Friday, January 6, 2012

Execs Differ on "Simplicity or Value" in Mobile Pricing

Usage-based billing is not the ideal solution to manage usage of mobile broadband capacity, nor is it the solution consumers prefer, one study of European mobile consumers suggests. A separate study suggests that, despite those findings, mobile service provider executives would rather bill by usage.

In other words, although many suppliers believe service providers would be better off using more-complex pricing schemes, service provider executives tend to prefer simple usage-based mechanisms. To be sure, that reflects the industry’s heritage.

But many mobile executives seem to prefer simplicity, rather than “value-based” mechanisms. In recent days, there has been more thinking about how to manage mobile networks destined to face high congestion problems because of growing volumes of video consumption, for example.

So some think monetary incentives can be used to induce bandwidth-conserving behavior. For example,
the survey by Tekelec suggests that about 40 percent of respondents would prefer to have a plan that has restrictions on video usage, so long as the plan was about $5 a month cheaper than a plan without such restrictions, says Randy Fuller, director of strategic marketing at Tekelec. About 60 percent would buy such a plan for a $10 a month discount.

About half of respondents would consider buying a package costing about $5 a month more than a standard package, if it offered live video streaming, but did not count against a usage cap. Perhaps 43 percent would buy a video on demand service, if it did not count against a cap and cost about $5 a month more than a standard plan.

"It is amazing how many people ignore what consumers prefer, in terms of how they buy video," said Fuller. "Our hypothesis was that while video is between 30 to 50 percent of bandwidth consumption, it is less important than that, to consumers."

That’s one form of pricing according to value. "A lot of tiered pricing models head in one of two directions, buy a bucket, or allow consumers to make trade offs," said Fuller. "If you want to use more services that cost more to deliver, you pay for that, and that, essentially, is what we tried to think through."

At least for the European subscribers polled, video was fourth behind Web browsing, email and navigation services in perceived value. Instant messaging, music and social networking ranked higher than voice, in terms of perceived value.

In fact, when asked to rank the value of various applications as standalone applications, Web browsing was valued at $6.94 a month. Voice was valued at $2.91 a month.

“Pricing based on value now seems to make more sense to end users,” said Fuller. “Byte-based pricing is not optimal.” But the larger conclusion one might draw is that “there is no one rate plan that is best for different consumers,” said Fuller.

Mobile Internet offers should be segmented to match end user demand, said Fuller. In fact, that sort of thing is common in Austria, Germany, France and Poland, for example. Orange  in several countries has a “happy hour” plan where you get an hour of unlimited usage, no matter what plan you are on, said Fuller.

The point is that “people should have choices,” he said. The big difference between fixed and mobile is that mobile bits are more expensive to deliver, Fuller added. But the fundamental issue is that mobile networks will continue to be more expensive than fixed networks.

Mobile Internet pricing perhaps has to move to tiered pricing, but some forms are better than others, Fuller said. Plans designed for messaging could be different than plans supporting lots of video consumption, for example.

The simplicity of an unlimited plan will appeal to some people, but not to all. Others might be quite fine with plans that feature buckets of usage, so long as they have an easy way to track their usage and control it.
Segmentation will work, Fuller argues, and also will allow mobile service providers to match usage and the cost of meeting that demand. Many consumers in the study preferred unlimited Web browsing and limited video consumption, for example.

Still, mobile executives seem to prefer simplicity.

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