Tariffs Have Consequences: The Effect of Mobile Demand on Carriers

“Tariffs have consequences,” researchers at the Yankee Group rightly note. And tariffs, and the shaping of retail offers, can have a powerful effect on user behavior, in ways that can shape consumption of data overall, affect the health of voice and messaging revenues and moderate and shape capital investment.

The reason tariffs have consequences is that, where demand exists for various products, consumers will consume more of products whose price is effectively lowered, and reduce consumption of products whose price is effectively raised.

“Pricing and data cap strategies significantly influence consumer behavior” is the way Yankee Group puts it, and that is correct. Encourage users to shift consumption to in-home Wi-Fi or public hotspots and demand for mobile network resources is reduced, while simultaneously increasing the quality of the experience.

Convert voice and messaging usage from an optional fee to a basic “use of the network” charge and some amount of voice and messaging revenue will be assured, so long as users want to use the mobile network.

“Operators with popular services and unsustainable data  demand have already adjusted both pricing and data  traffic policing to ensure traffic demand does not outstrip  resources,” Yankee Group analysts said.

In 2013, the group suggests, such moves can attenuate growing mobile network demand by steering consumers away from use of video while on the mobile network and toward Wi-Fi hotspots as the way of supporting video consumption.

Those same considerations will shape the speed and necessity of small cell deployments, versus use of Wi-Fi. Small cells, for example, allow better experiences when users are on the mobile network.

But the mobile operator’s business objectives are only sometimes and partly related to improving mobile access (coverage) at specific locations. An equally important objective, in some instances, is the ability to supply more bandwidth without loading the mobile network.

The former business objective (coverage) can be provided either using a small cell, dividing macro cells or offloading to Wi-Fi networks. The latter objective (offload) is better satisfied, where possible, by encouraging the use of Wi-Fi.

Tariffs then make a difference. How much smartphone traffic can be offloaded to Wi-Fi in public areas, or when people are out and about, is a bit uncertain.

It’s already clear that a majority of at-home smartphone usage routinely is shifted to Wi-Fi access, on many service provider networks.

Softbank in Japan has tested the offload potential of dense Wi-Fi deployments and apparently concluded that less than 25 percent of mobile data traffic can be offloaded to public Wi-Fi in the long term.

Those estimates correspond with figures Boingo suggests. Boingo believes about 22 percent of mobile traffic will be offloaded to Wi-Fi by about 2016.

Others might disagree. Cisco analysts say as much as 30 percent of mobile traffic could occur on Wi-Fi networks. And analysts at Juniper Research think more than 60 percent of mobile device traffic could be offloaded to Wi-Fi means by about 2015.

Others say studies show as much as 70 percent of smartphone traffic uses a Wi-Fi connection.

But tariffs, not just availability, will make a huge difference. Make public Wi-Fi more available, make it easier to switch to Wi-Fi automatically, give people a financial reason to do so – and people will do so.

That illustrates the logic of using either small cells with integrated Wi-Fi access, or simply deploying more Wi-Fi.