LTE uptake hindered by timid pricing
Service providers are, to date, adopting conservative approaches to LTE service packaging and pricing. The lack of novelty in pricing plans is indicative of the unwillingness of operators to adopt aggressive strategies in light of the nascent LTE service and device markets.
While there are exceptions to the norm, the lack of unlimited, flat rate and contract free LTE plans indicate that service providers are adopting a wait and see approach rather than focusing on service differentiation to drive service uptake.
The prevalent LTE service plans are characterized by multiple tiered data offerings with prices based on different:
·Monthly data allowances
·Advertised service speeds
Within these parameters, there is significant variance in LTE offerings. Monthly data allowances range from 1GB (CSL, Hong Kong for $11.20 [€7.75] to $24, MetroPCS US for $50) to 50GB along with a $125 price tag, as recently announced by T-Mobile in Germany. Within this range, service providers are generally offering services with data caps between 20GB to 30GB in Europe, with much lower data allowances (1GB to 10GB) emerging in packages offered in North America and Asia.
In Europe, prices for 30GB capped services range between $45 and $120 with variances dictated by different contract terms. The pricing range for 1GB to 10GB packages in North America and Asia range between $11 and $98, with variances again determined by different contract terms and service speeds.
Overage charges have generally been set on a per GB basis when a subscriber hits a monthly data allowance cap. In some cases service providers are explicitly reverting to throttling a user’s bandwidth down to kbps service level speeds. When a new service month begins, higher speeds are then re-enabled. The average overage charge across LTE service providers is $10 per extra GB.
Advertised LTE service speeds are also diverse. At one extreme is A1 Telekom Austria, with a 30GB capped service offering theoretical download speeds of up to 150 Mbps and upload speed of 75 Mbps. This service is priced at $118 per month under a two year contract. Alternatively, T-Mobile in Germany is offering a two year service with 3 Mbps download and 500 kbps upload speeds advertised for $56.
The prevalent contract period associated with LTE plans is two years, while operators including NTT in Japan, Rogers in Canada, and Verizon and MetroPCS in the US are also offering a no contract service option.
Encouragingly, a number of operators are offering free devices associated with an LTE service contract, following a trend that we have seen with ‘free’ smartphone offerings in some postpaid markets. Examples of operators including devices within a contract service are TeliaSonera in Finland, Norway and Sweden, T-Mobile in Germany, and Tele2 and Telenor in Sweden.
Others are seeking a customer lock-in through offering devices for a minor monthly fee associated with a contract, while setting high fees for devices without a service contract. An example of this strategy is Lithuania’s Omnitel USB modem priced at $0.41 with a 24 month contract or a standalone device price of $293 without a contract.
Where devices are not included in service contract offerings, prices again vary significantly. Again at the extremes are A1 in Austria, which is advertising its LTE USB stick for $635, while Vodafone in Germany is offering LTE modems starting at $56.
Despite the many contingencies and uncertainties surrounding LTE, including the need for multi-band devices and chipsets, and the timing of the availability of multi-mode devices, service provider pricing strategies are dictating a lackluster LTE end-user market dynamic. Service differentiation and messaging around a new and unique user experience is dampened as a result of adherence to traditional pricing models based on measured usage data services, fair use policies and relatively long contract periods.
While there is more evidence of innovative pricing and packaging on the LTE devices side, the market remains largely limited to USB modem offerings. In many cases, advertised LTE service speeds also lack differentiation relative to existing 3/3.5G services and associated bandwidth caps.
Dianne Northfield is vice president of research at Tolaga Research. For more information go to www.tolaga.com/