Monday, March 9, 2009

The data business

The high cost of mobile data has frustrated me for a while.  Despite loving gadgets and trying to keep up with the latest tech, I simply refuse to pay for a mobile data plan.  I love the iPhone but I'll never get one for $1,000 per year in minimum plan costs.  Since it came out, the world economy has gotten steadily worse while the plan price has only increased.  The story for other mobile devices, plans, and carriers is little different.  If you are a mobile carrier, have millions of subscribers, deliver voice digitally over the same network extremely quickly with almost no lag, how can you charge 20 cents for 150 bytes of an SMS text message that adds almost no load to your network?  Is it a ripoff?  Absolutely.  

I'm certainly not the first to do this math, but here's a little comparison of cost per MB, assuming an SMS text is 150 Bytes in length including any connection overhead:
A) Verizon unplanned text messages at 20 cents/message:
$1,398.10 / MB
B) Verizon $5 / month for 250 text messages plan, fully utilized:
$139.81 / MB or 10x less than A
C) Kore Telematics' (M2M MVNO) GPRS data flat rate as published on their GSA Schedule, discounted for US Gov't use:
$5.48 / MB or 255x less than A
D) Verizon's $10 / month unlimited text messaging plan:
12757 messages / month to acheive the same cost per MB as in C

Now, before all you commenters out there (anyone, anyone, Bueller?) overwhelm me with notes about how these services aren't the same, I know and agree.  They aren't the same.  An SMS text message is different from a GPRS data connection.  GPRS is persistent whereas SMS is short and sweet.  SMS's can be received by a phone that's in a low-power sleep mode whereas a persistent connection requires it to be fully powered and must be initiated by the phone.  Furthermore, Verizon (being a CDMA-based carrier) doesn't provide GPRS data (which is GSM-based), they provide 1xRTT and EV-DO.  I don't mean to pick on Verizon, I just happen to be familiar with their rates.  Lastly, an MVNO like Kore doesn't own any wireless network infrastructure (hence the V in Mobile Virtual Network Operator), they lease it from some other primary operator.  This lease of the data capability implies that cost would be higher, however.  Both the operator and Kore need to pay their own bills and make money on the deal so you're getting double-hit with overhead costs and profit.  This price comparison also doesn't take into account the different monthly access fees that are associated with each (you're welcome to look them up and compare for yourself).  

Regardless of those stated differences, an SMS text is the user-generated data transmission technique requiring the lowest performance of any data transiting a wireless carrier's network and yet it is the most expensive to use.  It is tiny (~150 B) and there is no promise or expectation of immediate delivery.  If your SMS takes a few minutes to go through, do you even notice?  How about if it takes a few minutes for a web page to load or, even more severly, if a sound from a caller you're talking to comes through a few minutes late?  Despite being the lowest performance, SMS costs we users the most.  Why?

There are a few parts to my uneducated answer.  The first and most important part is simple economics:  users will pay.  What are a few cents for something so addictive?  Since true costs for wireless bandwidth are obfuscated by non-disclosure agreements and have to be inferred by this kind of digging on government sites and assumption making, users don't even know that they're paying over 255x more than the operating cost of the service they are receiving.  The most fundamental reason is that there is a complete disconnect between the cost structure of operation and the fee structure presented to customers.  Wireless providers could just as easily tie their fees to GPS-determined latitude from which calls are made (everything's cooler at the poles, even text rates!), the number of times you flip the phone open (to take advantage of people's nervous habits), the sum of all battery power consumed by the device (just add it to your electric bill), or any other arbitrary measure of usage.

The fundamental disconnect is that a wireless operator has almost zero costs for "bandwidth consumption," though bandwidth consumption is precisely what users are ostensibly charged for.  Whether that bandwidth usage is in the form of minutes of voice calling, # of text messages sent (and received!!!), or MB on limited data plans, you are charged for your bandwidth usage.  More accurately, a carrier's primary costs are for bandwidth capacity.  A cell tower has a one-time cost (buying and installing all the hardware and linking it back to central, etc.) and continuing costs (land lease fees, maintenance, replacing backup batteries, insurance in case a storm blows it over onto the highway, lobbyist fees, etc.).  These costs vary by location, weather, and all sorts of other factors but not really by usage.  If no one sends a single text message, makes a single phone call, or surfs to a single website, the cost is nearly the same as if the tower is continuously used at full capacity for its entire life.  The only reasonable exception I can think of is the power bill, which I would hazard to guess is one of the smaller costs.  How few towers an operator can get away with (a much bigger part of their cost) depends on peak usage within each tower's coverage area, also known as capacity.  I believe the same disconnect exists for home and business internet connections, on-line data storage services, and just about anything else that charges you for bandwidth.  The operator has a bandwidth usage model that they assume their customers follow and they scale up their network to handle however much of it they feel like, depending on how many angry complaints about dead zones and dropped calls their customer service center can handle without hemmoraging customers to the competition.

The recent trend by the big 4 operators in the US toward "unlimited everything" plans (watch out, some of these are actually "unlimited everything except SMS text!") is the first change toward cost-based fees that I have seen in the industry.  Since costs still aren't revealed and service level agreements are not provided, however, it falls far short of ideal or even reasonable, in my opinion.  An operator really has a capacity cost per nominal customer.  Historically, they've been hiding this cost with confusing plan terms that were not based on actual costs, widely varying coverage, and widely varying levels of service.  As a result, the industry has been able to charge whatever they could get away with for too long.  I'm tired of it.  I wish I could protest some better way but, for the time being, I protest by sticking with a voice-only plan, limiting my text message use, and using broadband over wires or WiFi.