Data caps blocking consumer understanding, demand for 4G

A panel of mobile Internet experts discuss the future of 4G LTE networks and why consumers aren't jumping onboard just yet.
Written by Rachel King, Contributor

SAN FRANCISCO -- 4G is slowly but surely becoming the mobile broadband standard, but its benefits to consumers are not as prevalent yet, according to a panel of tech execs and analysts assembled at the Open Mobile Summit on Wednesday.

See also: LightSquared CEO: Demand for data will outweight spectrum capacity soon

Verizon Wireless CTO David Small asserted what is all but certain: customers will consume more and more data, and they want to with more speed. Small also remarked that they want the latency characterisitcs that LTE offers, and he made it clear that this is what Verizon is trying to accomplish with its innovation centers in California and Masschusetts.

"We're pushing as hard as we can, but it's because we know customers want it very, very badly," Small said.

The ability to understand the distinctions between what is changing between 3G and 4G is difficult, said Scott Devitt, a consumer Internet analyst at Morgan Stanley. Devitt posited that the most obvious way to make this distinction is seen with video.

Yet with the invention (and undoubtedly, hindrance) of data caps, the challenge to see the difference and for consumers to actually find value in these HD streaming and connectivity features surrounding video is increasing over time.

"With a long-term view, there is value to the consumer as the points get rationalized by the telecom providers and realistic pricing models emerge overtime," Devitt said. "From the consumer standpoint now, it's not really clear as to the value of that transition."

Rob Glaser, a venture partner at Accel Partners, made the argument that it becomes a downward spiral of sorts from there. Unless you build the infrastrucutre out, Glaser said, consumers won't know the benefits -- thus developers won't build for it.

"We haven't yet seen definitive, killer apps that are only 4G," Glaser stated. "I can see the difference anywhere I go in the country that has these networks. That doesn't mean the consumers think of it as semantically as I have to buy a 4G phone today. That might happen at some point."

Sprint's chief technology officer Stephen Bye remarked that it's when you get a device that enables a customer to consume richer content at a price point where a consumer can buy it.

Sprint is one of the major exceptions nationwide -- and even worldwide -- when it comes to unlimited data plans, but pricing for smartphones and other mobile devices are still proving to be roadblocks for consumers -- not to mention rising costs for monthly voice and data subscriptions.

Somehow, and possibly amazingly (at least for mobile providers), these data caps and rising contract prices have not created the kind of customer revolt that we have seen happen following pricing changes by Bank of America and Netflix.

Devitt theorized Netflix is an example where the business model -- basically based on discounted access to TV and movie rentals -- and the way that that company interacted with consumers over many years changed drastically this year.

"There hasn't been a Netflix-like firestorm because the [mobile] industry was careful in putting those caps in," Glaser also argued. "They were put in place in a way that only had an impact on a small number of users. Netflix raised its rates by 60 percent for everyone."

At some point, Devitt added one has to ask, "How much pricing power do the companies have?"

Glaser offered two possible explanations as to why these firestorms come about now. The first one, which Glaser noted he hopes will only be temporary -- possibly lasting for the rest of the decade, is constraints on consumer spending thanks to the recession.

The second reason is the amount of transparency and information flow that is largely seen via social media has been ampllfied -- making consumers much more aware based on what they learn directly from other consumers.

"You have to be all the more careful when making any kind of change to pricing," Glaser said.

In the case of data caps, Glaser said there has only been a "mini-firestorm among the hardcore digerati," but the majority of consumers are too reluctant or disinterested to make major changes to their mobile plans just yet.

That explanation could be applied to why many consumers don't see the need to jump onboard with 4G just yet. Until reasons for making a switch have been made known to them on a more wide-scale, valuable basis, then 4G development might become more stagnant than predicted.

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