Mobile data growth could damage profits

By Niclas Mika - Analysis

BARCELONA (Reuters) - Mobile carriers risk congested networks and exploding costs if they go overboard with offers of unlimited flat-rate Internet access -- which has become a standard in the fixed-line world -- to mobile users.

Operators have been able to stimulate sales of mobile data by offering flat-rate packages, making growth rates as high as 50 percent or more not uncommon, allowing them to show impressive top lines even in mature markets.

But in some competitive markets, operators are already selling mobile broadband below cost, sacrificing profitability to grab market share, telecoms consultant John Strand said.

"It''s a goldrush," Strand said.

Consultancy Accenture estimates the western European mobile data market to be worth 29 billion euros ($36.5 billion) and forecasts it will grow 21 percent a year until 2011. The mobile voice market is worth 120 billion euros but is static.

Actual usage of data services, however, which leads to higher operating costs for transporting data between base stations and operators'' core networks, is expected to more than double every year until 2011.

The industry has been keen to see mobile data finally take off, years after it spent billions of euros on licenses to build third-generation mobile networks offering high data speeds.

It has supported mobile broadband with attractive prices -- which was not initially a problem.

"Growth of data usage has been soaking up that spare capacity that existed in the network," Margaret Rice-Jones, chief executive of network consultancy Aircom, told Reuters.

"It''s really only as everybody is saying: ''Look! The takeup is really great!'' that you stand back and say -- yes, and how many more of those subscribers can you load?" she said.

IRRATIONAL PRICING

Executives noted examples such as Sweden and Austria.

"Sweden has always had the characteristic of selling capacity at too low a price. It was so for ADSL, it was so for cable TV companies offering Internet access ... it is speculated to be so for high-speed mobile Internet access," Telenor Chief Executive Jon Fredrik Baksaas told Reuters.

"The irrationality on pricing needs to be addressed in parallel as we are seeing the customer pickup taking place."

The chief executive of Belgian operator Mobistar, Benoit Scheen, cited the example of Austria, saying operators there offered large packages at prices as low as 10 euros a month, which brought the risk of congesting the network.  Continued...