MWC: Tellabs warns operators will start losing money on mobile data in 2 years

The explosion in mobile data traffic has been both a boon and a curse for mobile operators. Huge demand for mobile data services has defined their future growth, but that demand has also produced some dread as revenues have failed to keep up with the sheer volumes of data traversing the network. In the back of its mind the industry has always known that at their current paces, the cost to deliver data would eventually exceed the revenues they collected for it, creating a money losing proposition for operators. Today Telllabs (NASDAQ:TLAB) put a timeline on that trend.

In North America the average cost of delivering a bit of mobile data will exceed the average revenue collected from that bit by the end of 2013, according to new research conducted by Tellabs and Analysis Mason. The study set the event horizon for that loss of profitability at the 4^th quarter of 2013, but it also predicted that if data growth accelerated even further, the cross over point could be as soon as the 1^st quarter of that year. That gives operators a two-year window to figure out how to reverse the trend, said Stu Benington, director of global portfolio planning at Tellabs.

“The lines are converging between revenue and cost, and cost will overtake revenue in the next few years,” Benington said. Tellabs isn’t trying to scare operators unnecessarily, Benington said, but he admitted the conclusions of the study are dire if operators stick to their current path. What took Tellabs most by surprise was how quickly North America and the U.S. When Tellabs and Analysis Mason originally started the study—compiling data from some 160 operator networks it’s Ethernet, backhaul and core infrastructure is installed in--it expected the problem to be most pronounced in Europe and Asia.

But the study found that while North America was later to the table in mobile data, its data growth rate has exceeded other regions of the world driven by smartphones, tablets and other computing devices. In addition, higher network access costs in North America drives up operator’s operating costs for mobile data, resulting in a much accelerated timeline for loss of data profitability. In Europe, the cost-revenue crossover point won’t hit until third quarter of 2014, though exceptional data growth could move up that date by a year. Asia-Pacific has until at least 2014 before it can expect that shift, and likely won’t start feeling the cost pressure until 2015, according to the study.

“Every study is only as good as what you choose to do with it,” Benington said. “The big point we’re hoping to make is that while there is a looming problem, there is still time for operators to remedy this.”

Tellabs plans to devote most of its efforts at Mobile World Congress later this month to discussing the study with its operator customers. Though it plans on unveiling several new products, including the official release of its SmartCore packet data network gateway (P-gateway) and serving gateway (S-gateway) for the long-term evolution (LTE) evolved packet core, Benington said most of its meetings would focus on the study’s results. Because the study uses real data collected from operators’ networks, Tellabs will be able to share with those customers when their networks are likely to reach that cost-revenue cross over point and make recommendations on how they how they can head it off.

Surprisingly none of Tellabs recommendations will be obvious remedies, such as raising data plan prices, metering capacity or setting caps, Benington said. Those sweeping methods tend to be blunt instruments and operators already have a good idea how pricing directly effects usage and delivery costs, Benington said. Many operators have already implemented tiered and metered pricing plans, which have already been factored into Tellabs study, Benington said.

Rather, Tellabs plans to talk more about how operators make their ‘dumb’ pipes smart. Benington said Tellabs will focus on many granular methods and techniques that will allow operators to exact more money for particular services and traffic as well as ways to optimize their networks to deliver data more efficiently, Benington said. Operators will have to dig themselves out of the problem not by finding ways to charge more for every bit of data on the network, but to find ways of making particular bits more valuable.

As you would expect, many of those recommendations center on products that Tellabs sells--enhanced Ethernet backhaul, mobile data offload, monitoring and network intelligence platforms—but many of them do not. Benington said Tellabs is recommending a host of solutions such as policy control and enforcement, traffic shaping, content delivery networks and content optimization. All of them would be combined to create charging policies that would allow operators to monetize and deliver traffic within the current capabilities of their network, rather than endlessly investing in capacity upgrades to keep ahead of traffic surges, Benington said.

The Holy Grail for operators would be finding a means of monetizing specific types of traffic, rather than just monetizing access or gross consumption, Benington said. Operators could do that by means of traffic engineering, prioritizing certain types of traffic in certain conditions. For example during big events where demand for mobile video increases, such as the Superbowl or breaking news events like the protests in Egypt, an operator could prioritize video over peer-to-peer, e-mail and application traffic. The result would be that an operator wouldn’t have to grow its network to meet traffic demands for which it collected more overall revenue. Rather it would shape traffic to the current network capacity, allowing it to maintain the margin between cost and revenues.

Another approach would be to create different types of data plans centered around specific applications: premium video plans in which streaming traffic was prioritized or gaming plans in which peer-to-peer communications was prioritized. In such scenarios, operators would be growing their capacity to meet the specific needs of high-volume data consumers who would pay more for better access, Benington said.