Industry Voices—Lowenstein: Operators should charge a premium for 5G … but not initially

spectrum
(Pixabay)
Mark Lowenstein Industry Voices

With 5G set to roll out across a number of cities in the coming months, there has been remarkably little discussion of how 5G services will be priced. I believe operators should be considering charging a premium price for what will hopefully be a premium service. But it will be difficult to do so at first, because of the limited scope and coverage of 5G when it is launched. (Note: this commentary is focused on mobile 5G, not FWA)

As we start the final quarter of 2018, wireless pricing in the United States has become very much one-size-fits-all, with the various postpaid plans in the $40-50 per subscriber per month range, and the vast majority of users on some form of unlimited plan. The differences lie at the edges: free Netflix or DirecTV here, more GB before throttling sets in there. There are some attractive discount plans from the prepaid/MVNO crowd, but with the majority of those brands owned by the Big Four, it’s pretty much a hybrid post/prepaid world.

Enter 5G, which should, in theory, make things more interesting for those who write/advise/consult on pricing for a living. Operators are going to be investing well north of $100 billion, collectively, over the next five or so years to roll out 5G (plus additional tens of billions for spectrum). They are going to have to recoup this investment in some way—hopefully not through a race-to-the-bottom 5G price war. In mobile, there’s been premium pricing for premium phones. And Verizon Wireless, for a few years when it had a clear network lead, was sort of able to charge a higher price for its service (but not a premium price). But today, there isn’t really premium pricing for premium services. That should change when 5G really kicks into gear

FREE DAILY NEWSLETTER

Like this story? Subscribe to FierceWireless!

The Wireless industry is an ever-changing world where big ideas come along daily. Our subscribers rely on FierceWireless as their must-read source for the latest news, analysis and data on this increasingly competitive marketplace. Sign up today to get wireless news and updates delivered to your inbox and read on the go.

How might this look? Well, we could borrow from some other industries. One simple way would be a flat premium price, similar to the "tiers" of Netflix for a higher number of devices or 4K/Ultra HD.  So, perhaps $10 per line for 5G, or $25 for a family plan. Another approach would be more akin to broadband, where there are pricing tiers for different levels of service performance. So if the base 4G LTE plan is $50 per month today, for an average 100 Mbps service, 5G packages could be sold in gradations of $10 for higher speeds (i.e. $60 for 300 Mbps, $70 for 500, $80 for 1 Gbps, and so on). An interesting angle on this is that some of the higher-end 4G LTE services such as Gigabit LTE (and beyond) could get incorporated into this, so it becomes less of a 4G vs. 5G discussion and more of a tier of service discussion.

I would also like to see some flexibility with regard to how one can purchase 5G capabilities. For example, a user might only need those premium 5G features occasionally, and might only be prepared to pay that higher price when the service is being used. Here, we can borrow from the Wi-Fi model, where operators offer a “day pack” for 5G, or for a certain city, location, or 5G-centic app or experience. 5G is going to be hot-spotty for awhile anyway, so why not use a Wi-Fi type model for pricing?

We are also going to have to start thinking more about app-centric pricing. For many users, 4G LTE, especially with its improving performance and capacity picture (carrier aggregation, LAA, CBRS, etc.), will be more than adequate for most users for much of what they want to do. But there will be certain apps or experiences, such as in the entertainment, gaming or AR/VR arena, that will benefit from a 5G connection. Even fixed wireless could be part of this equation: Instead of a whole new market or service category, why not sell a ‘broadband replacement’ package for $30-40 per month, bundled with some CPE? Call it "OTT for your OTT."

This is also where the latency discussion comes in. MNOs might be able to market "speed" packages, but trying to sell a "low latency" capability is tougher. While I can’t see the average consumer paying a premium for sub-100 ms latency, for example "package," they certainly might if it’s bundled into a particular app, experience or tier. Imagine "premium game" or "e-sports" tiers, for example.

On the other hand, I do believe it will be possible to sell premium services based on lower latency to enterprises and in certain IoT verticals where that capability is vital to the performance of certain apps.

Speaking of the enterprise, that’s where there’s going to be an important opportunity for 5G-specific pricing. In addition to premium-level speeds, there are opportunities for QoS, prioritization, and so on. This might get us into net neutrality territory, but with the capabilities of 5G, regulatory authorities are going to have to look at wireless through a different lens.

Milestones needed before premium pricing kicks in

With all that said, I don’t think operators should be charging a premium for 5G service at launch. 5G will only be rolling out in a handful of cities, and within a limited footprint in those cities. We don’t want to be setting ourselves up for a WiMAX-like disappointment. The next 12-18 months are largely going to be "5G Experimentation" mode, with limited markets, coverage, and devices. Heck, it’s likely to be two years before there’s a 5G iPhone in the United States, where iOS still commands nearly half the market.

Operators should only implement 5G-specific pricing when certain milestones are reached. I see four categories here:

  • Coverage. This is the most important one. If operators want to offer 5G premium pricing in a particular city, they should wait until 5G reliably covers some 30-40% of the core. If a typical high-end user in the business sector of a city can’t get a 5G signal at least 1/3 of the time, don’t charge a premium for the service.
  • Number of markets launched. We might well see some operators charge market-specific pricing for 5G in locations where the service has been launched. That’s fine as long as coverage reaches critical mass. But if a MNO is going to offer a "national" 5G plan, it should only be when 5G has been rolled out across a good number of the top 20-30 cities.
  • Performance.  MNOs can charge for a 5G Premium service, but it should be accompanied with demonstrably better performance than your average LTE service. I’d say the minimum here is when speeds will reliably exceed 100 Mbps. There will be a gray area here vis a vis Gigabit LTE, especially in the midband spectrum (that’s you, T-Mobile and Sprint). In the initial years of 5G, it could well be that the best of LTE matches or exceeds initial/launch level 5G. We’re back to 2010, HSPA+ vs. initial LTE days, folks.
  • Devices. There needs to be a sufficient selection of signature 5G smartphones and other devices, and they should be performing at a production level with respect to items such as battery life.  

From a marketing standpoint, this "phasing in" of 5G premium pricing will be tricky. It’s not always easy to enter the market with price X and then start charging a premium a year later. But 5G is a different beast, since it will be rolled out in very staggered fashion. If there’s not distinct 5G pricing at launch (compared to prevailing 4G), operators will have to be forthright about the fact that this situation might change.

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, or follow him on Twitter at @marklowenstein.

Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by FierceWireless staff. They do not represent the opinions of FierceWireless.