Connect
Related Content
On Twitter
TelecomTV One - News
Racing bike. Photo by Dr. Wessmann via Wikimedia Commons

Speed for sale: how mobile operators might dice and slice their broadband

Posted By TelecomTV One , 14 November 2012 | 1 Comments | (1)
Tags: mobile data Vodafone Swisscom tiers

Europe's mobile telcos are wrestling with their packaging and tariff structures as smartphone penetration accelerates, mobile broadband speeds go up (LTE), and service revenues from voice and messaging flatten or diminish. Just how radical do they need to get? I.D. Scales reports.

Probably very radical. The big picture is that mobile telcos are slowly and painfully reshaping their core proposition from 'provider of subscription services' perhaps attractively packaged in a bundle; to 'data access provider' with core services (voice/texts) increasingly thrown in. 
 
This is really the only way to cope with the 'over-the-top' factor in the long run: lock the value of the voice and messaging available from the handset (no matter who provides it) into the data access by bundling them together. And do it while that bundle can still be made to look attractive (before price cuts in the market generally reduce the perceived value of all-in voice or messaging). 
 
From that point the proposition is increasingly built around data access with the old cash-cows of voice and messaging fast becoming features available in the cloud. Features that users choose to use (or not). 
 
That about-turn is under way. Just as one example, this week's results from Vodafone included a broad outline of its strategy. The headlines were dominated by the fact that the giant mobile operator is suffering in southern Europe where a recession is in full swing. It has experienced a £1.9 billion loss and has written off £5.9 billion on the value of its Spanish and Italian subsidiaries. 
 
Strip out the local difficulty though, and Voda has experienced a very satisfying result with mobile data  which it managed to grow by 16 per cent over the same period, driven by smartphone sales with data subscriptions built-in.
 
Vodafone says it is going to go with this flow by adopting a new strategy for its pricing and bundling, with tariffs which include "unlimited voice and SMS, and much larger data allowances than before. Pricing will be radically simplified as a result, giving clear visibility of the cost of ownership and, thereby, lower complexity for IT and billing."
 
This is clearly a step or two towards the "data carrier" strategy outlined above, but there's a niggling difficulty and it's faced by all mobile operators. 
 
They're all still fixated (for obvious reasons) on growing ARPU (average revenue per user).  If you offer a big fat pipe, throw in voice and texts for free and rely on OTT players to add value to your proposition by coming up with lots of new apps your users will love, then it becomes more difficult to build ARPU year-on-year. The only scope you have is to find some way to lever up the 'commodity' data access prices - that is certainly not impossible to do but it will most probably involve  bandwidth consumption tiers and that would introduce a continuation of the "bill shock" relationship players like Vodafone too often have with their customers and would dearly like to get rid of. 
 
There's another problem (at least) with tiers. Ostensibly an operator maintains caps and tiers to attenuate demand - unlimited data offers are obviously a route to straining the access network, so at first sight a coherent policy might be that the more data a customer generates the more he or she should pay. 
 
The problem is that this simple equation doesn't really cut it. Bandwidth is not like electricity - it's more like sewage in that the user is really paying for sewer capacity rather than what flows through it.
Advertisement
Network capacity problems only happen when everyone tries to use the network at the same time and that peak usage behaviour (the behaviour you might want attenuated to avoid congestion) may be completely different from the high usage behaviour you're effectively prohibiting with a cap or a more expensive usage tier. 
 
For instance, a high-usage user may be downloading large files through the night and so a cap might well reduce that behaviour...  but so what? The same user, keeping under his just-imposed cap, will still be logging on with everyone else at 9.00 am to check email and contribute to congestion at peak time (say). Problem not solved. 
 
An alternative approach is being tried by Swisscom, one that the carrier and other observers say may form a much better solution. Instead of going after volume and bundling, Swisscom has aligned its mobile data pricing approach with its fixed broadband approach and gone for speed tiers.  
 
This has the huge advantage of keeping the attractive and less bill-shocking unlimited usage promise that users love, although there are still caps, just apparently higher ones. 
 
The tiers go: 1Mbps, 7.2Mbps, 21Mbps and 100Mbps and the uplink speeds are about 10 per cent of the download.  
 
The different speeds are marketed as being suitable for different uses. The 1Mbit/s speed comes in at €9 so not screamingly good for anything, but just about OK if you're on a tight budget. For €32 per month and 7.2Mbit/s the user can buy a speed that is deemed suitable for messaging and browsing the Web. The next tier at 21Mbit/s is good for video, and so on. 
 
In fact Swisscom is currently aiming this approach at what, from a tariffing point of view, might be seen as ancilliary devices such as laptops and tablets (iPads). By having a relatively high broadband service price and heavy discounting where the user is already a customer with an existing Swisscom mobile or fixed broadband service, it diminishes the 'problem' (in terms of revenue-reduction for the carrier) of a user tethering one device to another. 
 
The ARPU driver kicks in as users get more dependent and hungry for more speed - they can just upgrade themselves to a new tier. Critically, not because they've just got a nasty bill, but because they really think the speed upgrade will improve their lives (which it will for a month or two and then just feel 'normal' again).
 
One can also see the up-sell possibilities here. Users can be made special offers - "try the next tier for free for the next 2 days (say).. you won't want to go back." That is compelling and this is the all-important ARPU escalator at work. 
 
The overall advantage is that users can 'experience' speed and understand its effects. Caps and data volumes are harder to quantify, and (apparently) harder to manage. And of course there is nothing to prevent there being a volume cap as well as a speed tier just to make sure everything is nailed down. 
 
On the downside (from the telco's point of view) there is the little problem of ensuring speeds at the different tiers. The language used is of course 'up to' the chosen speed tier, but any telco implementing this approach will soon be in deep trouble if a significant proportion of a user's time is effectively spent in the speed tier below the one he or she is paying for. 

please sign in to rate this article
49609
 

1 comments (Add Yours) - click here to sign in

(1) 14 November 2012 18:00:19 by Billy Kwok


Speed tier is not feasible in according experience in Hong Kong market:

1. Big problem of ensuring speeds in mobile network due to network structure, contents & devices

2. Not really a big difference in between 21Mbps & 100Mbps for the most common usage (i.e. surfing internet, watching youtube...etc) from mobile device

3. How many people will really ask for faster speed than 100Mbps in mass market?

4. Heavy data user (i.e. share wi-fi, p2p...etc) should seriously affect mobile network performance no matter which tier if offering unlimited plan