At the Pricing Mobile Data conference in London this Summer, Informa analyst Dario Talmesio in summarising said: “mobile data pricing will be the single most important factor in determining the development of sustainable and profitable business models for operators”. Was he correct? And why has data pricing in the past 2 years become as complex as it is? In this article we look briefly at several recent trends and see if we can discern a direction for mobile data charging.
The limits of unlimited – all-you-can-eat dataplans
IN 2011 many operators couldn’t run fast enough to ditch their all-you-can eat (AYCE) plans only to run back and re-introduce them in 2012. This has been much discussed, but in fact it makes perfect sense.
A few operators such as Sprint and 3 UK never stopped offering unlimited plans quoting as reasons for keeping them, their inherent simplicity (subscribers instantly understand unlimited), but also their low OPEX / management costs compared to more complex models. Additionally, speaking at the same Pricing Mobile Data conference, Kim Larsen from T-Mobile Germany even demonstrated that, once you take out the few percent of users who set out to exploit their AYCE plan (using Policy Control and Charging mechanisms), the vast majority of users in fact eat very sensibly– averaging in T-Mobile’s case only 500MB usage per month. A similar report on AYCE plans emerged this month from NPD that shows that in the US only a small percentage of people use over 3GB per month even when they are on unlimited plans.
But crucially, unlimited plans do not equip operators to get the best return on data services; this is the real point. Most operators and analysts agree that unlimited plans have a niche use for operators who need to disrupt, or aggressively re-take market share. Eg Mike Dano Fierce Wireless explains the view that the operators doing this (TMO, MetroPCS, Sprint) are attempting to reverse sliding market share. See also the Sprint executive comment in FierceWireless that unlimited is “.. a differentiator for the company at this time”. Unlimited plans are great for operators who have to aggressively defend a sliding position, or disrupt the market.
So unlimited plans have a role that will probably persist for many years, but it is limited.
One plan to rule them all – the shared dataplan
Various operator including AT&T and Verizon announced their “family plans” or one plan that can be shared amongst a household earlier this Summer. Not as simple as AYCE but the “all-in-one” plan is still a big step towards simplification of data charging. Simplification is needed. It’s important to realise that for us mobile data might be fascinating, but for “normal people” they just want something that works – like the electricity, gas, water, TV, or broadband in their homes. And note, all of these are charged as “family plans”, not by individual. Mobile data to many is becoming regarded more as a utility like switching on the lights, rather than an individual paradigm such as buying a magazine or iTune – for which people would expect to pay per person. This evolution toward utility status is positive, it makes life easier, and it needs to happen in our industry. Shared plans will help.Initial news indicates a positive response from subscribers – at least Verizon customers seem to be flocking to shared plans
The best things in life are ....(toll) free dataplans
The toll-free data plan is another new kid on the block in this area but quite contentious. This is an example of Telco 2.0’s long discussed 2-sided business (2SB) model where operators collect revenues from upstream customers such as government organisations or content providers as well as servicing regular downstream subscribers. Has this model finally arrived? Surely the Kindle model has proven this, where Amazon successfully supply their device to consumers with free (or at least bundled) mobile data? But of course, the problem with the Kindle model is that we only seem to speak about “the Kindle model” – ie where are all the other 2SB models in our industry? Well there are a few, but only a few: you can drive away a Nissan Leaf with included data as part of its telematics system; I was pleased to discover that my recent Tom-Tom SatNav includes a SIM and free data (....but only for a year, after which it costs an arm and a leg); and recently a few laptop manufacturers have teamed up with operators to offer data-bundled notebooks.
This reality would appear to bear out Dean Bubley (of Disruptive Analysis) view that “the idea of 1-800-apps” in its general sense is unworkable....... there are some exceptions and niches, but these will generally only apply to close collaborations between operator and app/content provider, or closed vertical solutions like M2M”. His report lists 10 detailed arguments for a cautionary approach here.
What I want, when I want it – value based / application based plans
A number of DPI (Deep Packet Inspection) and PCC (Policy Control and Charging) companies including Openwave Mobility are active in this area where essentially subscribers are enabled to purchase premium “applications” or services, usually on top of a low-rate dataplan. This approach has advantages for low to medium spend subscribers who are usually put off from data usage by uncertainty of how charging works. Simple examples include operators offering video streaming or FaceTime as a premium service to subscribers on low-usage plans. Again this is relatively new but some operators offering users a premium “video as a service” offering are seeing a very high 20% take-up, and this is all incremental revenue. Usually these solutions offering Application Based Pricing also enable shared plans and zero-rating of content. The difficult thing of course is to keep it simple, ensure users understand their usage, and to not over-fragment applications and services. Application-Based Charging is now a a new study item for 3GPP Rel12.
In summary, I believe unlimited plans will persist as a niche proposition for market disruptors, shared dataplans will evolve and take a central role becoming increasingly widespread, toll free dataplans however have an uncertain future, and it’s great to see innovations such as Application Based Pricing that enables increasingly price-conscious consumers to discover new services and pay for just what they want.
To close, Dario was probably right, mobile data pricing is the decisive tool in the battle for revenue. And it’s not easy for mobile operators trying to make an honest buck from internet data services. As Richard Watters (West Coast correspondent for the FT) said: “The problem with the internet is it undermines the value of the services it carries by its very nature. Once media services are reduced to bits and bytes, prices have a nasty habit of collapsing.” In an era where people expect everything to be free and will not spend their time trying to understand complex charging strategies, the operators who succeed will be those who can take the complexity of mobile data charging and “bury it” from consumers who must only see simple, relevant, offers.
This blog was published by Mobile Europe on October 26th.