Why isn’t it Accurate?
It’s isn’t accurate because the underlying assumption is that GB of data usage represent a close approximation of the cost involved in delivering those bits. Cost of carrying the bits can be split into cost of carrying the bits from the customers’ device to the cell tower and from the cell tower to the internet. Cost of carrying the bits from the cell tower to the internet is the same irrespective of the type of device used by the customer. The cost of the backbone data transport pales in comparison to the billions of dollars spent in acquiring the spectrum and constructing the cell towers. So, let’s ignore it for the moment.
Given that spectrum is a scarce resource, cost of carrying bits to the cell tower is based on the amount of spectrum used and the amount of time that the spectrum is used. This isn’t the same across all the devices. The amount of spectrum used is a function of the available spectrum at the cell tower and the quality of the chipset on the device – typically, the more expensive (and premium) the device is, the better the chipset is and the more spectrum it can use at the same time – technically called carrier aggregation. The amount of time spectrum is used is a function of the distance of the customer to the cell tower and also, the quality of the antenna on the device. The less signal the device receives (whether the device is far away from the cell tower or the antenna is bad), the more time the device spends occupying the channel in the spectrum.
Why Wasn’t the Cost Accounting a Problem Before?
Ok, the cost accounting might be inaccurate. Why wasn’t it a problem before?
Pre-2006 when voice was king, there was no carrier aggregation. Mostly, all devices used the same limited spectrum available. The amount of time the spectrum was used was a direct function of the number of minutes a customer used that month. If customer had a crappy antenna or was too far away from cell tower, due to the real time nature of the voice packets, the call quality would degrade. But, the amount of time spectrum is used closely mirrored the number of minutes a customer used that month. So, cost accounting based on minutes of voice calls matched the actual costs very well.
Why is it a Problem Now?
When smartphones took over and data started to be billed by GB, the device subsidy model masked the inaccuracy of the data usage based cost accounting. Subsidy enabled the customers to buy the best phones at an affordable price, which meant most customers had similar and good phones. Also, the better the phone was, typically, the higher the subsidy. So, subsidy amortization and more homogeneous device capabilities masked the cost-price matching problems of the data usage based cost accounting.
What is the Impact?
With the correct cost accounting, network planning teams at carriers will be able to allocate capital for cell tower construction better. The network planning teams can trade-off between capital cost allocation vs. lower operating costs for those customers helped by the new cell towers.
Also, without the correct cost accounting, carriers cannot expect to compete in the hyper segmented world that wireless carrier market soon will be. If the costs are wrong, how can the price be right?
With BYOD coming in a big way and consumers conscious of the cost of the devices, not all devices will be of the same quality. A customer consuming the same amount of data on a device with low quality antenna will have dramatically higher cost than a customer consuming the same amount of data on a much better device. This is why, in the hyper segmented world, the price will be a function of the device as well. A customer using a high amount of data with the latest phone (say, an iPhone X or a Samsung Galaxy S9) might be paying the same as someone with a Moto G. That's similar to the guy with a Ferrari paying the same insurance rate as the guy with Honda Civic! It's still fair because of the different costs they put on the network. In the car world, the vendors wiped that difference by improving reliability. The device vendors can similarly wipe the difference off by ensuring that the antenna is not compromised due to cost.
