Unlimited Cellular Data Plans Can be Unfair

By Haig Sarkissian, Principal Analyst | Wireless 20/20

4G LTE networks are quickly becoming capacity limited for some operators.  This means that in order to provide more bandwidth to subscribers, MNOs need to invest in building and expanding the capacity of their networks.  As data usage grows, more investment will be needed in order to deliver more capacity.

CapEx and OpEx analysis performed using the WiROI Tool shows that on a capacity limited network, the cost per GByte delivered is very close to the cost per GByte available.  As more capacity is added, the cost per GByte stabilizes and is nonzero.  This realization leads many MNOs to abandon their unlimited data plans of the past and establish tiered, tonnage based plans, where users pays for the amount of data that they consume.

Unfortunately, some unlimited data plans were grandfathered during the 2G and 3G eras.  As we move into the 4G LTE era, these unlimited data plans become unsustainable and introduce a possibility of unfair pricing advantage to the holders of these unlimited data plans at the expense of the general subscriber base who pays for their data consumption by the tonnage.

The problem gets amplified when certain unlimited data plan users become data hogs and start consuming massive amounts of data per month.  These can result from intentional or unintentional behaviors such as forgetting to turn on Wi-Fi when they are at home or at the office, choosing to do an iOS upgrade on the cellular network, or using excessive amounts of Netflix and YouTube while on the cellular network.  For example, if the average data usage per month by a smartphone user is between 500 MB and 1 GB per month, users of 100GB to 500 GB per month would be considered very heavy data users.

Statistical analysis done using the WiROI Tool shows the uneven distribution of data consumption when MNOs establish unlimited data plans, whereby the highest 5 percent of heavy data users consume more than 50 percent of the total capacity as shown in line A in red.  When data caps are established, user behavior changes and subscribers practice responsible habits of data consumption.  This may include utilizing Wi-Fi networks when at the home and at the office.  This yields a more evenly distributed data consumption as shown in line B in blue.  The WiROI Tool allows the user to vary the data caps and observe the resulting redistribution of traffic among users based on various monthly data cap settings.

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Since the cost to deliver a GB of data is constant at a given time and is the same for all users of a 4G LTE network, these high data users end up paying a small price per GB as compared to the majority of the subscriber base.  With uncontrolled and unlimited data plans, the average subscriber is forced to subsidize the heavy data user.

This realization has led the cellular industry to establish traffic shaping policies, including such fair usage policies as throttling and rate limiting once certain thresholds are reached.  As long as these policies are communicated clearly to the subscriber base, they should protect the majority of the subscriber base from the uncontrolled heavy data users.  Is it fair for the 95 percent of the well behaved subscribers to subsidize the 5 percent of heavy data users who happen to have grandfathered unlimited data plan?

W2020_Haig-Sarkissian-Mar--About the Author
Haig Sarkissian is the Principal Consultant for Wireless 20/20. Mr. Sarkissian brings 25 years of experience in the telecommunications industry with focus on the wireless communication markets. As a consultant he advises leading 3G/4G service providers and OEMs on strategy, target market definition, technology assessment & selections, as well as partnership development and investments. His clients span from start-ups to Fortune 100 companies. Prior to his consulting career, Sarkissian was VP of Sales and Marketing at Data Race and held senior management positions at AT&T. He holds a BSEE from Pratt Institute and an MSEE from Polytechnic University.

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