Convergence Conversation

Is more bandwidth what we value most?

The Convergence Conversation scheduled for 29 July 2010 raises the question “How much bandwidth do we need?” To answer this question, we need to consider not just bandwidth, but also other attributes of connectivity, how much we value improvements in each of them and what those improvements would cost. The following picture provides a way of viewing three attributes together – mobility, capacity and bandwidth. The divide between mobile and fixed in terms of capacity also draws on information regarding mobile cost functions. 

Bandwidth, and particularly download speed to the home, appears dominant in policy discussion and decisions. This is evident in the European Commission’s “Digital Agenda” goal of 30 Mbps for all by 2020. The Commission adopted this target without publishing an estimate of the cost, but we do know the US cost estimate for achieving a much lower 4 Mbps universal access target by 2020 for the US: $23 billion over and above anticipated market investment. Achieving 30 Mbps would be much more expensive.  

In terms of revealed consumer behaviour the launch of the iPhone 3G, apps store and Android operating system in 2008 represents an inflexion point. Consumers have shown a high willingness to pay for smartphones, tablets and mobile data plans. Mobile traffic has grown explosively and Cisco forecasts that it will continue to grow at a rate of over 100% per annum. In turn, growth in mobile traffic has turned the spotlight on another attribute of connectivity, namely capacity. In the era of “unlimited” mobile data plans, the cost and value of capacity may not have been obvious to consumers, but as this era ends with a shift toward caps and tiered pricing, this is becoming more apparent. 

Mobility and capacity should have prominence alongside bandwidth. Revealed behaviour, the picture above and the evidence behind it point to a number of observations. First, for fixed networks the incremental costs of capacity are falling and will be negligible in future - at least over the range to 100 GB/month. Second, for mobile networks, providing capacity is inherently costly, though LTE and additional spectrum will lower costs, expand affordable capacity per user and enhance bandwidth. Third, fixed and mobile will be both substitutes (for low capacity requirement customers as LTE will support higher bandwidth) and complements (for high capacity requirement customers since fixed can provide almost unlimited capacity at mobile base-stations and WiFi hotspots at home or elsewhere). Fourth, given the costs of fibre, only those with high capacity and high bandwidth needs and willingness to pay can be expected to adopt fibre at home. 

More attention should be focussed on wide area wireless coverage and capacity and relatively less should be focussed on achieving universal targets for very high speed broadband to the home. Policy attention should be focussed on reallocating spectrum from broadcast and government use to mobile data use, and on developing a framework for the retirement of copper, since both LTE and fibre will substitute for copper and maintaining a parallel network will raise costs and deter investment.