Perhaps more importantly, the usage cap is only addressing the symptoms of the problem, not the fundamental cause. Today, video easily accounts for 60% of smart phone traffic and is generating the majority of problems on operator networks. With the iPhone 4’s video calling capabilities, a new ‘network killer’ service is likely to appear. The consumer, in the mean time, is largely unaware of the effects of such services on the network and is in no way incentivised to alter behaviour.
This is where Acision believes the crux of the matter lies: consumer awareness. Consumers have no idea what the impact of a video service is; let alone what ‘a Megabyte’ relates to.
Operators in our view therefore should consider the following approach: Offer a low price all you can eat package for the most elementary services. Most services, such as browsing and email, don’t cause any major network problems. They could therefore be offered as part of an unlimited bundle, freeing the consumer from any hassle in these service areas;
Treat resource intensive services differently, in such a way that the consumer can relate to. This is where a cap could apply. Not a cap in Megabytes, but in a measure that the consumer understands, which for video could be number of minutes. Video calling would of course fit such a model easily as voice calling is no different; Differentiate the offer. Operators could start differentiating their offers based on these specific resource intensive services, as long as they are able to explain it clearly to their customers. So for example offer two hours of video for $10, as a bolt on package to the standard all you can eat service.
This is where we believe operators should focus. Creating a blended model of all you can eat basic services combined with transaction based premium services which consumers understand and relate to. Such an approach will enable long term sustainability in mobile broadband which balances consumer confidence and satisfaction with a viable operator business model.
The solution is as simple, or as complex, as the mobile networks want it to be and will depend on how much money they want to spend or how much they want to make.
Operators have to evaluate different strategic routes to cope with upcoming challenges. There are multiple ways to optimise the current offer structure; however it’s also necessary to assess the new business models that are now available to strengthen market position
Today, most operators offer undifferentiated, unlimited flat rates which prevent the monetisation of usage. This is subscriber-optimal, if there is no speed restriction from a certain data usage onwards, but not operator-optimal. But returning to pay per use tariff models and discontinuing flat rates is not an option, as it is a major customer satisfaction factor and important for large numbers of always-on applications. Instead, operators could offer fair flat rates (e.g., 5GB). If 5GB are consumed during the billing period operators can proactively provide the option of purchasing addon volume.
Another value driver that should be used for price differentiation is speed. Up to now, operators used to launch new technologies and replace former technologies at the same time. In the future launch of LTE technology, the monetisation of different speeds should be implemented in the offer structure.
To maintain the quality of data networks and a positive customer experience, peak and off-peak pricing can be used to steer customers’ behaviour. Furthermore new pricing dimensions (such as maximum speed or priority) can boost revenue.
Telecommunications providers continue to offer the popular flat-rate model, but introduce fees for content providers that want to use their networks. As Telefonica Spain’s Chairman, César Alierta, explained: “Internet search engines use our network without paying anything at all, which is good for them but bad for us. It’s obvious that this situation must change. If the markets think we won’t make a single cent from that, they can think again.”
Telecommunications providers are aware that the major user innovations are developed by service and hardware suppliers such as Google, Facebook, Twitter (whether they are commercially successful or not) and Apple. The providers do not attempt to charge manufacturers for IP data streams; the money is still paid by the users.
If this were not true, it would be like a power supplier such as E.ON demanding money from Siemens because consumers use E.ON’s electricity to wash their clothes with Siemens machines. But the energy sector does show how important it is to follow a strategy of regular price increases. Energy suppliers were well advised not to make flat fees their dominant price model. What the power companies actually did was to differentiate their prices. This is a simple example of peak-load pricing; customers pay higher prices for consuming energy at the same time as everybody else.
Another possible alternative is to secure public funding to finance infrastructure usage and expansion. After all, telecommunication providers’ investments in comprehensive networks represent a key supply mandate and help to make information accessible to everyone. Some governments have passed strict regulations on the expansion and accessibility of telecommunications networks, monitored by committees and roundtable groups. It is therefore by no means unreasonable for telecommunication providers to request money in return for their services.
To avoid tackling challenges in core business areas head-on, telecommunication providers may be able to tap additional sources of revenue. This poses two challenges: past experience; and margin expectations. In the past, providers’ attempts to diversify content have all failed; newly developed service and application platforms have been overrun by the internet. Even ubiquitous applications such as email have been perfected by Google and its counterparts.
Cross-selling of non-telco related services usually comes at the price of a smaller profit margin. This could have a negative impact on market ratings. But this should not blind us to the fact that telecommunications providers are ideal candidates for cross-selling. They have the largest customer bases, issue regular invoices, have a direct customer contact channel, and can (if the customer gives consent) create customized offers based on internet and telephone usage data.
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