June 14, 2010
For an informed view on connected entertainment in the UK & Ireland, visit Cue Entertainment
Two million iPads and counting! Pretty good for a product no one knew they wanted until the first week of April. Apple held back the European launch in order to satisfy the clamour from customers in North America but thanks to mass production they were soon back on track. Not content with launching one new product in Q2, Apple boss Steve Jobs then piled on the pressure with iPhone 4, causing more than one early iPad adopter to wish they had waited just a few more weeks. The Foxconn factories in the southern China city of Shenzen, which manufacture iPods, iPads and iPhones for Apple, will need to work at full capacity to meet the forecast demand.
There is a shortage of one essential commodity for this new technology, however, and even Jobs can do little about it. There is simply not enough bandwidth to cope with the rising demand. Every new “MobileMe” convert to the iWorld of Apple adds to the problem: mobile phone networks were not built to handle high speed, high volume data communications such as audio from Spotify and YouTube streaming video.
The problem cannot be placed entirely at Apple’s door – other brands are available from other handset manufacturers – but the iPhone was the first portable phone with a screen good enough to tempt consumers to enjoy entertainment on the move, more so since the release of the higher resolution “retina display” in iPhone 4 with its accompanying higher data rate requirement.
Your mobile phone operator doesn’t like it and operators ranging from AT&T in the US to Vodafone and O2 in the UK are reconsidering their “unlimited download” packages, which they originally offered to attract users to their network. As they have discovered, multimedia services are hungry for all the space available.
Premium audio from the online music service Spotify runs at 320 kilobits per second (kbps) and one hour of listening will get through 144 Megabytes (MB) of data. A standard definition video from YouTube consuming, say, 1 Megabit per second (Mbps) will eat up 7.5MB for every minute spent watching puppies do amusing things. Long form video requires the network operator to deliver around 450MB of data per hour of entertainment.
O2 CEO Ronan Dunne writes in a semi-official blog that “unlimited” is a thing of the past. The company will cease to offer unlimited data packages to new customers, replacing them with fixed tariffs for usage of 500MB, 750MB and 1GB, which should ring warning bells for any regular mobile multimedia fan. Three and a half hours of continuous 320kbps music could wipe out the lowest tariff, a single feature film could account for all of the highest. Dunne’s claim that “only 3% use more than 1GB of mobile data per month” needs to be taken with a large pinch of salt although it is strikingly similar to US statistics that were released by AT&T last week.
Dunne says that “a small fraction” (0.1% or 2,000 users) accounts for 36% of all the data delivered and “only a tiny number” use more than 1GB per month. This is at variance with data from the international network specialists Cisco, which says in its annual global mobile data forecast, “The average mobile broadband connection generates 1.3GB of traffic per month, equivalent to about 650 mp3 music files.”
The Cisco data shows that consumers in mature markets such as North America and Western Europe are less likely to rely on mobile broadband for their main internet connection than users in developing countries where a fixed infrastructure does not exist. It is hard, however, to reconcile the global average usage of 1.3GB per month with O2’s “tiny number using 1GB.”
O2’s data also looks out of line with the figures released by the internet audience measurement company, ComScore, which shows online video viewing to be up 37% on 2009, with 5.5 billion YouTube videos viewed in February of this year alone.
Cisco prepares an annual breakdown of when and where we use the mobile internet in the UK. In the course of a typical day, 45.6% of mobile data is consumed at home, 17.8% at work and 36.6% on the move. For comparison, US figures are 37.8% home, 19.6% work and 42.6% on the move. The statistics point to a thriving and widespread use of data on the move in both countries, the volume of which is growing rapidly.
There is speculation that operators have seen the growth of OTT (over the top) internet services such as Spotify and Crackle and have decided to take a bigger share in these emerging revenue streams. Telecoms have long felt they should be paid for delivering multimedia but their only option so far was to start an IPTV service of their own. Capping bandwidth could well be an alternative, and selling fixed amounts of data and charging premium rates for overtopping the limit might provide a short-term boost to mobile phone operator fortunes. Users, however, might well find other ways of getting their entertainment fix including a switch to available WiFi connections instead of the operator’s 3G network.
In a pilot that will provide internet access for its customers in areas with consistently high 3G traffic and frequent complaints about connectivity, AT&T is planning a “WiFi hotzone” in Times Square in New York. By switching to WiFi, users can expect better speed and coverage with the added benefit for the operator of reducing the strain on the 3G network. Best of all from the consumers’ point of view, the WiFi service will be free and uncapped. Similar options are available from UK operators with free links to BT Openzone and The Cloud providing an alternative to 3G in fast-food restaurants and other locations countrywide.
The decision by Vodafone and O2 to end unlimited broadband, with Orange reported to be considering a similar move, comes at a moment when mobile data usage is set to soar. A report by Chetan Sharma Consulting, “Managing growth and profits in the Yottabyte era,” predicts that this year mobile data traffic in the US alone will equal the global figure for 2009. Cisco says that mobile data will generate 7 GB of traffic per month by 2014 – the equivalent of 3,500 mp3 files – and adds, “The next five years are projected to provide unabated mobile video adoption despite the recent economic downturn.”
Back in Shenzen, Foxconn factories continue to pour out broadband devices not just for Apple but also for Dell, HP and Motorola. They also manufacture the BT Home Hub. But there has been “trouble at t’mill”.
A series of well-publicised suicides among the work force and a pay rise of “30% now and 70% later” have changed the industrial economics for the Taiwanese owners of the factory complex. This week, there has been talk of moving production to lower cost areas of China or even to India. Reducing costs through relocation is a hard trick to pull off, particularly in the high-tech sector where disruption of the supply chain can have major consequences for a product’s success in the market.
Despite the enthusiastic welcome for iPad and its copycat competitors, hand-held devices are likely to be the victim of their own success for some time to come. The days of “all you can eat” mobile broadband data might be numbered but the price-hike by mobile operators could be the stimulus for the growth of WiFi, WiMax and LTE (Long Term Evolution) networks that competitors to 3G have been waiting for. The results could be good for online entertainment and for the sales of coffee.
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