Saturday, October 29, 2011

Why Sprint is Capping Tethering

smartphone-cost-per-MBDespite fairly widespread confusion about the matter, Sprint Nextel Corp. is only capping mobile broadband usage by customers using the Wi-Fi hotspot feature. Data consumed directly by Sprint smart phones remains unlimited.

The disparity between smart phone and Wi-Fi hotspot data consumption explains the move.

Sprint and Clearwire Corp.are near an agreement to extend their existing network- sharing agreement for three to five years, Bloomberg said. That would allow Sprint to keep using Clearwire for support of either WiMAX or Long Term Evolution customers. But the contract terms explain the change of retail pricing for tethering. Sprint, Clearwire talk new contract

Jonathan Chaplin, an analyst at Credit Suisse Group AG, said he thinks Sprint will pay Clearwire between $6 and $10 per gigabyte of data, compared with the current charge of about $10, and he believes it will be close to the $6 figure.

Assume a monthly payment by the end user of $60 a month, and a wholesale payment to Clearwire of $6 per gigabyte, or $30. Were a specific end user to consume 10 Gbytes a month, revenue would be $60 and cost would be $60, just for bandwidth. Smart phone data consumption

That's why Sprint changed its tethering plans, in large part, one could argue, though support for the Apple iPhone also likely played an important role in shaping Sprint's thinking. Of course, now that Sprint has negotiated a new contract with Clearwire, the economics will change. 

Under the new deal, Sprint pays Clearwire a flat fee for 4G access, so usage is no longer an issue for Sprint, through the end of 2013, at least.

In the last 12 months (June 2010 to June 2011), the amount of data the average smartphone user consumes per month has grown by 89 percent from 230 Megabytes in the first quarter of 2010 to 435 MBytes in the first quarter of 2011.

The point is that a typical smart phone user consumes 435 Mbytes. A PC user typically consumes gigabytes. At the 80th percentile and below, users consume 500 Mbytes or less each month. In the 60th percentile, users consume 250 Mbytes or less each month.

The point is that the expected "breakage" between wholesale bandwidth cost and retail consumption and pricing is quite larger for a smart phone user, quite a bit less for a Wi-Fi hotspot user.

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