Industry analysts and commentators continue to marvel at the “growth in demand” for mobile data and indeed some mobile networks are groaning under the strain. It appears however that the meaning of the word demand has been forgotten. Demand, in an economic sense, relates to the willingness to pay. One could say that there is a “high demand” for Ferraris as who would not want one, but few can afford them which is why they are not clogging up the motorways.
The prevalence of unlimited or “all you can eat” data offerings has resulted in significant growth in traffic but not revenue as the link between demand and the willingness to pay has been broken. Unlimited offers made some economic sense two years ago when adoption of mobile broadband was low and networks had unutilised capacity. Two years ago incremental traffic did not necessarily result in incremental capital expenditure. Networks are now congested and increasing traffic is resulting in increasing capex without increasing revenues which can only depresses returns to shareholders.
Pricing structures need to change if the economics of mobile data are to improve. Within a mobile operators’ customer base there are usually a relatively small proportion of customers who use a very high proportion of network resources. These “bandwidth hogs” should be charged for the data that they use or their usage should be constrained. In fact mobile operators should start to look at mobile data a little more like mustard.
Since 1814 Jeremiah Colman of Colman’s English mustard has been making his money not by how much mustard people eat but how much they left on the side of the plate. If you are going to charge somebody £15 a month for 2GB the customers you actually want are those who use only a quarter of their allowance. Studies show the average smartphone user is using a lot less than 2 GB a month, and perhaps a tenth of what the average dongle user gets through. If operators started to think about mobile data a bit more like mustard we might see an improvement in industry returns.