Wireless Companies Struggling with Data Demand

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Unless the economy slides into a recession, overall wireless spending could rise by as much as 3% in 2009, to about $17.5 billion, the biggest jump in three years among the U.S.'s four national carriers, according to Skyline. A reputation for a lack of network reliability can be a growth killer. "End users are getting a taste of mobile data, and looking to get a similar experience as on the PC," says Danny Locklear, a vice-president at Nortel (NT), a maker of wireless network equipment.

Costs for network maintenance and upgrades are already being passed on to consumers. Some legislators say expenses are rising too quickly. Senator Herb Kohl, chairman of the Senate's antitrust panel, voiced his concerns in a Sept. 9 letter to AT&T, Verizon Wireless, Sprint Nextel, and T-Mobile USA. Kohl, a Democrat from Wisconsin, demanded an explanation for why rates for individual text messages have doubled to 20¢ a message since 2005, while costs of providing the data service have dropped. "This conduct is hardly consistent with the vigorous price competition we hope to see in a competitive marketplace," Kohl wrote.

Rising Data Charges

Revenue from data has more than doubled since 2005 and this year is expected to be $27.5 billion, according to CTIA–The Wireless Association. Craig Mathias, founder of consultancy Farpoint Group, believes that, in the coming months, data charges could rise by another $15 to $20 a month.

Beyond charging more, carriers are also placing limits on data use. In the past six months, the largest carriers have effectively begun capping monthly unlimited data plans at 5GB of data—roughly the same as watching 10 short YouTube videos a day. Currently, only about 2% to 5% of wireless users exceed that limit, but the number may double in the next year, Mathias reckons.

Carriers are also starting to encourage developers to create applications that use less bandwidth. T-Mobile USA, owned by Deutsche Telekom (DT), will demand a higher minimum payment from developers whose paid applications use up more of the carrier's network capacity. "We've aligned a set of incentives for our partners to do what we believe is right for the consumer while being mindful of constraints of the mobile world," says Ian McKerlich, director of mobile Web and content services at T-Mobile. The carrier will also prohibit developers from offering free applications that use up more than 15MB per user per month.

Some developers fret the policies may hamper mobile innovation. "All of the interesting mobile applications use a lot of bandwidth," says Craig Hockenberry, who develops applications for the iPhone.

That—along with higher fees—may be the price that wireless customers have to pay as they step up demand for mobile data.

Kharif is a senior writer for BusinessWeek.com in Portland, Ore.