Though it is still unclear what the net effect of the new pricing will be on subscribers, the new plans set an important departure in the approach to voice versus data service plans. Subscribers may be able to get cheaper voice, but data pricing shows no comparable decrease.

More importantly, operators have started to require that subscribers have a data plan with some device types–mostly smartphones. Mobile operators seem to acknowledge that they can offer a better deal to their subscribers for voice services, which are substantially more profitable (with the exception of SMS, which on a per-bit basis may give an even better return than voice), but they have chosen not to extend this change to mobile data plans.

Why didn’t data prices go down? Two reasons may explain the new approach to data. Mobile operators want data to become an integral part of subscribers’ service plans. They are willing to charge less for voice, as long as subscribers pay on average more for data. This reflects a more balanced approach in splitting revenues between voice and data–with operators less willing to have voice subsidize data services. As data services become more mature and widely adopted, this is an approach that is no longer sustainable.

The second reason is that mobile operators cannot afford to lower data plans, as they may lead to a downward spiral in ARPU, at a time when they need to deal with an unprecedented growth in individual user traffic.

Initially the bulk of the growth in data traffic was generated by iPhone users, who now use more than 500 MB per month. With the introduction of new devices including Android-based smartphones and the higher number of applications, mobile data is rapidly becoming a mainstream consumer service. In the U.S., smartphones now represent over 30 percent of shipments and the percentage is likely to go further up. Traffic generated by these devices is also quickly catching up with that from iPhones. In Russia, mobile WiMAX operator Yota sees over 1 GB per month data traffic from subscribers using their HTC smartphone. For laptops, this figure is a staggering 13 GB per month. A large–and rapidly growing–portion of this traffic is video. This is what worries operators worldwide: with email and Internet access, traffic growth is bound by the limited requirements of the application; with video or even audio content takes little effort for subscribers to enter in the realm of the GB/month.

Mobile operators are delighted to see that their subscribers love mobile data services–and that are willing to pay for them–but at which point does the growing popularity of data and video affect profitability of the mobile data? It does not take long, as a quick back-of-the-envelope calculation that compared delivery costs and revenues on a per-MB basis.

The revenues per MB can be computed as a function of the monthly fees, for different levels of traffic. Revenues can be compared to the delivery cost per MB, which we estimate at $0.015 for HSPA, $0.005 for LTE and $0.003 for WiMAX on the basis of our analysis of mobile operator and vendor data. The delivery cost per MB depends on many variables that are specific to different operators–and in particular on the network utilization level–and therefore are subject to variability. Our values are therefore only indicative and on the low end in comparison with other estimates we have come across. It has to be kept in mind that these estimates do not include costs such as customer acquisition and support, or network core operations, which are shared with voice.

At the current average traffic levels of 500 MB/month, revenues per MB outstrip delivery costs for HSPA, LTE and WiMAX, for ARPUs starting at $20 per month. As traffic grows, however, the costs per MB rapidly exceed the revenues, especially when charging subscribers low fees. At a 50 percent CAGR, the 500 MB per month will reach 2.5 GB per month in five years. At $20 per month, for instance, mobile operators operate at a loss for subscribers using more than 1 GB per month in an HSPA network, or for subscribers using more than 5 GB per month in an LTE network. At 10 GB per month, data subscribers do not generate any net benefit for mobile operators with HSPA. With LTE or WiMAX, revenues from 10 GB subscribers at best reach the delivery cost…Continued

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After being caught by surprise by the sudden growth in mobile data, mobile operators have started to realize that, to profit from it in the long term, they need to strike the right balance between pricing and traffic, and limit the scope of network expansion to increase capacity. If they raise the prices too much they risk losing subscribers. If traffic is too high, congestion and the need for expensive upgrades ensue–and profitability is threatened. If they spend too much on network expansion, they will hurt profit margins.

One solution that mobile operators have timidly started to mention is the introduction of traffic limitations. Subscribers have been grown accustomed to flat-rate unlimited services–for both data and voice–and it will be difficult to wean them off this type of plans. Unless strict–and likely to be highly unpopular–caps are introduced, they will only affect a small fraction of subscribers. For instance, on AT&T mobile network, 3 percent of subscribers use 40 percent of the bandwidth, according to the operator. Traffic caps may be useful in managing these 3 percent subscribers, but they miss large opportunities for improving traffic.

Increasing the efficiency of the network is crucial to manage traffic in ways that benefit both subscribers and mobile operators. Mobile operators no longer have to transport traffic through a passive, best-effort channel. They can use tools like quality-of-service and traffic prioritization, subscriber policies, compression, deep-packet inspection to give subscribers more control over their mobile online experience while increasing the perceived network capacity through to a more efficient use of resources. The rigidity of traffic cap can be avoided by using a more flexible approach in which traffic flows are actively managed depending on data and infrastructure requirements and operators data policies. And in the process, mobile operators can escape their dreaded fate as commodity providers, and leverage data management to differentiate their offering from competitors and extract more revenues from data services.

The tools to actively manage traffic are available today, yet heir implementation is taking a long time. Mobile operators are rightly concerned about the reception among subscribers who may see traffic management as a way to limit their freedom, while in fact it is more likely to result in a more fair use of network resources. Transparency and subscriber education of what managing traffic entails is going to be the next step for mobile operators to gain better control over data services and their profitability.

Monica Paolini is the founder and president of Senza Fili Consulting. Senza Fili Consulting provides expert advisory services on wireless data technologies and services.

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“As anticipated, we have seen a competitive pricing environment in the chipset market and are proactively managing within this dynamic to grow our market share,” said Qualcomm CEO Paul Jacobs in the company’s earnings release. “A subdued economic recovery in developed regions, including Europe and Japan, combined with relative strength at the lower end of the market, is changing our estimated 3G device average selling price and chipset mix for this fiscal year. Accordingly, we are modestly reducing our fiscal year revenue estimates to reflect this near-term market situation, but are maintaining our earnings per share guidance.”

Specifically, the company said it now expects fiscal 2010 revenues of between $10.4 billion and $11 billion, lower than its initial expectations of between $10.5 billion and $11.3 billion. However, the company maintained its diluted earnings-per-share growth expectations of between 64 and 85 percent, year-over-year.

As for the company’s first fiscal quarter 2010 results, Qualcomm posted revenues of $2.67 billion, up 6 percent year-over-year and down 1 percent sequentially. The chipmaker’s net income for the quarter clocked in at $841 million, up 147 percent year-over-year and 5 percent sequentially. The pop in Qualcomm’s net income year-over-year was primarily due to “a significant improvement in net investment income as our marketable securities recovered value and financial markets stabilized,” the company said.

Qualcomm pointed to a number of recent business initiatives in an effort to highlight its forward movement (and possibly pacify worried investors). The company trumpeted the success of its Snapdragon chipset (recently featured in a number of high-profile smartphones such Google’s Nexus One), its BREW Mobile Platform operating system (recently incorporated into HTC’s latest feature phone play) and its FLO TV mobile video operation (set to launch a major advertising effort during the upcoming Super Bowl).

“We are pleased with our performance this quarter, driven by healthy demand for our chipsets, strong shipments of 3G devices by our licensees and lower operating expenses,” purred Jacobs. “We’re executing on our strategic objectives and reaffirming our 2010 3G device forecast, an increase of 21 percent year-over-year.”

For more:
- see this release
- see this SeekingAlpha conference call transcript
- see this Reuters article
- see this MarketWatch article
- see full coverage of wireless in the fourth quarter

Related Articles:
Qualcomm COO Len Lauer resigns
Sprint drops Qualcomm’s QChat
EU regulators close Qualcomm antitrust probe

Yet only 5 percent of respondents to a poll we put out this week thought Apple would wind up doing what it did: make a tablet for AT&T’s network. So the chattering class mostly got it wrong. But to give you an idea of how well Apple’s public relations machine whipped the media into a froth over the iPad, consider this: According to Google News, as of 5 p.m. EST on Wednesday there were more articles associated with the iPad than there were with President Obama’s State of the Union address.

Putting the media frenzy aside, what does the iPad mean to the wireless industry? Clearly, Apple is confident in AT&T’s ability to accommodate the millions of presumed iPad users. Indeed, Apple COO Tim Cook said on Monday that AT&T had presented the company with plans to improve its network, and Apple was pleased by what it saw. Wisely though, iPad users on AT&T will have free access to the carrier’s prodigious WiFi network, which should help AT&T offload some traffic.

With the iPad, Apple is making AT&T less a partner and more of a pipe. The data plans run $14.99 per month for 250 MB and $29.99 per month for unlimited use–which presumably comes with a 5 GB cap–and are half the price of what AT&T charges for netbooks. What’s more, they are prepaid, no-contract plans that users can cancel at any time. Further, the device is unlocked and compatible with other GSM networks. Take note: I’m saying “users” because they’re not really subscribers in the way we traditionally think of them; Apple has made sure that users dissatisfied with AT&T can move elsewhere.

Based on the service pricing, it seems Apple managed to wring some concessions from AT&T. After all, AT&T has come under pressure for its network performance in some metropolitan areas, such as New York City and San Francisco, where there are high concentrations of iPhone users. Perhaps Apple reminded AT&T of that. I have no inside knowledge of this, and it’s pure speculation, but it’s also possible Apple had Verizon and AT&T bid against one another to be the iPad carrier partner.

I think what Apple has done is similar in some ways to what Google is trying to do with the Nexus One. FierceWireless columnist Mark Lowenstein, managing partner of Mobile Ecosystem, noted the iPad announcement “shows that wireless operators are now running two businesses: a full-service retail business with their own stamp on devices, the user experience, content, and applications; and a wholesale business, where there will be myriad of devices connected to their networks, each with a distinct business model.”

With the iPad, Apple has effectively formed a closer relationship with the customer, bypassing AT&T in many respects. I don’t know if the device will revolutionize the market for netbooks and similar gadgets, but it is clear Apple is jumping on the bandwagon to revolutionize the way wireless carriers do business. –Phil

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“Our engineers have uncovered specific cases for which a software fix should improve connectivity to 3G for some users,” a Google employee named Ravi posted on the Nexus One Forum, which is not affiliated with Google but describes itself as an “enthusiast site.”

The employee said Google has worked with its hardware partners on the remedy. “We are testing this fix now, initial results are positive, and if everything progresses as planned, we will provide an over-the-air software update to your phone in the next week or so,” he wrote.

But Ravi did not say the Nexus One was completely to blame for connectivity issues. “It may be, however, that users are experiencing problems as a result of being on the edge or outside of 3G coverage, which a product fix cannot address,” he said, while thanking users for their patience.

Quick Response

Connectivity problems with the 3G, or third-generation network, which allows simultaneous data and voice transmission at faster speeds, have created a logistical hassle for Google as it tries to market its first smartphone, manufactured by HTC and sold unlocked via its online store or subsidized through T-Mobile. Rather than call their wireless carrier, thousands of users brought their concerns to Google.

It’s unclear if the patch will be transmitted automatically or must be downloaded via the Google Android Market. But it is a timely response to the problem, said IDC Research mobile-devices analyst Ramon Llamas.

“The phone only came out about three weeks ago,” Llamas noted. “I didn’t expect a patch overnight, but after less than a month they are on course and doing their due diligence.”

He added that Apple’s…

Consider the implications behind the statistics. According to Chitika Research, Google is pulling healthy numbers from iPhone users. Specifically, Google search makes up just more than half of all Internet traffic on the iPhone.

That number is even more significant when placed in this context: It outnumbers the entire genre of non-search traffic. Non-search traffic includes typing a URL directly into the browser, navigating to bookmarks, and clicking links from any non-search site.

Google’s iPhone Dominance

If those numbers aren’t enough to get the mobile industry’s attention, consider how Google’s iPhone stats compare with the general Internet. According to Chitika, non-search traffic makes up 65 percent of all web usage for non-iPhone users (mostly people surfing the Internet on PCs). And Google search traffic makes up about 31 percent of overall Internet traffic. Chitika points out that this is 20 points lower than Google’s iPhone stats, yet it is still considered the dominant source of search traffic.

In all, Google sees 1.46 million impressions on the iPhone each month. By contrast, Yahoo sees nearly 36,000 impressions, and Bing gets a mere 2,387 impressions. Bing is climbing up the mobile-search ranks, though, already surpassing Ask with its 2,348 impressions and AOL with 401 impressions. The iPhone also dominates total smartphone traffic, with about 28 percent. Android is closing in on Apple, however, with 27 percent, while Research in Motion holds only 10 percent.

“How can Google be so dominant on the iPhone?” Chitika researchers asked. “Simply put, the way people browse through…

“Due to a technical error, [the Nexus One] was erroneously displayed on our site,” Wal-Mart spokesperson Anna Taylor said in a brief phone interview Wednesday. “We are working with our partner, Let’s Talk, to have it removed as quickly as possible. We have no plans to carry the Nexus One in Wal-Mart stores or online at this time.”

She declined to comment further when asked if a future deal is possible.

Google responded to a request for comment with a statement via e-mail: “We currently have no plans to distribute the Nexus One through any channel other than our Google-hosted web store.”

The telecommunications company Let’s Talk, which manages Wal-Mart’s online wireless sales, did not immediately respond to a request for comment.

Slow Sales

The page on Wal-Mart’s web site was discovered by a blog that covers the Android operating system, and another blog speculated that the Nexus One could be sold for as little as $99.

The technical data listed with the smartphone, which is manufactured by HTC, indicated that the Nexus One from Wal-Mart would be compatible with the Sprint Nextel, AT&T and Verizon Wireless networks. The current model sold directly by Google for $530 is unlocked, while T-Mobile sells a version for $180 with a two-year plan.

Early sales of the smartphone have been slow, with about 20,000 handsets sold in the first week, compared to smartphone leader Apple’s iPhone 3G, which sold more than a million in the first week. The Nexus One’s touchscreen design is meant to mimic the iPhone, but it has unique features such as dual microphones for noise reduction and a one-GHz Qualcomm Snapdragon processor….

That landscape could include the emerging categories of netbooks, e-readers and other tablets, all of which have seen a flurry of product releases in the last few months — at least some of which were in anticipation of Wednesday’s event.

‘The Internet In Your Hands’

The presentation at the Yerba Buena Center for the Arts in San Francisco followed the form of previous Apple launches, with Apple CEO Steve Jobs appearing in his trademark black turtleneck and jeans.

He said Apple wanted to kick off the new year with a “truly magical and revolutionary product” to go alongside laptops and smartphones, and he described the iPad as “a third category of device.” Jobs told the packed auditorium that surfing the web on the iPad is like “holding the Internet in your hands.”

At half an inch thick and 1.5 pounds, the iPad builds on the success of the iPod touch and the iPhone, and runs an updated version of the iPhone operating system. The device features a 9.7-inch LCD touchscreen and is optimized for movies, games, books, web browsing, and other media.

There’s a built-in calendar and address book, access to iTunes, a built-in e-mail client, and an on-screen QWERTY keyboard. There is also a new iPad Keyboard Dock, so the user can employ a regular keyboard.

The device is based on a custom Apple-designed one-GHz chip, called the A4, and features 802.11n Wi-Fi, Bluetooth 2.1, an accelerometer, a speaker and mike, and a 10-hour battery.

The pricing of the device has been the subject of much discussion, with many expecting a price…

“It’s so much more intimate than a laptop and so much more capable than a smart phone,” Jobs said Wednesday at the device’s highly anticipated debut in San Francisco.

Apple had kept its “latest creation” tightly under wraps, though many analysts had correctly speculated that it would be a one-piece tablet computer with a big touch screen, larger than an iPhone but smaller than a laptop.

The iPad has a 9.7-inch touch screen. It is a half-inch thick, weighs 1.5 pounds and comes with 16, 32 or 64 gigabytes of flash memory storage. The device comes with Wi-Fi and Bluetooth wireless technology, but no mention was immediately made of a data connection through a wireless carrier.

Jobs said the battery lasts for 10 hours, and that the device can sit for a month on standby without needing a charge.

The CEO demonstrated how the iPad is used for surfing the Web with Apple’s Safari browser. He typed an e-mail using an on-screen keyboard and flipped through photo albums by flicking his finger across the screen.

Jobs said the iPad will also be better for reading books, playing games and watching video than either a laptop or a smart phone. The iPad comes with software including a calendar, maps, a video player and iPod software for playing music. All seem to have been slightly redesigned to take advantage of the iPad’s bigger screen.

No price or information on availability was immediately announced.

Tablet computers have existed for a decade, with little success. Jobs acknowledged Apple will have to work to convince consumers who already have smart phones and laptops that they need this gadget.

“In order to really create a new category of devices, those devices are going to have to be…