How cheap is 4G exactly?

At ATIS’s long-term evolution conference last week, Hank Kafka, vice president of network architecture for AT&T, delivered the most succinct and sensible analysis to date on the need for 4G. He summed up the operator’s decision with two questions: “How much data are you likely to sell?” and “What are your production costs for that data?”

The answer to the first question is now pretty clear: a lot. But what about the second question? When talking about 4G it’s easy to get bogged down in the issue of overall capacity — how many dozens or hundreds of megabits per second can we deliver in a sector. The main concern for operators isn’t whether they can deliver gross volumes of capacity to their customers, but whether they can do it more cheaply than over 3G networks. If they can’t then there’s not much point in building 4G networks, and there is even less point in fooling their customers into thinking there will ever be a mobile broadband world — at least a broadband world that doesn’t cost hundreds of dollars a month to use.

So what are they costs? Kafka cited an Analysys Research study that found an LTE network running at full capacity on a 5 x 5 MHz channel could deliver 1 megabyte of capacity to a user at the cost of 0.10 euros (about 13 U.S. cents for the foreign-exchange-challenged). In comparison, it costs an operator running a standard UMTS network in the same configuration 60 European cents to deliver that same megabyte, while the newest high-speed packet access (HSPA) networks can ship 1 Mbyte for 0.30 Euros. So automatically there are substantial efficiencies in LTE. LTE not only delivers a bigger pipe, but it lowers the cost of the data delivered through that pipe by three-to-six times over current networks.

That’s encouraging news for potential 4G operators, but I wonder if those cost savings are enough. Ten cents may not seem like much, but who consumes just 1 Mbyte of data? iPhone and laptop mobile broadband already are consuming data to the order of hundreds of megabytes or even gigabytes per month, and by this math delivering 1 Gbyte of data would cost an operator $130 a month. While I realize there are multiple factors that could mitigate those costs, spreading them around among subscribers, but we should still be concerned about the baseline numbers.

We talk about breaking down the barriers between mobile and fixed networks — that someday there won’t be a difference between wireless and wireline applications. We talk about delivering the broadband experience to the mobile device, but I guarantee you the average person’s broadband experience requires far more than a 100 Mbytes of data a month. While I believe that the 4G mobile data experience will be a big improvement over 3G, I worry that we are, once again, setting expectations far too high.

Contact me at kfitchard@telephonyonline.com