If mobile phones still did nothing but voice calls and text messaging, existing mobile networks would likely be sufficient for another 10 years or more. Smartphones that surf the web and allow users to watch videos have changed all that. Dramatically, according to Cisco Systems Inc. (NASDAQ: CSCO) in the company’s latest report on networking, “Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update, 2010-2015.
According to the report, average smartphone usage rose from 35 megabytes a month in 2009 to 79 megabytes a month in 2010, and will rise to 1.3 gigabytes a month in 2015. Two-thirds of 2015 mobile data traffic will come from video. The compound annual growth rate for mobile traffic from 2010 through 2015 is 116%. The obvious question is whether or not ISPs will be able to keep pace — and at what cost.
Mobile carriers Verizon Communications Inc. (NYSE: VZ), AT&T (NYSE: T) Sprint Nextel Corp. (NYSE: S), and T-Mobile have been racing to get higher speed fourth generation (4G) networks deployed in an effort to maintain infrastructure development that keeps pace with user demand. Smartphone video over mobile networks is currently transported at about 1.1 megabits/second, and Cisco expects that to rise to 4.4 megabits/second by 2015.
Another interesting bit of the Cisco report is its analysis of tiered pricing, an issue sometimes referred to as net neutrality. A recent dispute involving Comcast Corp. (NASDAQ: CMCSA), Level 3 Communications Inc. (NASDAQ: LVLT), and Netflix Inc. (NASDAQ: NFLX) highlights the central issue: can broadband network providers charge more to customers that use more bandwidth?
Cisco found that tiered pricing has little immediate impact on traffic, which continues to grow. The tiered pricing study also revealed that smartphones using the Android operating system from Google Inc. (NASDAQ: GOOG) were closing the gap with the iPhone from Apple Inc. (NASDAQ: AAPL). At the beginning of the nine-month study, iPhone data usage was “at least 4 times higher” than any other platform. By the end of the study, iPhone usage was only 1.75 times higher than Android.
One sidebar to the explosive growth Cisco expects is that 40% of total mobile data usage reflects time spent using mobile internet services inside a home. A couple of ways to reduce the demand for mobile bandwidth is to offload this in-home mobile network usage from a fixed line using a device called a femtocell or for customers to purchase dual-mode mobile phones.
Cisco figures that either dual-mode phones or femtocells would offload a total of 39% of mobile data traffic in 2015, up from 31% today. That’s not much of a drop, but it does indicate at least one way to lower demand for mobile network bandwidth.
Whether Cisco’s estimates for growth are correct remains to be seen, of course, but last year’s edition of this report, Cisco underestimated the growth in 2010 global mobile data traffic. It’s not likely that they’re overstating their case just to sell more routers.