Managing the mobile data-stream
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Susie Kim Riley |
Managing the mobile data-stream The planned introduction of tiered mobile data services by operators such as O2, and KPN of Holland, is a win not only for operators, but more importantly, for subscribers. While there have been some knee-jerk responses expressing fears that pricing tiers will discourage subscriber adoption, this necessary and beneficial pricing change will in fact lead to wider adoption of mobile broadband services.
The data dilemma
Unlike voice and messaging traffic, where bandwidth cost per subscriber is well understood and relatively constant, the amount of bandwidth consumed by different applications and devices can vary dramatically. A text e-mail sent from a smartphone may use only one or two kilobytes (KB) of data, but downloading a Web page can consume 500 KB or more.
Other high bandwidth services such as video or dedicated applications that can easily devour megabytes, if not gigabytes of data, do not actually generate any revenue for the operators. Another interesting fact is that the minority of subscribers (only a few percentage points) generate the majority of internet traffic and cause congestion choke points during different times of the day, and the bulk of the expenses incurred by the operators are a direct result of having to provision enough capacity to meet the demands of the small set of high users.
In addition, the increasing number and variety of mobile broadband devices adds further uncertainty. According to Terry Norman, Principal Analyst at industry research and consultancy firm Analysys Mason, global smartphone shipments will increase from 564 million in 2010 to 2.1 billion in 2015.
His research also forecasts the number of non-PC mobile broadband devices, such as tablets or e-readers, to grow nearly 10 times in five years, from 4.9 million in 2010 to 45.3 million in 2015. The growing number of mobile broadband users, coupled with increasing bandwidth per user, is creating a dilemma for operators as the need for greater bandwidth capacity is growing much faster than the associated revenue.
A recent study puts this issue into perspective. Industry analyst firm Heavy Reading estimates that bandwidth on 3G networks is growing at a rate of approximately 400 percent annually, while the associated revenue from data services is only growing by approximately 40 percent per year. Simply put, operators will be carrying more data per user for less revenue. As the traffic levels swell, operators are realizing that neither economics nor delivery architectures are keeping pace with the escalating demand for mobile broadband access.
Benefits of tiered pricing: operators, subscribers and device manufacturers
Tiered pricing helps to solve these problems in a variety of different ways by linking usage with cost, while also ensuring that subscriber relationships are not damaged. This approach enables operators to open up mobile data plans to a wider range of customers and get more revenue from the heaviest users, while offering more reasonable plans to others who may not be as demanding of users.
A wider net to cover more subscribers may not necessarily yield immediate benefits to the operators' bottom line, but provides more growth opportunities, which will fuel more investment into operators' ongoing network development and improvement cycle.
Consumers benefit by the fact that they will have more options to choose from, less chance of incurring 'surprise' surcharges at the end of the month, a marked improvement in the quality of service and the introduction of innovative new services. Instead of a one-size-fits-all model, tiered pricing lets subscribers pick plans that best suit their needs.
As a result mobile data will become affordable for a whole new group of consumers and the subscriber segment that typically use less than 500MB of data per month will enables save money. This new set of users will upgrade from basic or feature phones to advanced smart phones, or will choose from a myriad of devices such as a tablet or netbook, driving new device sales.
At the same time, operators can offer higher bandwidth and usage tiers for those subscribers who demand more from their mobile Internet service. The need to enhance the mobile broadband experience and make it more personal for the end-user is inevitable due to the growth of a more sophisticated subscriber base, with varied needs and demands for customisation of services and applications (e.g. Facebook or iTunes) on their smart phones, tablets and netbooks.
Operators also know that one of the greatest sources of churn is to surprise them with huge surcharges at the end of the month. By providing different tiers of service, operators can actively 'manage' the subscribers and move them between tiers by engaging with them and providing them with choices, in real time. For example, if a subscriber is close to using the allotted monthly quota for the tier, the operator can notify the subscriber via SMS and provide him/her with the opportunity to upgrade for a nominal fee – instead of letting the subscriber incur steep over usage charges when exceeding the quota.
One of operators' key concerns with flat-rate unlimited mobile broadband plans is that the smallest fraction of users can negatively impact the quality of experience of the vast majority. From the consumer point of view, this can mean that lower usage subscribers effectively subsidise the heavy users' bills. Tiered services instead provide the operators with the flexibility to segregate traffic if necessary in order to ensure the best possible experience for the vast majority of subscribers.
Finally, tiered pricing opens the door to some innovative new types of on-demand services such as a 'turbo boost' service, a capability that would enable a subscriber to accelerate downloads or uploads of content, or a premium video service, which would allow the subscriber to view content in high definition. These types of sophisticated offerings would also help drive the sales of devices, if subscribers could, for example, pay a small amount for a rapid movie download to a tablet supporting high-definition before boarding a flight.
Certainly challenges remain. Subscribers will need to understand their service choices and the impact on their bills. Operators will need to properly message the changes, as often there is a knee jerk reaction to change. However, U.K. operators are taking the first important step to more pro-consumer mobile data services. As the market responds with more adoption, operators will naturally evolve and improve their offerings.
Susie Kim Riley is CMO at Tekelec - www.tekelec.com
As featured in TES - The Electronic Supplier E-Zine, 2010 Vol 6, www.the-electronic-supplier.com/ezine/