At February’s Mobile World Congress in Barcelona, the dreaded words ‘dumb pipe’ were uttered once again as several keynote speakers raised concerns about Operators becoming purely an access mechanism for a plethora of ‘over-the-top’ service providers. Becoming a dumb pipe is widely (and quite rightly) regarded as being bad news for Telcos, however over the last few years it seems that the behaviour of many Operators has accelerated this slide towards commoditisation of their network services.
The insistence on trying to lock-in users to a limited range of proprietary value-added services has only helped Apple, Google, Facebook and the rest, to gain a greater foothold in the battle for who ‘owns the customer’. Where Operators struggle with these services is that they simply do not have the resources to try and be all things to all people. So, for example, an Operator’s instant messaging application is always going to be second-rate in comparison with MSN or Skype, which are network independent and already have the online user base which is so critical to their success.
Also, the huge all-you-can-eat packages, followed by the inevitable price war amongst Operators, may have helped drive take-up of data services, but at what cost? Many Operators have been topping up their margins through exorbitant usage-based roaming charges, but now the regulators have stepped in and are imposing a reduction in data roaming charges the business model requires much closer scrutiny.
Mobile Data Explosion
Two years ago, I wrote in the original Flat-Rate Debate feature about the increasing load on the fixed broadband networks as a result of bandwidth intensive services like the BBC’s iPlayer. This situation today has moved on from being predominantly a fixed broadband issue, to one that now affects all mobile broadband offerings too.
There is much talk of smartphones, and the iPhone in particular, being the main driver behind all this data growth. In fact I’ve heard suggestion that the average iPhone user is the equivalent of around 400 plain old voice / SMS users in terms of network usage. However, the latest industry figures indicate it is the mobile broadband ‘dongles’ and ‘tethered’ mobile data connections that are causing much of the network congestion.
Ericsson has just reported that in December 2009, mobile data traffic surpassed voice for the first time. A landmark moment for the industry. This is further explained that 400 million mobile broadband connections are generating more network usage than 4.6 billion mobile subscriptions. However, there is no comment as to the revenues generated by the mobile broadband users compared with the traditional subscriptions, but it’s probably safe to say that data user ARPU is not ten times voice ARPU.
As this data usage continues to grow (Ericsson are forecasting that it will double every year for the next five years), it is going to dictate a radical change in how the mobile networks are designed and dimensioned, and this in turn means more network investments.
But with the current ‘all-you-can-eat’ business model this is simply not sustainable.
In the billing industry, we have been explaining the merits of value-based billing and ‘real-time’ for many years now. However, it seems that the rest of the industry is finally waking up to the need for a more sophisticated approach to pricing services.
At this point I should clarify that sophisticated should not mean complex – simplicity for the consumer remains absolutely critical – but it means providing an intelligent mix of convergent charging and dynamic policy management tools to control, engage, and reward consumers for their data services usage.
The most often cited examples involve throttling bandwidth on high users who abuse a service, or applying premium charges above certain usage thresholds. However, there are many more examples that can be used in a more positive and proactive way to incentivise and reward users for a particular type of activity. For example, offering a cross-service ‘booster’ to increase broadband speed when a user reaches a certain level of voice usage, or upselling increased bandwidth on demand for special high-value events.
Engaging customers with real-time information on consumption, pricing and promotional offers will all be key elements in building the ‘customer experience’ that has become the telecom industry’s new Holy Grail.
Though the dumb pipe has reared its ugly head once more, there is some light at the end of the tunnel.
Previously, the solution was seen in the applications and value-added services that an Operator could provide. In fact, many Operators have spent millions on trying to build specialist applications that will secure their share of the content and applications market. But as we have seen, this strategy is fraught with danger due to the volatility of the consumers and the rapidly changing applications ecosystem.
There now seems to be a significant shift in Operator attitude and a recognition that billing, charging and policy management are all critical components required to create value in the customer relationship, and to realise the return on the investments that are being made in the networks. Leveraging their customer billing relationships and making it easy for trusted third parties to access billing services will be key ingredients for Operator success in an applications-centric environment.
Flat-rate is unlikely to disappear completely, but it will need to be carefully positioned and smartly combined with other value-based pricing schemes and policy controls that will deliver on the customer experience promise to the end-users. The big challenge then is to either re-educate customers who have become accustomed to all-you-can-eat plans and over-the-top services, or to entice the advertisers to fund all or part of their services.
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