Phil Arredondo, Sara Lannin and Helen Kwan also contributed to this report.
Nearly 30 percent of cell phone users in the United States have smartphones up from 19 percent the year before, according to fall 2010 data released by the Nielsen Company.
While smartphones are still in the minority, they probably won’t be for long. Nielsen also reported that smartphones accounted for 41 percent of all cell phone purchases in the second half of 2010, up from 30 percent a year earlier.
Another Nielsen Company study predicts that more Americans will have smartphones than feature phones by the end of 2011.
More smartphones users means more strain on America’s wireless networks – primarily Verizon, AT&T and Sprint. Anyone who has ever found it difficult to make a call or download an email on an iPhone during peak cell phone use hours, like rush hour or lunchtime, knows this can be a real problem.
A good forecast of this strain happened at the Consumer Electronics Show in Las Vegas in January. Most of the 126,000 technophile attendees were armed with one or more cutting-edge, Internet-enabled smart devices such as iPhones and tablets.
As Federal Communications Commission Chairman Julius Genachowski took the stage at CES, he asked members of the crowd to raise their hands if their smartphones were having trouble connecting to the Internet. Almost every hand went up.
During the interview, Genachowski predicted that broadband use in America would go up 35 times over the next five years. Even President Barack Obama, in his 2011 State of the Union Address, set the goal of bringing 4G wireless coverage to 98 percent of Americans within five years, an ambitious initiative that involves a $5 billion investment.
“There are network problems in store,” said Bay Area analyst Greg Sterling, principal of Sterling Market Intelligence, which specializes in the area of mobile technology. “There hasn’t really been the push to upgrade those networks, because the market hasn’t seen the need,” he said.
But Genachowski said that there will be “disastrous consequences” unless the situation improves. His solution is to increase the amount of available electromagnetic spectrum for use by wireless providers. One way to do this is by opening up access to parts of the spectrum that aren’t being used anymore by television broadcasters that switched over to digital signals. The broadcasters would have to voluntarily give up those pieces of the spectrum, which could be auctioned off to broadband providers.
Other plans are also in the works to keep the wireless networks from being overburdened as more and more Americans use smartphones.
Among cell phone providers, a very popular tactic is offering tiered data plans. The biggest providers offered unlimited data plans when they first began selling smartphones, but this option is proving to be unmanageable as the companies sell more and more data contracts.
Even Verizon, which promoted the iPhone with an unlimited data option, admitted that such services aren’t sustainable. At a Morgan Stanley conference on March 1, Verizon Chief Financial Officer Fran Shammo said an unlimited data plan was never a long-term strategy. Rather, it was a marketing campaign to lure people to Verizon because competitor AT&T didn’t offer an unlimited data plan.
Now most cell phone providers are no longer offering the unlimited data option to new subscribers. With few exceptions, customers who already have unlimited data plans will have the option to continue as long as they stay with that wireless provider. Other subscribers will have to pay for varying amounts of monthly data and risk steep fees if they go over their limit.
Not sure how much data you typically use? Try this data calculator on T-Mobile’s website.
Consumers now have to think differently about the way they use their phones, a situation which might elicit negative reactions. But Chris, an AT&T representative in Palo Alto who requested that his last name not be used, said that in fact only about “one percent” of customers were upset.
This figure is more in line with AT&T’s statistics. Ralph de la Vega, president and CEO of the company’s Mobility and Consumer Markets division, said in a speech in December 2009 that “heavy bandwidth users,” who comprise approximately three percent of their smartphone users nationwide, use about 40 percent of AT&T’s total network capacity.
Many of those heavy bandwidth users, however, come from San Francisco and Silicon Valley. Chris from AT&T estimated that data usage in the area is 30 percent higher than in the rest of the country.
Jon Niblock, of Sprint’s Sunnyvale location, agreed. “Being in Silicon Valley makes a difference because of the technology and digital revolution and with Apple, Google and others in the area. Consumers in this area use more data because they follow social media. They’re always connected and are more smartphone-savvy than the rest of the nation,” he said.
Jason, a Verizon sales employee in Palo Alto, had a similar opinion. “We’re in Apple Capital around here!” he said. “Everyone wants an iPhone.”
The Bay Area’s technologically up-to-date nature makes it a bellwether for technological trends before they reach the rest of the U.S. “The Bay Area is a leading indicator of what will happen with technology elsewhere, but other big cities are not far behind,” Sterling, the industry analyst, said.
AT&T’s most common choice in the tiered data offerings is 200 megabytes per month. This equals approximately two and a half hours of constant web surfing, or about five minutes per day over a month.
Tiered data plans might also make it difficult for small companies or tech startups to afford the amount of data they need to do business. Stanford Law professor and Faculty Director at Stanford’s Center for Internet and Society Barbara van Schewick discussed this topic last spring at the FCC’s Workshop on Approaches to Preserving the Open Internet.
Van Schewick said that access charges such as tiered data plans would “disproportionately affect innovators with little or no outside funding,” and, as a result, would give incumbent businesses with deep pockets an unfair competitive advantage.
She also stressed the importance of keeping the mobile Internet “open,” that is, accessible to those with less capital, to better promote the development of new apps and services.
