The flat-rate mobile broadband backlash

The iPhone gets a lot of credit for kick starting the mobile broadband era, but the real enabler has arguably been the introduction of flat-rate data plans. But while users loved it, cellcos gave in reluctantly, fearing the risk of being relegated to bit-pipe status. Now, with mobile data traffic drastically outpacing revenue growth from mobile data services, the inevitable flat-rate backlash has begun.

Well, it's mainly begun in the US, where executives at 3.5G rivals AT&T and Verizon have declared flat-rate unsustainable and its days numbered as they lumber on to LTE. In December, AT&T wireless chief Ralph de la Vega said the cellco is looking at providing "incentives" to heavy users to cut back, but in the longer term, they were going to have to get back to usage-based pricing.

Verizon CTO Dick Lynch made a similar statement a month later, saying that LTE pricing will have to be different from 3G pricing, likely in the form of a basic monthly fee and usage-based pricing for bandwidth consumed. These aren't just US sentiments, either - I have heard some cellco execs in Asia voice similar concerns.

The problem with the above strategies is that they rely on one of the most unreliable metrics in the industry: the consumer. De la Vega was vague on details on how to incentivize heavy users, but it apparently involves requiring them to understand how mobile data networks and apps work so that AT&T can ask them not to use the service for what they're paying to use it for.

Good luck with that. Usage-based pricing relied on similar knowledge, and look how that worked out. De la Vega can talk all he wants about educating the customer on what a megabyte is. I, for one, know perfectly well what a megabyte is - that doesn't mean I want to access my Facebook page on my handset or my dongled laptop with one eye on the meter. (That said, a meter widget that actually shows you your per-MB data bill in real time would be helpful - although it will likely convince users to use the service less if there's no flat-rate option.)

Another possibility - and one that US cellcos are already pursuing, as well as some 3G operators in Asia - is tiered pricing that creates value related to either the speed of the service, the amount of data you can download or the types of devices you can use. So, for example, you can pay less for 3.2 Mbps and more for 21 Mbps, and the monthly fee could also be determined by whether you intend to use feature phones, smartphones and/or dongles.

Whether consumers go for the higher prices (or churn to cheaper competitors) remains to be seen, but the good thing about this approach is that it's a simple sell (and upsell). It also paves the way for cellcos to launch device-based packages that combine the usual phones and dongles with newer wireless devices like e-book readers, cameras and even telematics in cars.

Packages based on speed could be problematic, depending on how it's done. There has been talk of positioning connection speed as a QoS value-add for "priority" users, but that invites more customer-perception issues. If a website is taking forever to download, the user is still going to blame the cellco's access network. You could explain that the problem is a congested server or router, of course. You might as well explain to them what a megabyte is, while you're at it.

To be fair, usage-based data pricing is certainly going to be a key element of 4G once service providers have the ability and the flexibility to gauge just how much bandwidth users need for a given app and device. But that's many years away, and it won't be worth much if it's presented to users in the form of confusing plans and baffling metrics that encourages them to use the service less.