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Why is 4G so expensive? Answer: The Post-Voice Era is coming
The money will go where the bandwidth is
Analysis EE, the UK's largest mobile operator, makes most of its money from voice calls - but that's coming to an end with the launch of 4G tariffs that allow unlimited chitchat and text.
Those tariffs start at £21 a month, with no handset subsidy and capped at 500MB of mobile data, but they impose no limits on texting and calls. The operator, formerly known as Everything Everywhere, is gearing up for a future where competing with voice-over-the-internet (VoIP) services is impossible, and the easiest way to make money is to charge a lot for the one thing no one else can provide.
EE owns the Orange and T-Mobile brands, and it reports that voice calls make up 52 per cent of the money it rakes in from customers of those brands. But 17 per cent is spent on texting, so take out both and we find that data only contributes 31 per cent of the revenue.
The new 4G tariffs include unlimited voice and text, and cost a fiver more than their 3G equivalents, so there will come a time when EE publishes its results and the biggest contribution to the bottom line will have vanished.
Not for a while though: customers will have to switch to the EE brand to use the 4G network and pay those tariffs. Those who stick with Orange and T-Mobile will continue to pay for voice and text bundles, with data too, and they won't be allowed onto EE's shiny new 4G network so they'll be stuck at 3G speeds to be looked down upon, and laughed at, by their friends and relations alike.
EE has taken a lot of stick for charging an additional fiver a month for 4G, and for the lack of "unlimited" tariff in the range - the tariffs top out at 5GB a month, costing £36 with no handset, though with a subsidised handset one can get 8GB a month for £56. All the tariffs will require an 18-month term, so there's no opportunity to jump ship when rival networks launch next year.
The problem for EE, and every other mobile operator in a developed market, is that voice revenue is static, or dropping, while data isn't contributing enough to fund the network, so something has to give. Network sharing and outsourcing support can cut costs a bit, but ultimately customers will have to pay more for their data.
Americans already pay considerably more than us Brits: a 1GB cap on EE will cost £26, while the same connectivity on AT&T is more than forty quid ($65) and won't permit tethering - so we shouldn't be surprised to see EE charging a premium for 4G. That's not because 4G is more expensive, but because the cost of data needs to rise (to make up for the declining voice revenue) and 4G is a justification by which that can be achieved.
The same thing applies to the EE branding: bumping up the prices for data on Orange and T-Mobile would spark too much trouble, but making the increase part of the switch to "EE" is more acceptable to customers who have no obligation to make the switch, while EE's 4G monopoly makes any price comparisons impossible for a year at least.
Four in five of EE's customers (that's Orange and T-Mobile, EE is still in launch mode until the end of October) are on two-year contracts, the maximum allowed under EU rules. Those customers will be able to switch to EE without penalty, but Vodafone, O2 and Three customers who are similarly locked in will have to stay where they are for the present.
By the time the other operators get 4G, EE will have raised the acceptable price point for that technology, enabling them to charge a similar amount to the relief of all and sundry. The other operators will make a lot of noise now, about how EE is gouging users and taking unfair advantage of its monopoly position, but in a year's time they'll be launching 4G tariffs of their own and it would be a mistake to expect those prices to significantly undercut what's on offer from EE. ®