Mobile Bandwidth: why it is so expensive

We have recently been exposed to several cases of mobile broadband users that raked up bills in the thousands of dollars, the worst case being someone that spent $33.000 to download an HD movie while abroad. Several voices have rise to protest against such expenses (which are not actually paid most of the time anyway).

To me this underscores a basic misunderstanding many people have about mobile bandwidth: the belief that a byte received on their cable or ADSL connection and routed on Wifi has roughly the same cost as a byte received through a 3G connection. After all both technologies provide mobile broadband, so one tends to forget the important differences between the two, differences that often materialize in the form of dollars.

1) 3G uses licensed spectrum. What this means is that when using Wifi you are not guaranteed that you connection will always work because the frequencies used are free and unregulated, meaning you do not pay anything to the state for their use, but everyone may use them at the same time as you and cause interference. 3G on the other hand uses a reserved group of frequencies guaranteed to work but for which the mobile operator has paid the state an hefty sum of money. I do not know the exact prices paid by operators in the US, but in Belgium (a country with 10 millions inhabitants) the prices was 6 billions € (around 8 billions $). This means that if an operator manages to get 10% of the population on it's 3G network the license cost alone comes to $8000 per subscriber. This money has to be made back on the bill of 3G users.

2) Coverage! A typical Wifi hotspot covers a radius of 100 yards, while the smallest GSM cells covers a radius of 2 miles, and most cells cover a lot more. This means a lot of equipment expenses: massive antennas, extremely expensive routing and broadcasting equipment. Think $100 is expensive for an access point? The equipment used for your 3G connection cost probably several thousands of dollars an "access point". Furthermore when you are 100 yards from your Wifi access point your connection usually drops from 54 mbps to 1 mbps. A similar effect occurs with 3G meaning this expensive equipment carries much less data from the tower to your
iPhone or computer because the signal degradations over 2 or 3 miles means a lot or error correction overhead.

3) Recurring costs. Your Wifi connection usually pigybacks on your ADSL or cable connection. 3G on the other hand usually uses more reliable, more expensive connection: redundant leased lines for example. The monthly costs for these is much higher than an ADSL connection. Also the location of the antenna needs to be rented, meaning a significant monthly costs in urban areas.

4) Limited amounts of connections: Each single tower can support a limited number of mobiles because each has to be allocated a very small amount of spectrum, and each tower as a limited amount of spectrum. When too many mobiles try to connect to the same tower there is saturation and calls and connections are dropped. This happens at events where a lot of mobile broadband users congregate, such as the SXSW festival.

5) International connections: We use to think of the internet as one big place not really tied to a particular geographic location, and for fixed broadband this is the case. Your mobile however can travel internationally and be hosted on a foreign networks. What happens is the the foreign network charges your operator for the usage you make of it's infrastructure, and your operator passes the cost to you as roaming charges. The problem is that the foreign operator can price this usage of it's infrastructure as it wishes. Maybe in that country bandwidth is much more expensive to install than in the US because license costs are higher and/or that the number of subscribers used to pay for the license and infrastructure is much smaller.

In conclusion:

- Currently mobile bandwidth is very limited, can only support a limited amount of subscribers and is expensive to set up. This lead to high prices as subscribers compete for this limited resource.

- Bandwidth abroad can be even more limited and can be reserver for "premium" users such as big corporation's executives emails or emergency services. This means it can be priced very

My prediction: in the near future mobile bandwidth capacity will not grow as fast as consumer demand and prices will remain very high for basic services. The pricing will reflect this, and operators will try to discourage uses such as online video or downloading of large files to try to preserve enough capacity to offer a reliable browsing and email experience to more users. It will probably take several years before this kind of intensive usage is affordable and encouraged. Until then networks of inexpensive Wifi access points will remain the privileged solution for bandwidth intensive wireless applications. differently than in your home country and not fit for the same usage.
image cc by smith
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