Wireless Demand Projections – Elasticity of the Top-1% Percent Users

Wireless network traffic growth projections have been significantly cut since the FCC’s 2010 National Broadband Plan. The National Broadband Plan projected wireless network demand in 2010 to be 468 billion MB, vs the 398 billion MB actually carried in 2010 according to the CTIA. In 2011, the spread got wider, 1090 billion MB projected vs 890 billion MB actually carried. And in 2012, the FCC projected 2219 billion MB was even further from the actual traffic of 1468 billion MB. Extrapolating these actual numbers to 2015 suggest the current allocation of 608 MHz of spectrum for mobile broadband will be close to actual demand levels in major metro areas. Of course traffic will continue to grown past 2015, but the “crisis” does not appear to be nearly of the proportions projected a few years ago.

Current network growth projections, combined with increases in Wi-Fi offloading and small cell deployment call into question the National Broadband Plan’s central conclusion that 300 additional MHz of mobile broadband spectrum would be needed to meet demand by 2015. As we approach 2015, it’s become obvious the spectrum crunch is not as severe as once projected. Large swaths of mobile spectrum remain undeveloped – including prime sub-1 GHz spectrum in the 700 MHz band auctioned over six years ago.

The difference between the lower wireless network traffic today and earlier higher projections largely comes from two primary: 1) Increased Wi-Fi offloading from 15% in 2009 to over 40% today; and 2) the phasing out of unlimited data plans in the US. While the impact of Wi-Fi offloading is straightforward, the impact of the phasing out of unlimited data plans is less obvious.

Cisco’s  “Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update, 2012–2017” finds that from 2010 to 2012 unlimited data plans fell from 81% of data plans to 45%. During this time, the usage of the top 1% of users fell from 52% in January 2010 to 24% in September 2011 to 16% in September 2012. This drop alone can account for the most of the shortfall in wireless traffic growth versus earlier projections.

There are two likely possibilities in terms of wireless traffic growth: The first is that wireless traffic demand of high volume users is high elastic. As users are required to pay for incremental usage, they quickly limit their use. When incremental usage is essentially free, they find ways to use it with traffic that is not important. The second is that carriers had a small number of high usage customer they were able to cull and this reduced their traffic growth rate over the past few years. If the latter is true it suggests the slower growth over the past few years was a one-time event and that growth will accelerate again soon.

But wireless traffic may grow in any case. With threats of an imminent spectrum crunch behind them, carriers appear to be returning to unlimited data plans. Sprint recently announced a new service, Spark, that advertising download speeds of 50-60 Mbs and potentially increasing to 150 Mbs in the future. Presumably this will come from developing its EBS/BRS spectrum, spectrum that has been largely fallow. At the same time, Carriers have been finding enough spectral efficiencies with LTE technology to resume offering unlimited data plans. Presumably if demand starts to grow too rapidly, they will begin to scale back some of these unlimited data packages.

Meanwhile, spectrum prices in the secondary market appear to have stabilized. And no major wireless operator is even participating the H-block auctions underway or bidding for the LightSquared assets in the current bankruptcy auction.  This further suggests the need for additional spectrum is not approaching the crisis levels forecast in 2010.

Lower than projected wireless demand calls into question the need for the planned FCC spectrum auctions over the next few years and pricing the FCC may get if the auctions go ahead as scheduled.