YouTube Will Kill Flat-rate Mobile Broadband Pricing Forever

Video is driving the projected increase in both mobile and wired broadband — but it’s not the proliferation of video that’s the problem for mobile operators so much as the relative ease with which consumers can now access it. Indeed, while mobile operators have long faced traffic congestion at cell sites thanks to peer-to-peer traffic, the widespread availability of video in formats that the average consumer can watch has changed the industry. And that’s causing mobile operators to rethink their pricing plans (GigaOM Pro, sub. req’d). In short, YouTube (s goog) may be the death of unlimited mobile broadband on handsets.

Mobile video streaming rose 99 percent between the first and second half of 2009, according to data released this week by Allot Communications. The firm, which sells network management gear to broadband providers, credits the accessibility of YouTube and its ilk for the rise in video streaming on mobile networks. Video overall comprises most of the mobile network traffic, but the amount consumed via peer-to-peer traffic has fallen as the amount of streaming video traffic has risen. Jonathon Gordon, vice president of marketing with Allot, says that P2P has decreased as a percentage of mobile network traffic although it still comprises 19 percent of total traffic.

The reason for P2P’s gradual decline is that it’s more complicated to share files via P2P, which somewhat limits the audiences that will practice file sharing. For example, it requires finding and downloading software to a mobile phone, which not everyone is willing to do. YouTube, however, can be accessed by anyone in just a few clicks. As such, YouTube traffic accounts for 10 percent of all the traffic on mobile broadband networks, and 32 percent of all HTTP streaming traffic. And it rose 90 percent between the first half and second half of 2009.

Allot’s data proves that YouTube is a force today, but the latest numbers out from Cisco’s (s csco) Visual Networking Index show the effects of streaming video on mobile broadband networks through 2014. And those effects are pretty brutal. Cisco estimates that 82 percent of mobile broadband traffic will be HTTP streaming traffic while total video traffic will account for about 2.3 exabytes of data a month.

Streaming traffic is more difficult for operators to manage simply because, as opposed to a video download, streaming is also an ongoing process. For ways companies are trying to improve this process check out our report on Adaptive Bit Rate Streaming (GigaOM Pro). Such real-time consumption of video during streaming has big implications for mobile operators’ networks, notably in that it can cause problems during periods of the day when other people want to use the same mobile network to surf the web, make phone calls or check email.

It’s no accident that AT&T’s (s T) Ralph de la Vega singled out video streaming during a speech his answer to a question asked at an analyst event, in which he attacked the gratuitous use of network resources by iPhone (s aapl) owners last December. In his speech response, de la Vega said:

“I’m not going to give you in detail what we’re going to do, but if three are causing 40 percent, then we’re going to try to focus on making sure we give incentives to those small percentages to either reduce or modify their usage so they don’t crowd out the other users in those same cell sites,” de la Vega said. “You’ll see us address that more in detail in the future…What’s driving usage on the network and driving these high-usage situations are things like video or audio that keeps playing around the clock. We’ve got to get to those customers and have them recognize and change their patterns.”

I’ve suggested that AT&T might use pricing as a means to shape user behavior on the network, rather than simply forbid users from doing what they want on mobile phones. Indeed, AT&T (and other carriers) may find itself racing to keep margins high for mobile broadband as usage increases. On its fourth-quarter earnings call at the end of January, Ma Bell admitted that its data traffic had doubled while the costs to send bits had halved. So for now, AT&T is keeping its costs in line with demand. But according to a forecast from Cisco released today, the average amount of data consumed on mobile devices will rise to 7 GB per month by 2014 from just 1.3 GB per month today — a 438 percent increase. Can AT&T — or other operators — drive the cost of bits down in line with that amount?

Given that mobile resources are constrained by a variety of things, including the spectrum allotted to carriers, it’s likely that mobile broadband providers will eliminate flat-rate pricing for mobile broadband as away to keep profits and network quality up while data use expands. When that happens should we blame YouTube — or profiteering mobile operators?

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