Wi-Fi Should Scare the Hell out of Verizon and AT&Tby
A major threat looms over wireless carriers that have invested billions in lightning-fast cellular networks: the humble Wi-Fi router.
Well more than half of the online activity produced by smartphone users happens over Wi-Fi, according to newly released data from Adobe Systems. Although the report just came out on Monday, Adobe’s research found that Wi-Fi had already surpassed Web browsing via cellular networks by early 2013. The data come from more than 10,000 websites.
AT&T and Verizon have spent years building towers and hoarding expensive wireless spectrum for their LTE (long-term evolution) networks under the assumption that they could charge more once their customers became accustomed to watching Netflix on their phones. The carriers have gradually tightened the ropes on how much data customers can use without forking over extra money each month.
As customers have increased their data consumption, companies like AT&T have been happy to offload some portion of that activity to Wi-Fi networks as a way to clear up the cell networks. “But there’s a flavor of too much of a good thing here, where Wi-Fi offloads start to really impinge on the prospects of monetizing all that additional usage,” says industry analyst Craig Moffett. “All the carriers have put their eggs in the basket of incremental usage as the source of revenue growth. It isn’t going according to plan.”
As users become more aware of the limits on their data plans, they’re more careful about moving to Wi-Fi as often as possible, says Tamara Gaffney, an analyst with Adobe’s Digital Index. Wi-Fi networks are also spreading from retail stores to parks and stadiums, creating an increasing number of situations where people can easily leave cell networks.
In an added wrinkle, T-Mobile and Sprint have decided to compete against the bigger carriers by being more generous with their own data plans—undermining the ability of the industry to lower data caps all the way to the bank.
The carriers know the Wi-Fi shift is happening. One response to slowing smartphone revenue is a parallel push to move consumers into tablets, which are great for performing data-intensive tasks like watching entire movies. All of the major carriers in the U.S. have been handing out tablets with reckless abandon. A recent AT&T promotion cut $200 off the price of an iPad to anyone willing to buy an iPhone and sign up for a two-year contract.
But Adobe’s data show a shortcoming in the tablet plan, since 93 percent of Web browsing on tablets takes place over Wi-Fi. Moffett says carriers are barely breaking even on tablets, given the discounts they’re offering on the devices themselves. The companies’ attempts to hawk data plans by giving away iPads are likely to become an even harder sell, because people are proving unwilling to ante up for a new tablet every two years.
Carriers have also been excited about the Internet of Things, thinking that if you can’t sell data plans to new people, maybe you can sell them to refrigerators and sports cars. Connected cars probably carry the most potential, because they’re essentially giant mobile devices that rely on mobile networks.
But the LTE networks built by the wireless carriers aren’t ideal for stationary objects. Smart appliances that live indoors are likely to use free Wi-Fi rather than expensive data plans. Devices parked in remote outdoor locations are also unlikely to connect via expensive, battery-intensive cellular networks.
Startups have started building low-bandwidth wireless networks for connected devices that cost only a fraction of the subscription fees for LTE networks. While carriers talk a big game about the Internet of Things, Moffett thinks they may not have the advantage they think they do: “Assuming that a lot of the data revenue will go to carriers is, in effect, betting against the ingenuity of Silicon Valley.”