Mobile Data Is The New “Sub-Prime Mortgage”

Mobile data is based on a business model as flawed as the sub-prime mortgages which led to the current financial crisis, a London conference heard today.

With services such as Skype, Facebook and Youtube using unlimited amounts of data, and operators charging a flat rate for access, data volumes will rise faster than the revenue used to build networks, according to Andrew Bud, chairman of mobile billing company mBlox.

“Everyone is selling something they don’t have possession of, and the cost and revenue are not linked,” Bud told the Future of Mobile event, run by Westminster eForum.

“There will be an initial boost but it will then come crashing down, unless there is a radical change in the business model,” he said, likening the mobile Internet to the sub-prime mortgage market.

The operators handle voice on the model of payment for “termination” or delivery of a connection, as they have done for more than a hundred years, but the Internet operates on a peering model where access is charged for – which he described as “Faustian”.

This model is not transferring well for mobile data, because the cost of bandwidth is far higher, said Bud, but operators have adopted it in order to get market share in the hope of future revenue – a model he described as “a Ponzi scheme”.

“When a service makes money, the operator needs to be cut in,” he said. “Operators don’t see the upside in other people making money at their expense.”

Bud has a solution, which he warned would be sacrilege to those arguing for net neutrality – “sender pays data” – where the user is given access to specific services and the data provider pays the operator.

The scheme has a limited trial in the UK, with content providers Fox and ShortsTV announced at Mobile World Congress in March. Bud admitted the trial was still getting going: “We’ve had to sort out technology issues and community issues, so we haven’t touched the market size issue yet,” but in the limited trials so far, sender pays data encouraged users to browse without fear of hidden charges, he said.

Other presenters at the conference argued against his proposals, notably Jean-Jaques Sahel of Skype, who said “We don’t carry traffic, it’s a peer-to-peer service,” an objection which Bud said missed the point.

“Operators would not allow mobile data if they could not carry it economically,” said Jeremy Green, practice leader in mobile at analyst firm Ovum.