MNOs & Zero Marginal Costs

Here’s a 1GB test file. What does it cost your cell carrier if you download that file to your phone? Most likely, nothing.

Mobile network operators (MNOs) like Verizon, AT&T, and T-Mobile usually have zero marginal costs.¹ Buying radios, renting tower space, acquiring spectrum licenses, and supporting customers is expensive. But once a subscriber has coverage, there’s typically almost no cost involved in letting the subscriber use incrementally more data.

People claiming MNOs will be eager to offload data on DeWi networks often miss this point. Sure, it will be awesome if DeWi networks get so big that an MNO can rent fewer towers or buy fewer radios. But DeWi won’t hit that kind of scale anytime soon. The benefits of DeWi, in the short term, will show up on the margins.

While data use typically doesn’t directly cost MNOs money, it does contribute to network congestion. When networks get congested, users get slower speeds. MNOs with coverage overlapping with DeWi networks might sometimes pay to offload data and avoid degradation in the quality of their subscribers’ service.

When considering DeWi’s potential for lending MNOs extra capacity, modesty is warranted. Network congestion isn’t ubiquitous. It’s rare in most areas, and even in congested areas, issues are likely limited to certain times of day. Further, $0.50/GB is a whole lot more than $0.00/GB. If congestion is only modestly reducing users’ speeds, an MNO might prefer to save money over spending big bucks to ensure the best possible service.

Non-Zero Marginal Costs

Data isn’t always free for MNOs. When subscribers roam on other MNOs’ networks or use services from a neutral host like Boingo, there may be substantial costs for each additional increment of data used. Helium and Pollen’s proposed $0.50/GB rate could be a bargain in comparison.

Additionally, none of this analysis applies to mobile virtual network operators (MVNOs). These carriers don’t own network infrastructure but instead piggyback on other companies’ networks. Mint Mobile and Consumer Cellular are examples. The agreements MVNOs have with their host networks tend to be private, but I’d ballpark the data rates somewhere in the range of $1.50-$6 per gigabyte.²

1. “Close to zero marginal costs” might be more accurate, but it’s less punchy.
2. I’m oversimplifying. I expect agreements between MVNOs and MNOs often involve complicated price structures. I’d also guess larger MVNOs tend to get substantially better rates than smaller ones.