The cost of mobile data

To understand why mobile phone services are expensive, let's look into how the mobile phone network works.

Spectrum

Within the ubiquitous GSM system, you are surrounded by one or more base stations which are interconnected with each other and the telephone network. As you know, your phone connects to one of these stations using radio waves.

The GSM standard defines two standard radio bands, 900MHz and 1800MHz (or 850MHz and 1900MHz for North Americans who have difficulty comprehending international standards). Phones are built to these standards, and cannot use anything outside of these bands.

If a specific geographical area was covered by base stations using these bands completely, about 3750 concurrent phone calls can take place in one geographical area. This seems significant until you divide that number by the number of mobile phone operators in the area, and the size of the area covered by the base stations.

In most countries there's a few mobile phone providers competing to give a large number of customers the best coverage possible. The problem is that once one radio frequency is used in a specific geographical area, it cannot be used again or they would overlap.

Ultimately, these radio frequencies, known as “spectrum allocations” are in high demand between competing mobile phone providers. Licenses to use a specific frequency must be bought from the government, and quite often these are auctioned by government regulators to fetch a high price. It's not uncommon for a single license to be allocated on a nation-wide level and therefore be sold for billions.

Signalling contention

Depending on the configuration, one of these base stations could handle hundreds of phone calls at any given time. In order to handle all of these phones, each radio frequency used is chopped up into smaller channels, much like how FM radio can support two channels of sound (left and right), except that there are many more of these channels, and instead of carrying sound they carry binary data. Even your voice is sent as ones and zeros.

At any given time, your phone will always be connected to a special channel that is used for “signalling”. When you're on a call, another channel is used to transmit and receive sound for the actual phone call.

This signalling channel is very important. When you dial a number and hit “send” (often a little green phone button), your phone is using this signalling channel to ask the phone network to find that phone number and open a channel for you to speak over. It tells your phone if the phone number is busy, or when they've hung up.

Likewise when someone calls your phone, the mobile phone network will tell your phone to start ringing via this channel and give it information such as the phone number who's calling you. Furthermore, this channel is used by your phone to negotiate a change between base stations, for example when you're on your phone while driving down a motorway. You can see that without this channel, your phone would be pretty useless.

Several other mobile phone services use this signalling channel, including SMS messages. Because text messages take time and bandwidth away from other signalling traffic such as setting up a telephone call between a base station and a mobile phone, SMS can cause significant contention and even completely overwhelm a mobile phone network if enough resources were available.

This should explain why SMS messages are limited in size to 160 Latin characters (140 bytes), as the signalling messages that pass over this channel are themselves limited in size.

This signalling channel is a finite and critical resource for a mobile phone network, and while SMS messages are generally priced with a 90% profit margin (generating billions in revenue), the price of a text message does dissuade the excessive usage that could interrupt or delay normal phone services, some of which could be emergency calls.

This may be a moot point now that newer equipment will limit the rate at which SMS messages are delivered to phones.

Internet and data services

Originally data, such as an Internet connection, needed to be handled similar to a normal phone call. Circuit Switched Data (CSD) was a slow system similar to early dial-up connections, and despite being later updated to a so-called high-speed version (HSCSD) it suffered from being billed by the minute, similar to a very expensive phone call. Being slow yet reliable might be good enough for downloading files, but if you're reading websites you will end up paying for all that time you're not sending or receiving data.

This system was used prominently for WAP in the early days and because it would use mechanisms similar to an ISDN connection it would often be priced above 50 cents per minute.

This was all solved with the introduction of General Packet Radio Service (GPRS, and later EDGE/EGPRS), which efficiently uses unused channels on a base station for transmitting data. Because it only sends and receives when it needs to, you are normally only billed based on what you use rather than how long you're connected.

GPRS works by taking the channels that are not in use by telephone calls at that point in time, chopping them up into bite-size chunks and sharing them with other phones also using GPRS. The more of these chunks (called “slots”) that are available (and supported by your phone), the faster your connection will be. This does means that GPRS will be slower when more people are on phone calls in a particular area, and likewise when other people are using GPRS. In practise, the speed of a GPRS connection is extremely variable.

The implementation of GPRS for a mobile phone network requires relatively minor changes to base stations, but in many cases it requires a large upgrade of the infrastructure that connects base stations together with the phone network and subsequently the Internet. Many phone providers implemented GPRS believing it to be their next Killer App, but with such a slow up-take from consumers they are just now recuperating their implementation costs.

Tariffs

Data costs over GPRS are falling, but probably not fast enough. In 2001 the average cost of one megabyte of data (roughly one minute of MP3 music) using GPRS in Europe was €2.37 (based on 2001 closing market rate), in 2004 it had fallen to €1.28, and presently sits around €0.75. Compare with normal broadband Internet services, the price is falling very slowly if it takes four years for the price to halve.

While I agree that prices are inordinately high and mobile phone industry needs to be questioned, there are additional overheads that don't exist in other more common data networks. It is therefore irrational to expect the price of truly wireless Internet access to be comparable to cable Internet or xDSL services which are so common.

Naturally, SMS tariffs are gradually falling too, but even slower than for data services. Of course if you attempt to compare the cost of an SMS against a service such as email, you're going to come up with figures that most people will consider to be unreasonable.

Perhaps the EU will pressure the mobile phone industry in Europe once more, just as they once did to squash the ridiculous international roaming charges that once plagued us.

For the record, I'm paying €0.025/megabyte for the first gigabyte and then €0.10/megabyte thereafter.