The Real Reason Wireless Broadband Costs More, for Less

An article in BusinessWeek today claims that wireless data demand is exceeding capacity, which is causing carriers to limit services and charge higher rates. But that just doesn’t jibe with what carriers — or applications developers — are telling me. The real reason carriers are limiting services and charging more is to maintain control of what people can do on their networks.

Poor network coverage is becoming obvious thanks to rising 3G demand, but that can be fixed with capital upgrades the carriers are already undergoing. In the meantime, according to a panel of carriers at last week’s Mobilize, network operators are still actively encouraging the growth of data use on their networks. In fact, earlier this month I spoke with application developers at DEMO, who said that rather than charging them to put their apps on the network, carriers were trying to pay them to do so, primarily to increase data usage.

Carriers, especially in the U.S., are trying to avoid becoming dumb pipes. Efforts such as limiting P2P on wireless networks and capping data use at 5 GB per month are attempts to keep the barn door shut before the horses run out. It’s too late for broadband access through DSL or cable, but a variety of factors, from limited spectrum to the early nature of 3G, means wireless broadband could stay under carrier control for years to come.  For example, the article quotes a T-Mobile executive that says carriers are encouraging applications that use less bandwidth:

T-Mobile USA, owned by Deutsche Telekom (DT), will demand a higher minimum payment from developers whose paid applications use up more of the carrier’s network capacity. “We’ve aligned a set of incentives for our partners to do what we believe is right for the consumer while being mindful of constraints of the mobile world,” says Ian McKerlich, director of mobile Web and content services at T-Mobile. The carrier will also prohibit developers from offering free applications that use up more than 15MB per user per month.

T-Mobile is only now rolling out a 3G network, so this may be an effort to keep data use in line until the network is fully operational, but it also could allow T-Mobile to offer its own applications that it can control and price. An example of such a carrier-controlled services is texting, which nets operators incredible profits.

Services for music, social networks and photo sharing are other potential gold mines if carriers can figure out how to control their distribution on their networks. Orange may have figured out one way by pricing data costs into its subscription music plans. Data caps and limiting the bandwidth an independent application uses is an easy way to do it. And by doing it now, carriers condition consumers to accept limitations on their wireless broadband. However, offering unlimited wireless broadband might harm a carrier’s bottom line in the long run.

Wireless broadband has limits (and is certainly more expensive when it comes to transferring bits), but the real threat to wireless broadband isn’t that data use will overload the network, but that carriers won’t be able to walk the line between delivering compelling services at a price point that makes them money and keeps users surfing.