Consumer Behavior Changes as Cost Changes

Data per bit has huge business model implications that will be more obvious in the 5G era. Consumption of video is the biggest new design issue for mobile networks, since video
is the app that requires the most capacity.

And it should be obvious by now that when access costs fall--either to a fixed price for unlimited usage, a fixed price for “what you typically use” levels, or even close to zero, as in the use of public Wi-Fi, behavior changes.

That was true for AOL when it switched from usage-based dial-up access to “unlimited” access, and is true in the era of public Wi-Fi as well. Big usage allowances mean consumers are willing to use Netflix and other streaming services. But, up to this point, such offers were hard to support on mobile networks, simply because cost per bit on most mobile networks has been an order of magnitude higher than on cabled networks.

But the principle remains: people consume more data, and especially video content, when they do not have to worry about the cost of doing so.

And that is why 5G will be revolutionary. It will, in a growing number of instances, break the traditional cost barrier that has prevented mobile access from becoming a full substitute for cabled (fixed) network internet access.

Since video arguably is the app with the most-stringent revenue per bit profiles, especially when the internet access provider earns no direct revenue from enabling video access (ISP supplies access bandwidth and usage, but no direct video app revenue), the ability to supply lots of bandwidth for video is a prerequisite for any wireless access platform competing with cabled networks.

Voice and messaging arguably have the highest revenue per bit profiles (possibly as high as dollars per gigabyte) with web browsing somewhere in between (cents per gigabyte).

General purpose internet access arguably has the “best” combination of revenue and cost, though even there a cabled network might earn (retail prices) less than US$1 per gigabyte. Mobile bandwidth  generally costs $5 to $8 per per gigabyte (retail prices), lower than the $9 to $10 it cost in 2016 or so, for popular plans, and less than that for plans containing higher amounts of usage. Higher usage plans might feature costs per gigabyte closer to $3.

That is an internal business model issue for any mobile operator. But more than that is going to change in the 5G era.

If you assume the mobile network cost of delivering a gigabyte will drop 50 percent or more from 4G to 5G, fueled by new spectrum, use of shared and unlicensed spectrum and small cells, then the cost of using a gigabyte of “mobile” access will be closer to the cost of using a gigabyte of “fixed” access, especially on an “actual consumption” basis.

And that is going to open up many new use cases where mobile is a substitute for fixed access. Customers who routinely work from multiple locations, especially on the go, might already find mobile is a functional substitute for fixed access. As prices continue to fall, a greater number of consumers will find their own use cases can be supported with with a fixed or mobile access plan.

If you assume mobile access costs, especially in fixed mode, reduce costs by up to an order of magnitude, then the wireless 5G option might well become a full functional substitute for a cabled network access service.

And that means, for the first time in industry history, that mobile or wireless platforms will be able to compete close to directly against fixed and cabled networks as suppliers of consumer internet access.


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