Data caps could give RIM a new day in the smartphone sun

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Data caps could give RIM a new day in the smartphone sun

By CAROLINE GABRIEL

Published: 5 November, 2009

READ MORE: Research In Motion | Handset

RIM has been losing value steadily this year as its enterprise phone heartland comes under threat from new challengers and as it struggles to make an impact in the competitive consumer smartphone world. However, one crumb of comfort may lie in what it normally seen as a weakness for the BlackBerry - that it is still mainly used for simple text-driven applications like email, and has made less progress in attracting multimedia apps.

This pattern of usage will make the BlackBerry more attractive to operators, as they try to stop their networks collapsing under the weight of multimedia traffic, especially as no vendor has yet managed to better RIM's combination of super-efficient use of the network, combined with ability to stimulate usage (mainly because of its always-on nature). A research note from Peter Misek at Canaccord Adams links smartphone success directly to trends in data capping, as carriers increasingly turn to caps - or ban bandwidth hogging apps - to ensure a decent experience for the majority of customers.

Carriers have been luring users with flat rate data packages, but will have to start implementing more rigorous caps, despite the unpopularity of this (some already are), and/or reintroduce per-byte charges, argues the analyst. Once this happens, devices that

deliver fewer bits per feature - such as simple and highly compressed Blackberry email - will look more attractive and will suffer less from constraints on bandwidth.

This may be a temporary situation, since most operators are looking to extend bandwidth considerably via new technologies like LTE and WiMAX, data offload to Wi-Fi or femtocells, and new spectrum. But the problems of supporting the iPhone on AT&T's network, and its decision to force certain apps off the 3G connection and onto Wi-Fi, have highlighted the dilemma that will afflict cellcos for at least the next five years. Open web usage via a full browser worsens the problem, because there is no optimization (though compression technologies, as used by Opera and RIM, do help); so do increases in usage of video, peer-to-peer and other heavy duty apps.

"On a per-megabyte basis, wireless texting has been the most profitable application for service providers, generating about $1,000 per megabyte used," Misek writes. "As the industry moves toward web browsing, streaming and content downloads, the per-megabyte revenue for carriers has dramatically fallen." Industry leaders like Verizon's CTO Dick Lynch are increasingly calling for cellcos to implement data caps and tiers more aggressively.

The note points out that the BlackBerry service is capable of sending 11 times more emails per 500Mb of data capacity than an iPhone, and with the same bandwidth, the Blackberry can deliver 7,000 web pages versus 3000 for the Apple device, which has made little progress on traffic efficiency. "We believe that in a scarce spectral environment, RIM's NOC/BES architecture and compression technology will be worth tens of billions of dollars to global operators," Misek adds. "There is no contention on our part that iTunes and App Store are the superior global content platform. But if you can't connect to the internet, having the best platform will not matter."