Advertisement
Articles
Advertisement

Mobile Data: Tiered Pricing Is Only One Solution

Tue, 09/21/2010 - 7:31pm
Noam Green, Mobixell

Just a few short years ago, when most operators talked about their mobile data business, it was a bit of a misleading conversation. What they were really referring to was their SMS business. The mobile Internet or mobile broadband portion of these organizations was dwarfed by the SMS portion, and operators argued that this was "strategic," even though it wasn't contributing significantly to revenue or profitability at that time. The operators argued that their investments in network technology and capacity, their efforts to bring new smartphones to market and their work with the application community would change this picture and justify their strategic bets.

Well, here we are today, and yes, mobile Internet and mobile broadband subscribers, data volumes and revenues have grown dramatically in many markets.  However, there is still a tone of concern in industry circles. Indeed, this has been a case of "be careful what you wish for." The problem is that while the critical By Noam Greenmetrics have all grown substantially, they are not growing on the same trajectory – specifically, the growth of mobile data volumes are beginning to outstrip the growth in revenues, and importantly a mobile operator's cost structure is defined more by mobile data volumes rather than the number of subscribers.

This situation has arisen because in many markets, mobile network operators have opted for flat-rate pricing plans, which means a low-volume subscriber and a high-volume subscriber are worth essentially the same ARPU to the operator. When the high-volume subscriber is using only relatively moderate volumes, there is still no real need for concern, but as laptops become an important part of the mobile data equation and as we continue to see increasing smartphone adoption, high-volume now means REALLY high volume.  The discussion has moved from one that takes place between network engineers to one that is a boardroom-level topic of strategic business importance.

Several operators have reacted by taking short-term steps to address this concern. We have seen operators introduce policy and deep-packet-inspection (DPI) technologies to their networks to allow them to identify the applications and subscribers that contribute to their growing data volumes and, where allowed by the regulators, to put policies in place to control abuse of the network by some high-volume subscribers that might adversely impact the quality of service for more average subscribers. Additionally, we have seen operators install technology to optimize the delivery of video content, since video is one of the most significant contributors to the overall data volumes observed across the networks. Finally, we have seen a number of operators begin to move away from flat-rate pricing models and introduce pricing plans that target different levels of mobile data usage, i.e., tiered pricing plans.

So, we are left with this question – is this enough? Will tiered plans fully allow mobile network operators to benefit from the enormous growth potential of the mobile Internet and mobile broadband? While there is no doubt that this approach will provide operators in some markets some breathing room to deal with their near-term economic challenges, this relief may only be temporary. There are a couple of problems with this approach. Subscribers tend not to know what data volume they will consume in a typical month.  Additionally, this is not a closed system.  Whether operators like it or not, there are other significant players that will have a say.

Typical subscribers don't pay attention to what data volumes they consume.  If I asked each of you how much volume you consumed on the Internet last month, the vast majority of you would have no idea. But, if I asked you how you utilized the Internet, you would be much more likely to know the answer – e-mail, YouTube, iTunes, Facebook, etc.  You would have a pretty good idea of the services and applications that you use. These mean something to you, much more so than the number of gigabits does.

As a result, we will see tiered volume data plans become popular for a time, but in the long run, there will be a flat-rate fee subscribers will pay along with other "usage-related" fees buried in the cost of other services.  Users may be more inclined to pay for different application-level packages they can relate to (and quantify), such as flat-rate browsing with a two-hour video viewing limit or social networking packages. These easily quantifiable tiers would remove some of the resentment users have voiced lately regarding the change to tiered pricing.  These users feel they were penalized for using their data-hungry devices. Operators also have an opportunity to monetize on the over-the-top data by bundling the application price and its corresponding data. For example, when you download a new book to your Kindle, how much does that data volume cost you on the mobile network? The answer is you have no idea; it is bundled in the price of the e-book that you downloaded. Subscribers accept that. They understand the cost of a book.  It fits their paradigm. This bundling mechanism can work for both the service provider, as well as the mobile operator.

An even bigger threat to the mobile network operators than the disproportionate growth in data volumes is the threat of disintermediation. Operators fear they might become relegated to a position of limited value to the subscriber, i.e., that they would fall into the dumb-pipe abyss. Indeed, operators must protect themselves from the numerous over-the-top players that would love to ride their networks and deliver applications and services to subscribers and capture the lion's share of the value.

Essential to the operator's ability to deal with these challenges is its ability to add context-based value to mobile data sessions in real time. Operators occupy a strategic position in the mobile data stream, and they have unique network-based assets – location, identity, device, bearer, relative bandwidth, etc. - that can be used to increase the value of a data session, not just to subscribers, but also to application and content services. The mobile network operators then have the opportunity to achieve 360-degree monetization of the mobile Internet traffic, but to do this, they must be able to make intelligent, flexible decisions about data streams at the subscriber and application level.

Operators would, therefore, be well advised not to conclude that tiered data plans will be the solution to their economic challenges, but rather just a piece of the puzzle.  More essential to their long-term prosperity is their ability to act upon mobile data streams at a granular level. In so concluding, mobile operators should prioritize intelligent, flexible decision-making as a fundamental requirement for their future mobile Internet and mobile broadband infrastructure platforms.

Noam Green is associate vice president of marketing at Mobixell.

Advertisement

Share this Story

X
You may login with either your assigned username or your e-mail address.
The password field is case sensitive.
Loading