Feature Article

July 14, 2010

The Realities of 4G: What's to Come

I think I have made my bell head well known, but at a recent event with lots of long time friends the realities of the market place were not sinking in.

Dick Lynch and the Verizon Wireless team have their heart set on LTE by the end of this year. There expectation is that they are going to deliver a 10-12 MB throughput pretty consistently. What we don't know yet is where they will put the pricing. But let's make some educated guesses about the market pressures on them and the pricing decisions they have to make.

First of all their existing service is 6GB for 59.99 a month with a .05 per MB over that. This means the first 6 GB are $10.00 each or a little less than a ten of a cent per megabit.

On the other hand a GB extra at .05 per MB equates to 51.20 monthly. Of course the clever sales people at Verizon Wireless were suggesting I buy 2 plans. However managing the control would be up to me and some device I found (anyone ahead of me and built this data arbitrage device?). Of course a least cost router would work if it was measuring mbs). 

The pricing of 6 GB for $60 is perfectly set to keep T1s alive and well. It takes a pool of 6.5 monthly data services for broadband wireless to replace a T1 at $350 its project.

But what about the impact of Clearwire/Sprint and ubiquitous WiFi?

If these kind of data services are cross-elastic (a term I learned in the bells the way a doctor learns Grey's Anatomy), the sweet spot should be between DSL / FIOS services and a T1.

FIOS and DSL sell for about $40 a month and are not symmetrical. So the enterprise market uses them for employees and not machines. A T1 is symmetrical and can deliver over 13GB a day not accounting for overhead from the carrier's signaling. The cost of a T1 nationwide on average is $350 monthly. Your prices may differ based on volume and competitive markets.

Above the T1 is metro Ethernet which is delivering 10 MBs for about $700 The capacity of these systems are cross elastic with SONET and other optic services that are being heavily impacted particularly in the backhaul markets.

And now comes to the second point. The way Verizon intends to deliver LTE for near future is not much different than ubiquitous WiFi. A service in the New York area Cablevision is already providing.

Worse yet, here is a bigger secret: ATT intends to deliver almost double that speed at 21 MB using HSPA+ at the same time. And Clearwire / Sprint will have 100 MB in the same competitive area.

So what is the gain?

For many customers the issue is not the monthly capacity but the throughput. A T1 is bought for the speed which almost all the technologies will compete with by the end of the year. 

Against DSL and cable modem services most of the time the speeds will be comparable. I know of a case with Comcast where the fine print of their "unlimited" pricing has been the subject of a few complaints to the regulators.

If throughput is the requirement and the average monthly usage is less than 12 GBs of data than a wireless service has the advantage.

And if Clearwire/Sprint stay unlimited in their offering the only way they can fail is to be ineffective in the management of their spectrum.

All of this was comparing for a fixed solution, but these devices are mobile and there is a valuoge in that mobility that goes beyond the T1 cross elastics. The reality is that we are at the tipping point where all wireless may be cross elastic with all landline.

Carl Ford is a partner at Crossfire Media.

Edited by Marisa Torrieri

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