Updated 6/15/2009 - It was ironic that the same groups like Free Press that were clamoring for usage based Internet service instead of network management became the same groups that demanded a ban on usage based pricing services.  So it came as no surprise to me that the same groups now also oppose AT&T’s new data plans of 200 MB and 2000 MB usage caps.  This sense of entitlement to unlimited data usage seems to permeate silicon valley as if there was something in the water here though I’ve managed to remain immune to it due to my understanding of how the underlying networks operate.

I estimated that the new FaceTime video conferencing application for the new iPhone 4 will probably consume somewhere between 667 Kbps to 2 Mbps if it operated at the new devices native screen resolution and if it used typical levels of compression used in video conferencing applications.  The same bandwidth is likely true for Video on Demand (VoD) video streaming content.  Even at 667 Kbps, the most optimal HSPA based 3G network of the type operated by AT&T with 14 Mbps of bandwidth per cell would only accommodate 20 concurrent video users.  Real world conditions would likely mean only a fraction of that figure.

It costs in the neighborhood of $650K to $850K to build a single cell tower even if we exclude the cost of filing lawsuits against cities that are hell bent on shutting down every new cell tower.  AT&T will spend $36 billion dollars in 2009 and 2010 to upgrade their wireless network to relieve congestion and they will continue to spend that type of money for the foreseeable future to accommodate additional growth.  This is a mind boggling amount of spending that dwarfs all the Internet dotcoms in the US and Silicon Valley.  Google’s entire capex for 2009 was $0.8 billion which isn’t small by most measures, but it pails in comparison to the kinds of money spent on network infrastructure.

But even with these massive upgrades, the networks simply cannot support widespread video usage.  AT&T and UK based O2 understands that the new generation of smartphones like the iPhone 4 are so powerful that they outperform many notebook computers of only 5 years ago.  The display resolution and multiple video cameras and the availability of online video content optimized for wired networks are going to crush current and future wireless networks built on LTE unless something is done about it.

Since 65% of AT&T’s consumers use less than 200 MB, they can easily cut their monthly payment in half without ever changing their current usage behavior.  That means a huge loss of per-customer revenue for AT&T which can’t be made up even if an optimistic 10% of customers doubled their monthly dues.  The idea that these phone companies are capping their usage limits out of greed is simply out of touch with reality.  As smartphone adoption climbs, average monthly prices will inevitably come down but the network must be reliable if it wishes to keep its customers.  The only way to do this is to simultaneously spend massive amounts of money upgrading the network while capping existing usage levels at a reasonable growth rate or the business will simply fail.

Update 6/16/2010 – Mobile networks are perfect for video broadcasting