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duncan stewart

Those guys at the beer store are really unfair: they want me to pay more for a two-four than I do for a six pack. Gas stations are the same: filling an empty SUV costs more than topping up a moped, and they refuse to sell me gas for 1 cent a litre.

Neither of those statements make much sense, so why do Canadians have this expectation that wireless data plans should move toward very high (practically unlimited) usage caps; and that current prices are so inflated that carriers can cut prices by over 99 per cent and still make money?

In my last column, I talked about certain wireless services that we currently pay for, but that will become free or virtually so in the future. My point was that once we connect to the network, moving small numbers of bits - even thousands of kilometres - doesn't cost the carrier anything extra. Therefore, basic voice service, long distance and SMS messages will all become much less expensive.

On the other hand, there is a marginal cost to a carrier for hauling extra gigabytes (GB) of data between a mobile device and the nearest cellphone tower. That cost is determined by a number of factors: how congested the network is, what technology the carrier needs to use to deliver the services and speeds that customers want, and the cost of the spectrum needed to transmit those bits and bytes.

All of those are real costs. Once a network is full, a carrier cannot magically wave some wireless wand and transport petabytes (a million GB) of data: they need to buy new technology that makes better use of their existing spectrum, or they need to buy more spectrum, or both. The first costs tens or hundreds of millions of dollars every few years and the second usually costs billions.

After my last column, the comments section filled up with folks who thought I was in the pay of the carriers or, for some other reason, lying about the cost of data. I can understand why - they would love to be able to consume unlimited amounts of high speed data for not very much money, and anyone who tells them otherwise must be up to no good. But let's take a look at three recent data points.

A recent study from Informa in the UK suggests that the current cost (to the carrier) of transmitting a GB of data using current technology is about $6.79 by the end of 2011. Using the next generation of more spectrally efficient technology (called LTE), they say that the cost will fall to $2.74 per GB by 2015. LTE uses some special antennas and modulation schemes that will allow a carrier to cut the per-GB cost by almost 60 per cent. Which is pretty good... but if we assume they price the data at 100-per-cent markup on their cost, we end up with 5GB/10GB data plans costing consumers $68/$136 today and falling to a floor of $27/$54 by 2015.

The other two data points are real-world pricing.

One major US carrier offers a data-only plan for a tablet. For $25 per month, users can get up to 2GB. 5GB would cost $75 and 10GB would be $125. Pretty close to the Informa 2011 numbers, eh? A different large US carrier announced that it will be launching an LTE network covering more than 100 million Americans by the end of 2011. $50 will get you 5GB, or $80 for 10GB... and any overages are $10 per GB. Yet again, these are pretty close to the Informa LTE figures.

Those last two paragraphs contained a lot of numbers. But what do they all mean for consumers?

The answer is video, specifically wireless video. E-mail, web surfing, even downloading books, games and music consumes mere kilobytes and megabytes of information per month for most users. The only kind of traffic that really fills up your monthly data bucket is video: it depends on compression and other factors, but every two hours of video is about 1GB.

The average North American watches more than 100 hours of TV per month (or 50GB), so if we combine what we know about pricing floors on data, network capacity and mobile viewing habits, we get a few bottom line implications.

1)For someone who doesn't plan on watching a lot of video on their smartphone, tablet or wirelessly connected PC, the eventual floor price of $50 for the 5GB data bucket will be fine.

2)If you want to watch a couple of movies per week, you may need to go for the $80 10GB bucket.

3)If you want to "cut the cord" and watch all your video content wirelessly, you will probably end up paying for a lot of data - maybe $150 a month. And please note that is only for the bandwidth - paying for content would be additional.

4)Given the existence of a floor for data pricing, most users will try to shift as much of their video consumption as possible to when they are able to connect to Wi-Fi.

All of these floor numbers are determined by the laws of physics, technology and wireless demand. They apply around the world, and have nothing to do with Canadian regulators, cartels or carriers. Finally, this will be a better deal for most Canadians. As we shift our telecom and video dollars around over time, most of us will end up spending less and getting more.

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