The high costs of the cloud

March 28, 2012

How great is it that high-definition video is now portable? Thanks to cloud computing, superfast 4G networks and tablets with high-resolution screens, we can watch thousands of movies and TV shows in lush, beautiful clarity wherever we go.

In a way, that is pretty great, as the millions of people who have bought the new iPad with retina display and LTE connections have already seen. But in another way, it’s going to quickly become not so great: As hi-def video – or rather, the data bandwidth to deliver it – becomes a commodity for more people, that commodity will start to become much more expensive. Not just for consumers, but for the companies that will increasingly need more wireless spectrum and wired infrastructure to handle the surge in data demand.

Call it the curse of the cloud. The proliferation of online video services and portable devices to watch them on have added congestion to data networks even as wireless carriers impose fees on its biggest data users. According to Bytemobile, video accounted for half of all mobile data traffic in February, up from 40 percent only a year earlier.

And that was before the arrival of the new iPad, which has four times as many pixels as the iPad 2. More pixels can enhance hi-def video but requires more data. Demand for wireless data will rise even higher once more LTE smartphones – including, most likely, the iPhone 5 expected this year – start streaming video and other high-bandwidth content on them. If carriers are overwhelmed by the demand, as AT&T was with its notoriously unreliable 3G networks, wireless service will grow more spotty over time. But we’ll be paying more for it.

We’re already seeing some of this happening with the LTE iPads. Just ask the guy who used his brand new iPad to watch NCAA games while attending NCAA games, blowing through his 2GB allotment in less than two days. Or the USA Today columnist who says he did the same just by downloading apps. Meanwhile, complaints were surfacing on message boards that AT&T’s LTE networks were dragging in some urban areas as people played with their new iPads.

It won’t be just iPads and the next generation of iPhones taxing wireless networks. Apple is the first to offer an LTE tablet to the masses, but LTE Android tablets will follow, as will more LTE phones powered by Android, which runs on 51 percent of the world’s smartphones. Verizon, AT&T and Sprint have been building out their 4G networks for years, but Verizon recently warned that despite that effort, demand will outstrip LTE capacity as early as next year.

And that’s going to be hell on our monthly budgets. Mobile devices that cost only a few hundred dollars could lock consumers into wireless data plans that cost several times as much every year to use. “The delays in scouring new usable spectrum by the FCC will result in higher prices for consumers based on supply and demand dynamics taught in many high school econ classes,” Walter Piecyk, co-head of equity research at BTIG wrote in a recent report. Without more spectrum or new infrastructure, data plans are likely to rise much faster.

It’s hard to tell how much of Verizon’s warning is just posturing before regulators, in hopes of winning more spectrum licenses. But wireless carriers do face a perverse incentive to hold consumers over a barrel, and some in the industry believe this is what is in fact happening. In an opinion piece last Friday, Level 3 CEO James Crowe pointed out that Verizon and AT&T could easily add capacity without more spectrum, simply by adding more antennas.

So why don’t they? Crowe believes it’s in the “economic self-interest” of the big carriers not to. “Because they control the supply of wired connections needed for each additional cell site, they can keep their competitors’ costs high for additional wired connections, and at the same time create a perception of scarcity for wireless services,” Crowe said.

There are other ways for consumers to keep their data bills down. Sadly, the simplest answer is to use less data, forgoing the new features that the latest mobile devices are designed to offer. A wireless-data crunch would also create demand for more efficient streaming technologies as well as Wimax hotspots. Clearwire, which is installing LTE capability on half of its 16,000 Wimax cell sites, said its network usage jumped 700 percent last year.

Even if these solutions can ameliorate a shortage in wireless data, it’s just a matter of time before demand starts to saturate the Internet itself. The same global networks that each cell tower is wired into will also be used by home WiFi networks and businesses that are increasingly coming to rely on cloud-based applications.

IDC estimates that Internet broadband traffic will grow from 10 petabytes a month in 2010 to 117 petabytes a month in 2015, a 50 percent annual growth rate that will be spurred by video demand for tablets and Internet TVs. At that rate, demand for all bandwidth will quickly outstrip supply. “It is difficult to overestimate this phenomenon,” said IDC’s Matt Davis. “Fixed and mobile operators will have to deal with a new reality that will tax network resources to the limit – and perhaps past the limit.”

A decade ago, with the dreams of the dot-com era lying in ruins, some contrarian observers pointed out that the bubble’s silver lining was the fiber networks it funded and built, but which sat in darkness for years. It’s taken all this time for that broadband glut to approach a broadband shortage. If new networks aren’t built soon, the cheap data of the past decade could soon become a sweet but distant memory.

PHOTO: Customers look at tables displaying Apple’s new iPad 4G-ready tablet computer at one of the company’s stores in Paris, March 16, 2012. REUTERS/Charles Platiau


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If people insist on streaming video to their phones and tablets over the network this will indeed be a huge problem. As carriers cap data (and those haven’t will–they have to), there’s a simple solution. Just grab a few videos from the cloud over a wifi network before you go somewhere. When you’re done, delete them. People use 4G to do this now because they can. When they can’t, they’ll find another way. It’s not like there’s a lack of options.

Posted by CapitalismSays | Report as abusive

In addition to the overt dollar cost of radio spectrum bandwidth, there is the covert cost of a total lack of privacy from using wireless devices.

Most consumers are bag of rocks ignorant of the difference in privacy laws between radio (“wireless”) connections and wired ones (“land lines”). That ignorance, together with a stupidly greedy industry and mendacious and corrupt public officials, has created a new “1984” world where we have no privacy whatever and are subject to arbitrary and covert searches of not only our usage and traffic, but of the content of our devices. This silly and ignorant greed is why we have a “cyber-security” problem in the USA.

It is all about which outsiders get to peek into our bedrooms at will. No one questions whether people should be assured privacy. That would be un-American!

Posted by txgadfly | Report as abusive

I don’t understand how not building additional wireless antennas creates a competitive advantage. I guess I need to read Crowe’s piece unless someone else here can explain how it keeps competitors’ costs high.

Posted by LEEDAP | Report as abusive

I always distrust “facts” from vendors that just happen to sell a solution to the problem described. In January 2012 Bytemobile laid off half of development and QA in a worldwide restructuring due to money problems. It would seem they might propose these “facts” as they are desperate for sales.

Posted by wiseInvestor2 | Report as abusive