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Summary:

The economics of providing mobile data don’t work, and as proof we only have to look at the death of the unlimited plan. Today only 13.5 percent of operators offer a “true” unlimited plan, while 25 percent offer an unlimited plan in name only.

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It’s tough out there for carriers. After years of charging people 25 cents to sent a few kilobytes of data via text messaging, they’re suddenly dealing with folks that want to watch YouTube videos on their mobile phones and pay a mere $50 for an unlimited plan. The economics don’t work, and as proof we only have to look at the death of the unlimited plan.

Today only 13.5 percent of operators offer a “true” unlimited plan, while 25 percent offer an unlimited plan in name only (but with caveats such as throttling or even an undisclosed cap), according to data gathered by Allot Communications, a network optimization vendor. Allot surveyed 100 operators to discover how they price mobile broadband and discovered about 80 percent had already moved to some form of volume-based pricing (think buckets of bytes) while 35 percent were trying to charge based on the applications used. The percentages don’t add up because some operators offer both types of plans.

The end game for operators is to figure out how to get people to use less data or pay more for the privilege, while also steering users to content that makes users happy without straining the network. So maybe they offer unlimited Facebook and charge more for Netflix. After all, the last thing they want to do is to scare people from signing up for data plans for fear of expensive overage fees.

What’s so interesting about Allot’s data is how far apart different regions are when it comes to newer types of pricing, and how much trust an operator has to build with consumers to make this sort of pricing work. Jonathon Gordon, the director of marketing with Allot, said that operators willing to give up on the “telco mindset,” were faster to adopt the level of transparency required to guide customers to these pricing changes without a lot of backlash.

For example, if an operator offers a customer an all-inclusive Facebook plan, what does that mean for users who might click on a video in someone’s news feed, only to end up watching a video on YouTube? Does that data cost more? If it does, how does the operator convey that to the customer? In the U.S. such ambiguities are a continuing source of distrust because carriers still see them as a chance to put one over on the customer — just look at Verizon’s sneaky placement of a web access button on feature phones that led to customers inadvertently racking up data charges and to the FCC launching an investigation. Verizon later paid out a $25 million fine.

The point here is that as operators try to change the way they charge, because the current models aren’t economically sustainable for them, consumers have to believe the deal is reasonable. That’s why I’ve been a proponent of measures such as data happy hours or other plans that incent users to use the network during non-peak times. Doing so helps manage congestion, and can still generate revenue for carriers.

Some of the more interesting findings from Allot are around the regional differences in the adoption of application specific plans and the types of applications operators are trying to build new pricing around. Regionally, Asia, Europe and Latin America are the leaders at figuring out how to charge for value as opposed to volume.

Gordon attributes this to their more competitive mobile data markets, a lack of fixed line infrastructure in the case of Latin America and more permissive regulatory environments. For example, in the U.S. uncertainty over how network neutrality will affect mobile broadband charging efforts is one reason that operators in the U.S. are sticking with the conventional gigabyte/volume plans.

However, Gordon is optimistic that in a quest for higher average revenue per user and a need to manage congestion on their networks, U.S. operators will shift their pricing and in doing so will start to think less like a telco and more like a company that will have to keep customers happy. As he says, “They’re very slowing being dragged into a subscriber way of thinking and they’re evolving.” I’m not sure I share his optimism on that, but I am pretty sure I’ll be paying more for mobile broadband in the near future.

  1. If carriers want to raise their prices, one good way would be to get rid of the lowest cost large carrier, say, like T-Mobile. If one of the largest carriers were to buy them, they would be able to increase prices more easily, and reduce consumer options.

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  2. and consumers are desperately seeking lower mobile data prices.

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  3. I agree with ideas like “Happy Hours” or speed-based tiering. I don’t believe in the usefulness or practicality of application-based pricing, because of the speed of evolution of what an “application” is in the mind of the customer or developers. The Facebook/YouTube example is one I have used before, but there are many others as well. The problem is that DPI vendors have yet to deal with the fact that they cannot really keep up with that process, plus they also need to deal with other aspects like adaptive bitrate streaming, WiFi offload & onload etc.

    Dean Bubley

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    1. I am with you, Dean.

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  4. What interesting is that the carriers seem to be attempting to force you into a data plan – they are making it harder and harder to get a basic / no data / no overages plan. T Mobile is killing its Flexpay plan, and in its place they are offering a monthly data plan starting at $50 (you get a whole 100 mb of data at 4G and then the rest of the month is 2G – woo hoo). But read it carefully, T mobile still has low end plans hidden in their if you are willing to read enough (and ignore the store salesperson). $15/month all you can text with 10c voice and no data. Think about it – that is a total teenager plan – they do almost all texting with a little bit of voice.

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    1. Carriers are trying to encourage Goldilocks behavior from consumers, don’t consume too much but don’t consume too little. I imagine we’ll see them continue offering a wide variety of plans before they figure this out, but make the low-end plans harder and harder to find :)

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  5. Only way you are going to get people to pay more for data is to recognize that voice minutes aren’t worth counting anymore. With all of the new avenues of communication, I doubt heavy data users even use their smartphones as phones anymore, if ever. A far more accurate term would be mobile computer at this point.

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  6. Maybe the answer is in the commercial retailers themselves. After all if the Youtubes and Facebooks of the world were persuaded to invest in ISP networks, the payback would be better accessibility to their sites. The payback would be that shopping ‘might’ be slightly more expensive, but the sites would load quicker because the bandwidth and data-hunger wouldn’t be part of the equation anymore.

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    1. Here is the solution.
      FreeBand — the Internet’s first “1-800″ application platform to connect the unconnected.

      Box Top’s mission is to bring free broadband – FreeBand – to households globally.

      http://gigaom.com/mobile/its-coming-the-emergence-of-second-class-mobile-citizens/?utm_source=GigaOM+Daily+Newsletters&utm_campaign=e9daa91a0f-c%3Amob%2Ctec%2Cvid+d%3A08-12&utm_medium=email

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  7. The carriers should focus on scaling their core business – bandwidth. Instead of attempting to “value add” or provide “enhanced services” they should simply focus on scaling their core competency to reduce costs and improve manageability.

    That’s why they aren’t coping, they are moving away from the main focus of the new generation of carriers – bandwidth. Everything else is old and valueless.

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    1. I very like your description of data “happy hours”. We have been advocating this type approach for a while with carriers and I think they are about to move in this direction. The problem for them is that their networks just don’t have the ability to do any sort of dynamic billing (linked to peak/off peak) or allow a content provider to subsidize the bandwidth slivers (e.g. the Dept of Education would love to subsidize bandwidth for some sites, but not others for kids). Our solution at Box Top has been to have this type of customized bandwidth delivery handled by the apps themselves (virtualizing the BSS/OSS at the edge of the network). So far the carriers like it, but they are taking things slow. If you want more info, please feel free to drop us a line at info@boxtop.tv. Thanks, Thomas

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  8. Good comment EtherealMind, I fully agree. Furthermore, carriers should refrain from spying on me anyway (to check what data I access) and support net neutrality.

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  9. It seems like data plan prices vary tremendously from continent to continent, but some of that may be due to differences in population density (more towers needed to cover same number of people). Are there studies that show e.g. ‘profit per installed tower’ or ‘profit per square mile serviced’?

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  10. Mahesh Paolini-Subramanya Wednesday, November 9, 2011

    The entire article sounds like the discussion we had (and are still having!) with banks about debit-card fees. Just because you (the company) have made a rentiers fortune in the past charging for stuff that doesn’t cost you anything does not imply any sort of implied right to continue extracting said rents. Ethereal Mind has it right – either get used to less ‘free money’, or build out additional bandwidth. Hey, it seems to work out just fine in the rest of the world…

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  11. The problem is that the networks want to make tons of money on data without spending on improving the network. The same problem afflicts ISPs, who like to charge ridiculous prices for bandwidth that is common in overseas markets. The corporate greed is insatiable since the CEOs have to justify their ridiculous salaries

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  12. Carriers desperately seeking higher mobile data prices http://t.co/gReYoYMv

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