Wednesday, July 21, 2010

Verizon Wireless 4G Caps "Unfair"?

Verizon Wireless boss Lowell McAdam reportedly said at a Barclays Capital conference that Verizon Wireless likely will move away from unlimited plans on the 4G Long Term Evolution network, instead charging for 'buckets' of megabytes.

That is one more sign of the direction the entire industry will take. Some observers think this is somehow unfair. They sometimes base this belief on the lower "cost per megabit per second" or "cost per transferred megabyte" of a 4G network, compared to a 3G network.

It is no more inherently unfair than a company lowering its headcount, wage rates, reducing advertising or any other steps it may take to keep costs in line with anticipated revenues.

The fundamental trend in the communications business is that the "retail price" of bandwidth keeps dropping. When that happens, providers must sell more units to maintain flat revenue. In a business that also has major declining lines of business, any entity must, over time, reduce its costs in line with the revenue drops in those lines of business as well.

The net effect is a need for greater efficiency, and the lower cost per bit of a 4G network is part of that effort, as much as it is a hedge against constantly-growing bandwidth demand.

Moore's Law adequately captures the typical pace of semiconductor density change. But most of the rest of the natural world cannot improve its performance metrics at that pace. Not batteries, not construction, transportation, manufacturing or marketing cost. Greater efficiency in the transmission network is simply part of preparing for a future where bandwidth costs, per unit, will keep squeezing.

No comments:

What Declining Industry Can Afford to Alienate Half its Customers?

Some people believe the new trend of major U.S. newspapers declining to make endorsements in presidential races is an abdication of their “p...