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A new way to think about cellular data

Cellular data is probably going to get more expensive in the near future. In America, carriers have already started to lay the foundation. Nearly every major carrier has imposed caps on data, replacing the unlimited systems that guided the early years of smartphones. But now with more and more people using them, there is less available network capacity. Carriers will further leverage that scarcity into higher prices. The only way they can avoid this is by rethinking how they charge us for data.

While any price increase will be in some way a ploy to extract higher profits from the same product, it will also come of necessity. With people from all demographics adopting smartphones, we’re seeing greater and greater percentages of people drop their old cell phones and start consuming data. Recent reports have roughly 40 percent of US cell phone users with smartphones, and that number will only grow. Even if everyone continues using the same amount of data, carriers will see their data centers overwhelmed eventually. Increasing the price will discourage people from consuming data, thereby lessening the load on servers.

This is not what we want. For a smartphone to function properly it needs an ample level of data. Creating incentives to conserve data runs counter to that. What carriers need is a new way to bill their customers. It might actually be a little like an old way.

Start the meter

When people pay for their monthly electricity bills, they don’t fork over a flat rate. The electric company measures their usage with a meter and sends them a bill that reflects what they used. That way big houses that have five TVs and all sorts of computers running pay far more than an apartment with one TV and a computer. There aren’t different tiers of usage, either. It’s all based on actual consumption numbers.

Previously, US cell phone carriers let the households with 5 TVs pay the same as those with one TV. That’s the way unlimited data worked. This was a boon for some, as it allowed them to watch Netflix on their iPhones whenever they wanted. Yet it was a massive overpay for those who just wanted to check their email regularly. The tiered data system in some way changes that, though in few cases does the lighter user actually pay less.

Why don’t carriers move to a metered system, then? Because it’s probably not good for their immediate interests.

Profits come from guaranteed income

Carriers obviously prefer the set rate method, since it guarantees them a certain level of income. That is, if you agree to pay $15 per month for data, that’s income the carriers generates every single month. Even better, if you go over the data cap of that $15 plan, you either pay the carrier ridiculous overage fees, or else pay for a whole other $15 plan. The predictability means a lot, especially with the overages, since the carrier can absolutely count on that income.

In fact, telecom companies had been trying for ages to get off metered systems and onto flat rate plans. This was the case with long distance, but for some reason they could never make it work. Once cell phones came along, though, flat-rate pricing was the accepted standard. Landline long distance carriers were soon able to follow. They all prefer this predictable, guaranteed income, even if they might make more some months from metered billing.

Remember, when people are on the meter they’re more conscious of their consumption. If everyone paid a flat rate for electricity every month, Dad wouldn’t yell at you to turn off the lights when you leave a room. If cell phone carriers did go to metered plans for data, people would be more discerning with their consumption.

A matter of necessity

Eventually, cell phone carriers might not have any choice. As the smartphone penetration rate increases — and it figures to increase even greater in 2012 and then in 2013 — they’ll run out of capacity. Those data centers will become overloaded, and everyone’s service will suffer. The only reasonable way to deal with this is to look to the metered model.

Yes, the metered model would make people more aware of their consumption. Yes, it would lead to less consumption. But that’s exactly what the cell phone carriers have to incentivize, right? They’re not going back and rebuilding their networks from the ground up, so they’re dealing with certain limits. Those limits can turn into huge issues as more and more people adopt smartphones. Eventually people will just have to pay for what they use. Otherwise no one will be getting what they pay for.

This can work on a timed basis, too. That is, the hours of highest usage can be charged at a higher level than the times of lowest use. That way people can take advantage of the network when it has its most free capacity. If those people stay off it during the hours of peak usage, they can save money while still consuming plenty of bandwidth. That could in effect spread out the bandwidth usage times, which could ease the network capacity.

It’s hard to expect carriers to make this kind of decision, given its ramifications. After all, many of these companies were involved in the long distance game, and many of them know how difficult a metered system can become. But unless carriers are willing to rebuild entire networks in an effort to increase capacity, a metered system will become necessary in the future. How else can they handle the increased traffic on their network?

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A new way to think about cellular data
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