Memo to wireless carriers: 5GB caps won't replace cable companies

According to TR member dcolbert, if wireless broadband ISPs can't provide their services at competitive prices to wired broadband providers, without outrageously limiting caps, they're never going to compete with, let alone replace, those companies.

Ivan Seidenberg, the CEO of Verizon, claimed that "cord-cutting" will threaten cable TV in the near future. He argued that savvy younger users are smart, price-conscious, and will find alternatives to cable TV - solutions that we must presume will be received wirelessly if they've cut the cord with their cable company.

In almost the same breath, Seidenberg discussed how Verizon was following AT&T's lead and adopting tiered data plans on the Verizon Wireless network. This is all old news. In fact, at the time of Seidenberg's announcement, Verizon's "unlimited" data plan already had a 5GB cap in place. Instead of charging for overages, Verizon simply throttled your bandwidth after you exceeded 5GB of data in a single month.

At the beginning of the year, even Virgin Mobile - one of the last wireless carriers to offer truly unlimited data - decided to replace their MiFi 2200 $40/month unlimited data plan with the familiar 5GB cap. A few weeks later, they changed that plan to 2.5GB for $50/month. Similar to Verizon, once you've exceeded Virgin Mobile's new cap, your bandwidth is throttled.

According to Virgin Mobile, 5GB is an extraordinarily large amount of data to consume in a month's time, and only their most data-hungry subscribers come anywhere close to that limit. This is a claim that AT&T and Verizon Wireless have both made as well - so, it's safe for us to trust these three companies, right? After all, they must be studying data consumption and know the typical consumption rate for their average customers.

Well, I believe there's a flaw in the data they're presenting to consumers. The typical data consumption on small handheld portable devices (i.e., smartphones) is probably far under 5GB. However, the average household consumption over cable, DSL, and other broadband connections is likely much higher.

I've been wondering about this theory for awhile and researching various ways to go about tracking my monthly data consumption. Unfortunately, there are only a few inexpensive, easy ways for average consumers to track their total data usage:

  1. Set up some sort of a proxy server and funnel all of your connecting machines through that.
  2. Install software on each machine to track all data with an external destination or coming from an external destination, and then collate the results from all of the machines on your network.
  3. Find hardware that sits somewhere between your network and your broadband gateway that will keep metrics on your outgoing and incoming traffic consumption. This is obviously the most reliable and easiest to implement of the three, but there are very few consumer choices for hardware with this kind of capability.

I previously had a Belkin MIMO Wireless G router that I was very dissatisfied with. After returning home to find the router reset, the password removed, and an incoming record from an IP address traced back to China in the logs, I decided that it was time for something new.

A little research turned up the NETGEAR N600 (WNDR3400) as a strong contender, and when I found out that it had a traffic meter, I was sold. Since I couldn't wait for it to be shipped, I paid the $20 premium "Best Buy tax," brought the device home, and hooked it up. Once I had my security set up, established network connectivity, and had everything tested, the first thing I did was enable the bandwidth meter, setting it to a 5000MB/monthly limit with an alert at 4500MB.

I've been keeping a close eye on the daily traffic meter since the beginning of February. My daughter typically browses kid-friendly sites and downloads videos from YouTube, but she still spends most of her time offline. My wife rarely does more online than visit some shopping sites and keep up with friends on Facebook. My habits are generally similar. We've watched one Netflix movie so far this month, but we haven't streamed Pandora music or other "high bandwidth consumption" activities. As of the 9th, we were at 4500MB of data consumption.

Let me just say that I'm going to need a far more generous allocation of bandwidth than the small 5GB caps that wireless carriers think is "more than sufficient" for the average wireless broadband user today. Keep in mind, the idea is that I should be cutting the cord with my cable company, getting my streaming entertainment alternatives over the wireless provider's network, and enjoying the advantages of mobile high speed Internet that travels with me when I leave the house. Except, even in very moderate use, I consume 5GB of data in about 10 days at home.

I'd be willing to pay a reasonable premium and give up a little speed and latency for a reliable, fast, portable and reasonably unlimited broadband connection. But if Seidenberg and other wireless broadband ISPs can't provide their services at competitive prices to wired broadband providers, without outrageously limiting caps, they're never going to compete with, let alone replace, those companies.

In the early days of subscription service technologies, it was not uncommon for people to consistently run up very large monthly bills. I remember the days of premium services and outrageous bills on Quantum-Link, which eventually became Q-Link, which eventually became AOL. At the same time, stories about people running up a fortune in bills on their cable companies (with pay-per-view and music-videos-on-demand services) were all over the news.

Back then, a $200 monthly cellular bill with Cellular-1 wasn't uncommon, and if I was very chatty, it might be as high as $400. Let's not forget, of course, that $200 a month was a lot more then than it is now. All of these companies would like to see a return to those days, but the rise of the mom-and-pop ISP with a $19.99 "all-you-can-eat dial-up smorgasbord" and "all the free content you could care to search for" seems to have changed all that.

Seidenberg is right, today's consumers are smart, and they're not going to pay for something they don't have to. In fact, I think consumers have already made up their minds about pricing models and value propositions for various data access plans. For example:

  • Dial-up plans are worth between about $10 - $20/month
  • Broadband plans are worth about $20 - $40/month
  • Wireless broadband plans are worth about $40 - $80/month

All of them should be unlimited in a consumer's eyes. Now, that doesn't mean that vendors have to offer plans that follow those pricing models - but until they do, they won't see the tidal rush of consumers that translate into giant growth and huge profits.

What do you think, will consumers give in and settle for paying outrageous monthly access fees for the convenience of wireless data connections, or will the wireless service providers have to meet the market demand and deliver unlimited broadband connections for reasonable prices? Let's hear your feedback in the forums.