Let’s not talk about traffic growth…

Posted in Regulatory, Spectrum at 10:15 am by timfarrar

The CTIA released its latest semi-annual survey of the US wireless industry this morning, and for the first time in years, the press release did not focus on growth in data traffic. That’s perhaps not surprising, given that traffic growth has now fallen sharply (to only 69% in 2012 over the 2011 total and 59% in 2012H2 compared to 2011H2) and these statistics are hardly supportive of the message that there is an impending spectrum crisis.

Ironically, CTIA instead trumpet how high US wireless capex is compared to the rest of the world and how the number of cell sites is growing rapidly, when previously the message of those (including the FCC Chairman) campaigning for more spectrum was that unless 300MHz of spectrum was made available, operators would be forced to invest far too much in their networks and build an implausibly high number of cellsites. Amusingly enough, the FCC’s erroneous model from October 2010 asserting that this economic cost would be $120B (which the authors took their name off), has just been disinterred, and supposedly updated (with the same errors as the FCC made), by those seeking to ensure that no limits are placed on AT&T and Verizon’s participation in the broadcast incentive auctions.

The lack of discussion of data traffic is a shame, because the CTIA survey actually shows an interesting rebound in the growth of traffic per device in the second half of 2012, with 15% growth compared to only 3% in the first half of 2012, as shown in the chart above. That resulted in 2012 traffic growth coming at almost 70% compared to the 60% growth that would have resulted from a continuation of the trend seen in the first half of the year. The two primary factors causing this rebound are likely to be that:

1) data caps caused a rapid one-off adjustment in offloading to WiFi during the first half of the year (which did not repeat in the second half, even though WiFi usage continued to grow), and
2) take-up of LTE increased significantly in the second half of the year (after the launch of the LTE iPhone), and higher average speeds meant that users of LTE devices consumed more wireless data than on their previous 3G devices.

Interestingly the 69% year on year growth appears broadly consistent with the 62% growth in US wireless data traffic estimated by Cisco between December 2011 and December 2012, although the CTIA survey also indicates that Cisco’s traffic estimates are around 30% higher than the actual amount of wireless data traffic in these months.

Looking forward, the most intriguing question is whether this pickup in traffic growth per device will be sustained into 2013. If it is then we could see year-on-year traffic growth in the US for 2013 come in as high as 70%, but if it doesn’t, then traffic growth will fall to 50-60%. My assessment is that traffic growth per device will be faster than in the first half of 2012, now the adjustment to capped data has taken place. However, once the early adopters have mostly switched to LTE and as customers start to predict and control their data usage, the rate of growth will likely be slower than in the second half of 2012.

So a reasonable estimate for overall US wireless traffic growth in 2013 is around 60%, falling to 50% or less in 2014, as smartphone penetration reaches saturation, assuming that there is no step change in data pricing. That appears unlikely, because AT&T and Verizon’s family data plans limit their room for maneuver: if Verizon or AT&T offered more wireless data for the same amount of money, then many customers would trade down to a less expensive plan.

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