobility and Verizon Wireless accounted for about 74.6 percent of all data revenue growth and now command approximately 71 percent of all related overall revenue in the U.S.

With data traffic increasing so rapidly and across all networks, the first half of 2010 ended with the average U.S. subscriber consuming about 230 megabits of data a month, representing a 50 percent increase in just six months, Chetan Sharma said.

The U.S. has become ground zero for mobile broadband consumption and data traffic management evolution, the research firm concluded.

"While the traditional net-adds have been slowing, the connected device segment is picking up so much that both AT&T and Verizon added more connected devices than postpaid subscribers in in the second quarter of this year.

Given the slow postpaid growth, wireless operators are fiercely competing in prepaid, enterprise, connected devices and M2M (machine-to-machine) segments," Sharma added.

In June, Verizon Wireless said that explosions in data traffic are coming real soon, and has been predicting much of the same for the past several months now.

Verizon's CFO John Killian says that data-heavy applications and devices are already consuming upwards of 800 megabytes of data per month and hinted that the wireless carrier will likely change its pricing structure as more and more mobile users move to smartphones and other MIDs (mobile Internet devices).

Killian added "We will probably need to change the design of our pricing scenario where it will not be totally unlimited and flat rate, but rather on a per usage policy."

AT&T Mobility has already announced new pricing plans for data and put an end to the promise of unlimited data (except for those that are already 'grandfathered' in). Now some wireless industry observers say it's only a matter of time before most other mobile service carriers adopt AT&T's pricing method.

Wireless carriers have moved from second to third and now fourth-generation networks in about ten years. Still, it is becoming very apparent that almost no network will be able to meet every single demand in the short term.

For its part, Verizon Wireless currently counts about 17.2 percent of its mobile subscribers on smartphones, but over time, Killian expects that at least 70 to 80 percent of its overall customers will be on smartphones.

Killian failed to give any time frame, but we can expect that the 70 to 80 percent mark would probably be attained in less than 18 months from now.

The notion of uncapped data has come as somewhat of a disservice to the carriers only recently. Until wireless networks and worthwhile devices were capable of using anything near one gigabyte per month, the wireless carriers' open-ended approach to pricing data plans helped them enjoy greater ARPUs at a near ubiquitous one-size-fits-all $30 monthly data plan.

And that is unsustainable most industry experts agree.

As mobile carriers ready their 4G networks, they are taking a new look at data and seem to have figured out that tiered pricing isn't likely to disrupt revenue streams as much as it is able to weed out or get more money out of the biggest users of mobile data.

As is expected by many industry observers, Verizon Wireless is reportedly working toward a tiered data pricing plan portfolio of its own. Details are expected soon.

While Verizon's wireless division has been recently paying down debt with some of its cash, its parents companies haven't done the same. According to The Wall Street Journal, Verizon Wireless could start paying a dividend in 2012 to supply parents Verizon Communications and Vodafone Group with a steady flow of cash. At least that's the plan for now.

Overall, Verizon Communications has been getting cash out of its wireless carrier division through a debt it owed by the joint venture, but that debt will be paid by the end of next year, according to Killian.

When the companies meet in December to talk about the partnership, a revived dividend is likely to be a top priority for Vodafone, which owns a 45.1 percent stake in the venture. Verizon Wireless paid a dividend from 2003 to 2005, but put an end to the payment in 2006.

The lack of a dividend has been a concern for investors almost ever since, and one that they hope will be rectified real soon.

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Source: AT&T Mobility.