4G: Why Wireless Carriers Promote and Dread It

Here at the CTIA Wireless show in Orlando, Sprint CEO Dan Hesse says that with the planned summer launch of HTC's 3D EVO and 4G EVO tablet, Sprint will have 22 4G devices, more than any of its rivals. Verizon says it will bring its 4G LTE network to 147 markets by year's end, while AT&T is simultaneously building out its HSPA network while preparing to launch its LTE network later this year.

No question, 4G is the next mobile battleground for what shapes up to be a smaller field of national carriers. But at a day of sessions on the subject (sponsored by Fierce Wireless, which among other things publishes a first-rate daily newsletter on the wireless industry), the dominant theme seemed to be that the carriers may not be ready to deal with the enormous bandwidth demands their fast devices and networks will inevitably produce.

AT&T said as much in its press release about its decision to acquire T-Mobile. The company basically said it needed T-Mobile's spectrum to cope with ongoing increases in mobile data use, which increased 8000 percent between 2007 and 2010, and which it expects to be 8 to 10 times as great in 2015 as it was in 2010. "In the long term, the entire industry will need additional spectrum to address the explosive growth in demand for mobile broadband," the company warned in its news release.

At the Fierce Wireless sessions, AT&T Senior Vice President Kris Renne said even the faster and more efficient LTE technology would not be enough to address the coming onslaught of bandwidth demand. The company is exploring various so-called small-cell technologies which can make a network more flexible in meeting demand as it occurs.

She mentioned as one example the AT&T Microcell, which essentially functions as a cell site that hands off traffic to the customer's wired broadband network, thereby reducing demand on AT&T's own cell sites. What she didn't mention was that it cost me $150 to buy a Microcell and help AT&T with its bandwidth and reception problems.

But that brings me to the other issue (besides looming network capacity problems) that the carriers haven't fully explained as they promote their 4G networks and devices: What is 4G going to cost me? Or, from the carrier perspective, how are they going to finance the huge costs of these new, fast networks?

No carrier has explicitly outlined all its plans to make money from 4G, and a Fierce Wireless panel on the subject was populated by consultants and third-party service providers (no major carrier would participate). They suggested several pricing scenarios, including targeted marketing opportunities.

Grant Lenahan of Telcordia, which provides software to address carrier and business communications problems, explained that the on-demand nature of mobile video has the potential to tell marketers a lot about your personal tastes that they might not be able to learn based solely on impersonal demographic information. This information could be used to deliver some unexpectedly personalized ads.

Randy Fuller of Tekelec, another provider of services to operators, said carriers might end up charging content providers for transit costs to mobile devices. In other words, Netflix might have to pay the carriers for the bandwidth involved in streaming movies to smartphones-a cost it would almost surely pass on in higher fees to consumers.

Panelists noted that video is the chief consumer of mobile bandwidth, accounting by some estimates for 50 percent now and expected to comprise 60 or 70 percent going forward. But if consumers were forced to pay more to stream video, many might prefer to reduce video consumption. Fuller cited a Tekelec study (performed in Europe, but still...) that found consumers ranked video 4th on the list of important mobile data services, behind web browsing, e-mail and navigation.

The study found that many people would pay a higher base cost for a plan that would allow unlimited use of non-video services (as opposed to one that would cap bandwidth usage for all services).

Right now, however, carriers are caught between a rock and a hard place: Do they want to charge more for 4G services in order to realize a good return on their investment, or are they willing to charge less in order to lure more subscribers? Dan Hesse and Sprint appear to be going down the latter route but it remains to be seen whether Verizon and AT&T will respond.

But in the long run, network capacity looms as the bigger problem. Regardless of pricing, consumption is only going to increase -- and the wireless spectrum can only support so much traffic. As they trot out shiny new high-speed smartphones and tablets, the carriers have to be wondering: What if we all actually buy and use them?

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