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Avoiding the 'AOL problem' - page 2
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Second, we have to re-think wireless pricing. We have downward pressure on price at the same time many believe we can't sustain a flat-rate model. In a more extensive Lens piece on price (e-mail me for a copy), I argue that usage-based pricing will be a nightmare. But I do think there are some alternatives, such as:
- Tiered pricing, similar to what we've seen with DSL. If people want to download an episode of Lost over the WAN (2GB, by the way), they should have to pay for it. Why not a good-better-best approach to wireless data plans?
- Pricing built into content similar to the Kindle model. If certain apps are highly consumptive of network resources, charge a premium for them. Example: The HD version of a TV program on iTunes typically costs $1 more.
- Surcharge for select apps/content. Sort of like a prix-fixe menu at a restaurant with certain "premium" items incurring a surcharge.
- Congestion pricing. Charge more to use the network at certain times of day, or encourage big downloads to occur at "off-peak" hours. We do this with airlines, and roads, why not networks?
2. Better Management of the Network
Fourth-generation networks, with their added capacity and spectral efficiency, provide some relief--to the order of about a 50 pecent reduction in data delivery costs. But if wireless continues on its current trajectory, traffic growth will continue to exceed capacity growth. There are lots of opportunities for those able to help operators with network and congestion management. What I have seen so far is evolutionary, rather than revolutionary, representing a range of tools, rather than a silver bullet. Examples here include intelligent caching, and packet flow optimization techniques. There is also a greater sense of urgency with respect to backhaul: we need more of it, and for it to cost less. This would mean a more competitive backhaul market than we have historically had.
In addition to technology solutions, there are some tactics to encourage more intelligent use of network resources. People with iPhones, wirelessly embedded netbooks, and other high-end phones/low-end computers use these devices as a substitute to their PCs in many scenarios, even inside the home and other locations where broadband networks/WiFi are available. I think the operators recognize this, which is why even the hold-outs such as Verizon Wireless are now offering smartphones with WiFi and doing deals with WiFi providers, as a way of offloading traffic from the WAN where it makes sense. As part of this, I believe that Femtocells, rather than being a customer-centric solution for indoor coverage, represent more of an operator-centric solution for effective network management in buildings, leveraging the broadband network.
3. Customer Service
This is an overlooked elephant in the room. Customer service might seem tangential to a discussion of wireless network capacity, but it is a huge (and disproportionate, compared to other industries) drain on opex and one significantly affected by the network neutrality debate. Wireless operators are still handling all manner of customer service--for free, not outsourced, and increasingly for issues having little to do with the core "wireless" experience. As an example, if I am having trouble syncing my MAC and my BlackBerry, I call my operator. Why? I have to pay to call Apple, and I can't call RIM. In most corners of the Internet and PC world, you have to either pay for customer service (Dell, Microsoft, Intuit), or it's nearly impossible to talk to a human being at all (Amazon, eBay, Skype, Google).
Why is this relevant here? Well, in a network neutrality/open access world, it might be great to use Skype or Google Voice over 3G networks, but who do customers call when the quality of the call isn't too great or they have some technical issue? Not only are these issues far afield from typical wireless customer service agent expertise, but call volume from smartphone users significantly over-indexes that of feature phone users. Going back to the AOL analogy, remember that AOL held consumers' hands onto this thing called the Internet in the mid-to-late 1990s. Their care centers became as overwhelmed as their modem farms, and the reputation of the company was tarnished forever.
As operators consider how to allocate their capex and opex resources in this new--but different--growth phase, they will be looking to other entities riding the wireless data wave to take on some of the support costs.
(Note: For an in-depth look at the issue of network neutrality and wireless economics, email Mark and he will send you the latest Lens newsletter).
Mark Lowenstein, a leading industry analyst, consultant, and commentator, is managing director of Mobile Ecosystem. Click here to subscribe to his free Lens on Wireless monthly newsletter.
Comments
Posted by Dale M. Buckey | October 27, 2009 - 7:12pm
Mark,
Excellent observations. Nobody really likes paying for internet access, But it occurred to me reading your article that it costs more to fly during prime time because that's when people do business. Access to the internet will need to charge for prime time because the prime time capabilities will never keep up with future embedded internet capacity device demand.
Interesting that some of the biggest broadband consumers are under 27 years of age and never had to wait for an AOL dial tone. Well I see the same slow-down coming and I know people will pay for speed and access rather than trying to live with slow, AOL equivalent, wireless speeds.
Posted by Mark Lowenstein | October 27, 2009 - 8:30pm
Dale-
This will be an interesting debate about "non discriminatory" pricing. Here's another analogy: what about the "private toll roads", such as 470 in Denver - still built at taxpayer expense but to save time and traffic users pay a premium to use it.
- Mark
Posted by Geoff Revill | October 28, 2009 - 5:20am
Excellent article, missing one key element - the competitive angle. For the end service needs of the consumer they often have the option (for data) to wirelessly connect direct to a broadband landline service. At your current price projections for mobile data ($0.04/Mb) my current ISP giving me 20Gb download a month for $30 is far more attractive than the $800 (at cost!) to get that same data service over my mobile. Even 4G only cuts this to $400.
The argument on Femtocells is therefore very interesting, but the roll out by mobile operators needs a serious re-think. Why would I pay for a landline broadband service to service my wireless phone backhaul needs and yet still pay high charges for that same data from the mobile provider? Mobile operators really dislike Femtocells, because they are starting to focus the end market on the very cost issue they are desperate to avoid facing.
Posted by Mark Lowenstein | October 28, 2009 - 8:28am
Geoff-
Thanks for your comments. That's why mobile operators are capping a 5 GB/mo (for $60!) for laptop broaband services. As for Femto, I think the main motivation is to piggyback on the broadband network. Call it double taxation!
Posted by D PERRY | October 29, 2009 - 3:18am
I disagree with parts of your article specifically in the peak/off peak area. Cell phone providers moved away from this long ago, and for a reason. (It simply didn't make sense to)
I don't like the idea of peak and off peak tiers. I pay for mobile broadband both on my iPhone through ATT and then on my connect card with Sprint. We ALL pay a premium for that connection, ESPECIALLY iPhone users. (Now that we pay $30 a month and use so little with out service being mostly WiFi these days anyway. I'm a heavy user on my iPhone and I still only pull about 100mb a month - talk about highway robbery!)
But, I pay the price for service. Why in the world should it cost more for the day than the evening? Sorry to say, the internet is used all the time. MAYBE not as much at the night, but when many people are home, or out on the town, they're using the internet. Business users use a lot of data in the day and should pay more.
However, this leaves us with the problem... They won't REDUCE the price at night, they will simply charge more for the day, or peak time. I, as a consumer, would only tolerate that for so long. The extra money, or "penalty" for peak use, should go into the network to build them up. Please tell me with the current track records of ATT, VZ, and Sprint, just how well they are investing in their networks in order to beef up capacity?
ATT admits they have capacity issues. They also, for having the iPhone and supposedly the largest user base, has the worst 3G coverage. VZ is constantly bastardizing their network and putting in clauses limited severely what you can do with your connection. Sprint isn't doing too bad, but they've bled so many customers with the debacle of the merger with Nextel.
These corporations have money - plenty of it. I don't feel sorry for them crying about capacity issues. The phone companies are spending so much time, effort, and money trying to complete in the video world with Cable TV that they're skimping on the very customers they are supposed to be taking care of. The SADDEST part of that problem is, say for example I'm a cable customer already for video, and a phone customer of ATT. ATT is using my money against me while chasing the tale of my cable provider for my own business.
It's time these players put their money back into the networks instead of the exec's pockets and worthless marketing. It's time they stop crying foul that there is a pending Armageddon coming. They SIMPLY need to spend more time and invest into the networks and less time trying to find new ways to charge us more for the services we are already over paying for.
I can't help but to feel that your article is almost a paid piece for the very companies you are writing about.
Posted by Mark Lowenstein | October 29, 2009 - 2:10pm
Mr. Perry:
Thank you for your thoughts. On a couple of your points, remember that only AT&T and Verizon are "integrated" telcos in that they also have BB connections to the home. So the dynamics you mention are different for a pure play wireless provider like Sprint or T-Mo. As for the peak/off-peak issue, what I really meant there was that if you want to download a huge file - like a TV program or movie - onto your device via the WAN, then perhaps there are incentives for doing at times when the network is less congested. Best, Mark
Posted by Stacy Ranta | October 30, 2009 - 2:20am
VZW already charges users that go over 5GB per month on their data card or when using their phone as a modem. After 5120MB, they start to charge overage at $0.49 per MB. It adds up very quickly.
When considering congestion prices, don't forget that some devices are always online. BlackBerries for instance. I can just hear the teeth gnashing from RIM users if carriers went to a system where time of day effected data charges.
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