In the first post, I talked about how enabling the use of Wi-Fi on smartphones by cellular operators can be viewed as an application of the classical “breakage” model that is well-known in the travel and gift card industries.
But as I noted before, there is no guarantee that this will always be the case for operators in the long run. Especially when tied together with the ongoing discussions of tiered or usage based price plans and the ongoing transition to 4G / LTE networks.
The basis for this are a couple of trends.
- As Wi-Fi smartphones proliferate, we can expect Wi-Fi hotspots will proliferate to support them. For example, Starbucks, Panera, Barnes & Noble, and many airports have free or cheap Wi-Fi access.
- For at least the foreseeable future, Wi-Fi connections will in most cases be faster for individual users than any 4G connection.
- 3G coverage in areas where Wi-Fi is not available will get better and better.
The consequence of this is that many smartphone users may end up using high-speed Wi-Fi 80% of the time (when they are home, at work, at airports, in coffee shops) and rely on 3G cellular networks only for the 20% of the time they are on the move and out of range of Wi-Fi hotspots. It in these cases where the breakage model applies.
But what happens when operators introduce 4G networks ? How do they wean these spoilt users off onto 4G ? The 4G access speeds will be faster than 3G, but this only comes into play for a small amount of time, the time they are out of Wi-Fi hotspot range. If they do not really consume that much bandwidth intensive resources while on the move (the 20% time above), will they be motivated to pay for the 4G connection ? The fact that 4G will not usually give a user faster speeds than Wi-Fi is also an important factor as the comparison is now not 4G vs 3G but 4G vs Wi-Fi.
Also what happens when operators start usage based data plans ? In such cases, many of the above types of users may end up only paying minimal amounts for their cellular data plans as they are using Wi-Fi for most of their wireless data needs. If this happens, the operator is really being paid only for the actual usage of their cellular data networks. To recoup their investment in the 4G network infrastructure, they would be forced to increase the rates for such usage based plans to extremely high rates.
How can the operators deal with this ? There seem to be a couple of ways.
- They can try to force a “breakage” model plan by saying any buyers of a “super” smartphone has to buy an “all-inclusive” dataplan that includes 4G. (This is similar to today but extending it to 4G.)
- They can also modify the above slightly so that there is a minimum dataplan for all smartphone users, but then make the high data users pay more.
- Remove Wi-Fi from 4G capable phones saying that with 4G networks you do not need Wi-Fi.
My guess is that it will be a mix of the above and other imaginative solutions.
Of course, the above may be a false alarm. It may not be a serious problem as the above types of users (80% Wi-Fi, 20% cellular) stays as a minority of users.
But there is some evidence that once people start using Wi-Fi on smartphones, it becomes widely popular. In which case, is it too late ? Will more and more people become comfortable using Wi-Fi that even when 4G becomes available, they will not rush to it ? How will operators react ? How will consumers react ?
It is a question I keep wondering about as I use my Wi-Fi enabled smartphone to browse the web …