There are multiple business cases for mobile data offloading, including those for mobile data subscribers and mobile and broadband network operators. The business cases are driven by cost reduction and value creation rather than by new revenue generation.
Most mobile data offloading is accomplished via dual-function mobile devices that can access a mobile networking service via a 3G/4G wireless interface or independently access the Internet using a WiFi wireless interface. There is no coupling or internetworking between the mobile service and the WiFi enabled public Internet service. In this configuration the mobile wireless traffic is backhauled over the mobile operator's owned or leased facilities to the mobile operator's core network while the WiFi wireless service is typically connected to a wireline operator's broadband Internet access service.
Though the mobile subscriber could manually switch the mobile device between mobile and WiFi service, most mobile devices employ a connection manager that can automatically switch to a WiFi network if it detects a known WiFi network.
For mobile subscribers mobile data offloading provides increased coverage and faster downloads, and costs less than mobile service alone. An analysis of 3G smart phone use with WiFi offloading in South Korea sponsored by the U.S. National Science Foundation monitored the usage of 100 iPhone subscribers for 24 hours per day for 2.5 weeks. This research provides data on the timing and mix of service availability for urban subscribers including access to home WiFi, 3G mobile, WLAN at work and public WiFi in retail areas and transportation facilities. The study found that about 65 percent of the total traffic was offloaded using on-the-spot WiFi access. It found, further, that an additional 29 percent of the total data load would be offloaded if offload delays of at least an hour were permitted. From the subscriber's perspective, mobile offloading will go a long way in keeping 3G data usage below mobile operators' monthly data usage caps.
The study measured an inverse relationship between 3G and WiFi coverage. (3G has better availability outdoors while WiFi has better indoor availability.) Overall coverage therefore is enhanced by mobile data offloading. Average end-to-end data rates were measured as 1.26 Mbps during the day and 2.76 Mbps during the night. The data rate is higher during the night because smart phones have access to subscribers' home WiFi systems.
The mobile operator's mobile data offloading business case is built upon cost avoidance. Mobile data revenue growth, though very strong, is not keeping pace with traffic growth. For example, AT&T (NYSE: T) reports that in its most recent quarter mobile data revenue increased by 18 percent from the same quarter in the previous year. Over the same period AT&T reported a 54 percent increase in multimedia messages. This would imply traffic growth in excess of 100 percent. Though mobile operators have aggressive investment programs to expand the capacity of the Radio Access Networks (RAN) by upgrading and deploying additional cell sites and by adding capacity to mobile backhaul facilities, it seems unlikely that a business case can be made to completely close the gap between the cost of facilities needed to support traffic growth and expected revenue growth by making further investments in owned or leased network capacity.
Mobile data offload is an inexpensive way to provide the extra capacity needed to support the expected traffic growth. The mobile operator's only cost is that of subsidizing the dual function (3G/4G and WiFi) devices sold to subscribers. There also is a potential opportunity cost to the mobile operator in that revenue from data traffic in excess of the monthly capacity limit is forgone by offloading. However, subscribers are highly resistant to paying excess usage charges and are more likely to cancel service or limit its use. Either behavior is harmful to the mobile operator's business case in that even if the service subscription is not canceled the service's perceived value to the subscriber is impaired if usage is curtailed. Mobile offloading, therefore, increases the subscriber's perceived value of the mobile data service while improving the mobile operator's profitability.
The business case for the broadband service provider used to backhaul the WiFi service is more nebulous. Most mobile data offloading occurs in subscribers' homes. Residential mobile data offloading adds to total broadband traffic without making any revenue contribution to the broadband operator. However, mobile data offloading does increase the value (utility) of broadband service to the mobile data subscriber. Mobile data offloading, consequently, makes residential broadband more attractive to consumers and therefore increases service stickiness and improves broadband subscribers' willingness to pay.
Mobile data broadband is a rare telecom service in that it delivers increased value to mobile data subscribers, mobile operators and broadband service providers.