A CHANGE IS COMINGBroadband-type charging structures bear no resemblance to the rental/subscription model of fixed-line and mobile voice calls. But mobile operators need to introduce flat-rate pricing to build a mobile ecosystem, argues Mark Newman.
As dial-up becomes just a bad memory, flat-rate charging structures have become the norm for broadband on the fixed network.
People are happy to pay a flat monthly fee based on the speed of the network connection. This flat fee allows you to use the internet, send emails and make phone calls via VOIP. Essentially, you can do whatever you want with your broadband connection.
Mobile operators, on the other hand, seem to have gone out of their way to make pricing as confusing as possible. Operators tend to bill for the services used rather than a flat rate access fee. They offer lots of different services over 2.5G and 3G networks, so there are lots of different price plans. And pricing philosophy varies from one operator to the next.
As a basic rule, operators either include a defined number of free megabytes with 2.5G or 3G price plans or offer bundles of megabytes on a monthly or contract basis. Once customers have exceeded that limit they pay a price per megabyte consumed.
In addition, much of the high-profile content available via operator portals such as games, music and video clips carry a per-event fee. Prices tend to differ from the PC-based internet because operators claim a share of the revenues (anything up to 40%) and justify a mobility ‘premium’.
Per-megabyte price plans can be attractive for anyone with a Microsoft or Symbian phone to use Internet email. But there are also corporate email services such as Blackberry or Visto and dedicated ‘emailer’ devices for Internet email.
People are happy to pay a flat monthly fee based on the speed of the network connection. This flat fee allows you to use the internet, send emails and make phone calls via VOIP. Essentially, you can do whatever you want with your broadband connection.
Mobile operators, on the other hand, seem to have gone out of their way to make pricing as confusing as possible. Operators tend to bill for the services used rather than a flat rate access fee. They offer lots of different services over 2.5G and 3G networks, so there are lots of different price plans. And pricing philosophy varies from one operator to the next.
As a basic rule, operators either include a defined number of free megabytes with 2.5G or 3G price plans or offer bundles of megabytes on a monthly or contract basis. Once customers have exceeded that limit they pay a price per megabyte consumed.
In addition, much of the high-profile content available via operator portals such as games, music and video clips carry a per-event fee. Prices tend to differ from the PC-based internet because operators claim a share of the revenues (anything up to 40%) and justify a mobility ‘premium’.
Per-megabyte price plans can be attractive for anyone with a Microsoft or Symbian phone to use Internet email. But there are also corporate email services such as Blackberry or Visto and dedicated ‘emailer’ devices for Internet email.
Disappointment
The opacity of pricing for non-voice services is one of the factors behind their disappointing take-up. People have no idea what a megabyte means in terms of usage, GPRS and 3G network speeds vary enormously, and sometimes people have to pay twice – once for the cost of the download and then for the content itself.
Many commentators in the mobile industry argue that until mobile operators adopt the same flat rate pricing approach as in broadband, new services will not take off.
But operators have been slow to embrace the concept. There are concerns that a flat-rate 3G price plan could open the door to mobile VoIP.
A flat-rate approach would also represent a change in the ‘per-event’ or ‘per-application’ strategy that has served operators so well in SMS. And it would create a ceiling on ARPU growth.
The opacity of pricing for non-voice services is one of the factors behind their disappointing take-up. People have no idea what a megabyte means in terms of usage, GPRS and 3G network speeds vary enormously, and sometimes people have to pay twice – once for the cost of the download and then for the content itself.
Many commentators in the mobile industry argue that until mobile operators adopt the same flat rate pricing approach as in broadband, new services will not take off.
But operators have been slow to embrace the concept. There are concerns that a flat-rate 3G price plan could open the door to mobile VoIP.
A flat-rate approach would also represent a change in the ‘per-event’ or ‘per-application’ strategy that has served operators so well in SMS. And it would create a ceiling on ARPU growth.
"In the converging world, consumers would pay just once for a piece of content regardless of which network or device it is viewed on ..."
There may also be concerns about the performance of the network itself. Are 3G networks ready to cope with unpredictable traffic levels? HSDPA promises DSL-like speeds, but the signs are that operators will be reluctant to compete in the mainstream business because of HSDPA capacity and coverage worries.
But arguably the biggest barrier to flat-rate pricing is the reality that there is so little ‘free’ content or services available on the mobile ‘internet’ that it would not be an attractive proposition for customers.
The only way that this is going to change is if initiatives such as .mobi gain momentum or if operators and handset manufacturers can come up with a breakthrough technology that allows people to navigate and use the existing worldwide web.
Away from the mobile Internet, operators are pinning their hopes on mobile television. Their pricing approaches for mobile TV will mirror existing services – flat rate monthly fees for unlimited access to a defined set of channels. Maybe they are more relaxed about offering mobile TV as a flat-rate service because it uses one-to-many broadcast technology where capacity limitations are not an issue.
Convergence
Some telcos are also rolling out triple play and quadruple play services where the approach will be to offer multiple services in a single monthly price bundle. Operators such as France Telecom want to offer the same services and applications over different devices (TV, PC, mobile phone) and different access networks (3G, DSL, DVB-H/DAB).
In this converging world logic would dictate that consumers pay just once for a piece of content regardless of which network or device it is viewed on.
In the longer term, mobile television and multiple-play services will force operators into a flat-rate pricing approach.
But the real issue is whether they want to introduce pricing models now that inject some life into 3G and get people using services to prime the market.
The challenge for mobile operators is settling on a pricing approach for mobile broadband services that helps to generate interest in existing services, that helps to grow a mobile ecosystem (like those created by DoCoMo and other Japanese operators) and that can accommodate the arrival of mobile television and ‘multiple play’ strategies.
If they fail to do so then Internet business models and pricing schemes will take over.
Mark Newman is
Chief Research Officer at Informa Telecoms & Media