European mobile data traffic ramped up between four- and eightfold in 2007, driven by decreasing prices and faster downlink speeds, according to Heavy Reading. But the unstated premise is what might worry European mobile service providers: it is doubtful new data subscriptions grew enough to outstrip lower average revenue per unit because of the price reductions.

 

The biggest usage gains occurred where operators with lightly-loaded networks introduced flat-rate pricing plans, Heavy Reading says. Operators with higher usage and existing flat-rate plans, though, still saw 300 to 400 percent increases in data consumption

 

In fact, data traffic volumes at Telefónica O2 Europe doubled every quarter in 2007 after it launched a €1 ($1.59) per day flat-rate service using USB modems in Spain.

 

Lower tariffs are almost solely responsible for the explosion of usage, Heavy Reading says. In fact, prices declined more than 300 percent in 2007.

 

There is another challenge: "Mobile operators are essentially becoming ISPs," says Gabriel Brown, Heavy Reading senior analyst. "They are going down the bit-pipe road."

 

In Europe, the price competition is most aggressive in markets where 3 Group is present, such as Austria, Italy, Sweden, and the U.K.

 

Some things don’t change: where service providers insist on maintaining high prices, usage is dampened and users have all the incentives they need to circumvent the basic plans.

 

In European voice and text messaging markets, for example, high rates just create demand for use of multiple prepaid subscriber identity modules to get around high inter-country messaging or calling rates.

 

The impact of dramatic lower prices on usage shows the pent-up demand, at least on the part of current users.