Operators miss LTE pricing opportunity
Mobile broadband pricing is one of the hottest topics in the telecoms industry, especially when it comes to LTE.
As a “new” service, LTE provides operators with the opportunity to experiment with new and innovative pricing models. However, most operators have not grasped this opportunity. Instead, LTE tariffs in the US, Europe, and Asia-Pacific are dominated by unlimited offerings and large data buckets.
Ovum’s upcoming report, LTE Tariff Comparisons: Europe, US, and Asia-Pacific, found that most LTE pricing models are similar to existing tariff plans. However, there were some bright spots including Vodafone Germany’s tiered speed-based tariffs and NTT DoCoMo’s introduction of capped (rather than flat-rate) data pricing for LTE.
While most operators charge a premium for LTE compared to 3G, Ovum cautions against operators imposing too high a premium on LTE. The dilemma for operators is that they need to provide customers that have paid a large premium with a quality, high-speed service, while using lower rates to entice customers off their overstretched 3G networks.
Operators in the US and Hong Kong offer unlimited LTE plans. Swedish operators also offer unlimited plans, but use fair usage policies (FUPs) to restrict acceptable usage to a predetermined limit. After this limit is reached, a user’s traffic is given a lower priority or the speed of their service is throttled.
In South Korea, operators are planning to scrap unlimited pricing tariffs for upcoming LTE launches to avoid repeating the mistakes made when 3G networks were launched that resulted in networks becoming overburdened.
Operators that offer unlimited tariffs with lenient FUPs need to be careful in the video-led LTE world, and must consider making heavy data users pay. However, some operators are coming under pressure from regulators to prevent “bill shock”. In these cases, using a FUP that throttles speeds may be a more viable option.
In the US, Verizon Wireless’ marketing of typical LTE data speeds rather than maximum or theoretical ones is an excellent policy. Ovum recommends this as a way for operators to improve their credibility with consumers, governments, advertising standards bodies, and regulators. However, it makes no sense for operators to publish large expected speed ranges, such as the 10–80Mbps ranges that have been advertised in Norway.
LTE premiums varied from less than 20% in Asia to over 100% in markets such as Sweden, Finland, and Austria. Operators need to remember that high-ARPU customers have paid a premium on a long-term contract for a faster, high-quality service.
Operators must be aware that they cannot reduce their LTE tariffs too quickly to entice 3G customers that want a better quality service without alienating high-ARPU customers that are locked into premium rates. To avoid this, a carefully graduated decline in LTE prices is needed.
Heavy data users are still ideally suited to unlimited or large bucket fixed broadband services. However, LTE could be an appealing alternative to fixed broadband for light or medium data users in markets where fixed broadband services are not priced at a substantial discount to LTE. This has significant potential in countries such as Sweden, where 3G mobile broadband is already being used as a fixed broadband replacement.
LTE will improve user experience and eventually lower the cost base for operators. However, consumers must be aware of excess data charges on LTE, which can be substantial and could deter substitution. In markets with existing cheap high-speed ADSL and fiber networks, such as Hong Kong and Japan, LTE is unlikely to cause significant fixed-to-mobile substitution.
Nicole McCormick is senior analyst for consumer mobile communications at Ovum. For more information, go to www.ovumkc.com/