AT&T’s data traffic is actually doubling annually

AT&T Senior EVP John Donovan

AT&T(s T) is now claiming on its Innovation Space blog that its mobile data traffic is doubling every year, rather than increasing by the more modest 40 percent annual rate it detailed in recent investor and analyst calls. The distinction is important because the faster AT&T’s HSPA and LTE networks become overloaded, the more pressure it faces to use its reserve spectrum and find new sources of airwaves.

AT&T Senior EVP of technology and network operations John Donovan wrote:

But when the year-end numbers show a doubling of wireless data traffic from 2010 to 2011 – and you’ve seen at least a doubling every year since 2007 – the implications are profound.

Over the past five years, AT&T’s wireless data traffic has grown 20,000%.

The growth is now driven primarily by smartphones.  Add to that new customer additions and the continuing trend of upgrades from feature phones to smartphones, and you have a wireless data tsunami.

So is AT&T contradicting itself? No, it’s just looking at different sets of numbers. According to the Wall Street Journal, AT&T confirmed that the 40 percent number cited by AT&T executives cited only factored in increases from existing users, not traffic produced from new subscribers, i.e., the typical AT&T smartphone customer increased his mobile data consumption by 40 percent over the last 12 months. The 100 percent number is for overall mobile data traffic on its network, factoring in the increased usage of its existing subscriber base along with the burden millions of new smartphones brought to its network.

Now AT&T’s numbers make much more sense

Why would AT&T use the 40 percent number, rather than 100 percent number, when it’s trying to convince the public it’s running out of capacity? You have to remember whom AT&T was talking to. Investors and analysts aren’t so much interested in overall traffic increases on AT&T’s network, but in traffic increases AT&T can’t monetize.

The 40 percent increase, in most cases, represents traffic AT&T has to absorb without collecting any incremental revenue. A customer on a 2 GB plan who increases his monthly usage from 1 GB to 1.4 GB doesn’t pay AT&T an additional dime. But a new subscriber represents an entirely new monthly revenue stream. If AT&T’s traffic grows from new subscribers, it has more money with which to add network capacity. That’s not the case with existing customers unless it raises prices (which AT&T basically did).

Despite those huge gains, AT&T’s data traffic is growing at a slower pace than the rest of the U.S. wireless industry. Cisco Systems’(s csco) new Visual Networking Index projections, released Tuesday, found that mobile data traffic throughout the U.S. increased by 172 percent in 2011, meaning other operators made up more ground. That probably has a lot to do with AT&T’s early lead in smartphones thanks to its years of iPhone exclusivity. As of the fourth quarter, AT&T had an industry leading 56.8 percent smartphone penetration, which means it has far less headroom than its competitors to grow its traffic through new subscribers.

What’s more, AT&T’s efforts to restrict data usage among its customers seem to be working, reining in its hungriest data users. It introduced throttling on its grandfathered unlimited plans in the fall, which is now kicking in at usage levels as low as 2 GB a month. AT&T has also moved most of its subscriber base over to tiered data plans, which places caps on monthly usage. Consequently, AT&T’s customers are only increasing their consumption by 40 percent each year, compared to the U.S. average of 156 percent annually estimated by Cisco.

iPhone image courtesy of Flickr user mark sebastian