Tiered services are a step backward

The dominoes are beginning to tumble. The move toward tiered pricing for mobile data services started by AT&T is spreading, with O2 UK also abandoning flat-rate subscriptions in favor of tiered services, and more are bound to follow. However, in an age and an industry in which the new focus is on what customers want, rather than what their service providers think they want, it seems incongruous for operators to offer services based on their own needs rather than those of their customers.

Let’s face it: Although the threat to network availability from peer-to-peer traffic was real enough, what have railroaded operators into abandoning flat-rate data plans are the iPhone and its clones, because at last the devices and applications are available that will drive mobile data use to potentially profitable levels. The trick operators must perform is to turn high usage into hard cash, but there are some strong arguments against imposing tiered services.

To begin with, operators are not dealing with traditional high-end smartphone users any more. By operators’ own admission, ownership of a smartphone is no longer the preserve of high-end, enterprise power-users who are looking for guaranteed QoS and are willing to pay for it. One thing the iPhone and its clones have done is put smartphones in the hands of nonbusiness consumers, something operators themselves have encouraged in order to drive take-up of the devices.

However, most mass-market consumers don’t understand the correlation between cost and data volume. Most people don’t understand what 50MB means in terms of the number Internet pages, the size of downloads or the duration of a video stream in terms of data volumes. None but the techie few will even attempt to understand the equation, and therefore charging by volume will probably do little more than increase call-center traffic as users complain about their bills, despite, in the case of O2 at least, the publication of “examples” of how many Web pages might constitute 50MB.

Also, it is highly unlikely users will want to tie themselves to rigid price plans in which undershooting the volume cap leaves them feeling they haven’t received good value and overshooting incurs penalties. So, the obvious strategy would seem to be to charge for speed rather than volume, the former being a course of action espoused by many pundits.

Would a pricing system based on speed be any clearer to end-users than one based on volume? The answer is, probably not. But at least the concept of download speed is understood by far more people than volume is. It might even make more sense to offer a pay-as-you-go data plan in which it is made clear to the customer at the point of purchase how much a particular session will cost, charging by time and/or speed. The fine details of such a strategy would need to be worked out, but the point is that the technology and know-how exist to take a far-more-sophisticated approach to mobile data pricing than the blunt instrument that is tiered subscriptions.

It seems that the technology underpinning the possible permutations for mobile-data-pricing strategies is running some way ahead of network operators’ imaginations, or at least their willingness to innovate. Policy-control techniques and real-time charging platforms that are on the market now are capable of far more than enabling what is essentially an exercise in capping data consumption. Although bandwidth limitations mean it might not be possible to provide customers with the speeds and download volumes they want, whenever they want them, compromises such as off-peak discounts for volume downloads and on-the-fly bandwidth upgrades could go a long way toward providing a service that customers want and feel comfortable with.

The fact is that tiered services as they are being espoused now represent a retrospective approach to service pricing, albeit using more-sophisticated techniques and technologies than were previously available. What is needed is for operators to understand the full capabilities of technologies such as DPI and policy control when working in conjunction and begin to think in terms of what is possible, as opposed to what has worked in the past. Plans could include variable prices for peak usage depending on the nature of the intended traffic and offers of cheap bandwidth at off-peak times or in areas where coverage is such that congestion is not a problem. There is still room for subscription-based services, but these are more likely to be successful if based on QoS, similar to those Vodafone Spain has deployed with some success recently.

The technology is there. What is required is a large dose of imagination and the willingness to try something new. Any other approach will most likely fail.

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One comment

  1. Avatar john 10/07/2010 @ 7:13 am

    Tiered pricing will enable Wimax to survive and thrive…Simple networks without sim cards will emerge and and offer flat rate profitable networks with consumers using virtual numbers.

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