Operators warm to data bucket pricing

OvumAfter a significant amount of discussion and hype, “bucket plans” are beginning to gain traction around the world.
Bucket plans are a tariff structure where a monthly data allowance is shared between all of a user’s connected devices.
Spanish incumbent Telefonica is the latest tier-1 mobile operator to launch a bucket plan, and US operators Verizon and AT&T Wireless are expected to follow suit in June 2012 with their LTE services.
With the ownership of multiple mobile broadband devices increasing, it was only a matter of time before operators made it more convenient for users to manage their various data plans. For an operator, launching a bucket plan makes the customer “stickier” as having one contract stops users from picking the best smartphone, tablet, or dongle plans from different operators.
Bucket plans also reduce subscriber acquisition costs, which will have a positive impact on operators’ profitability and margins.
However, data buckets often mean that multiple plans are combined into one, which presents the significant risk of revenue cannibalization.
Bucket plans cheaper for customers
Telefonica, Canadian operator Rogers Wireless, Hong Kong operator CSL, and Norway’s Telenor are just some of the growing number of operators that offer data bucket plans. These plans are typically aimed at the “connected person” who owns a smartphone, laptop, and tablet.
CSL’s 1010 multi-device service plans for its LTE services provide one primary and four secondary SIM cards to users. Subscribers also receive a free LTE modem or Pocket Wi-Fi device. CSL offers a choice of three monthly plans for HK$399 (€40.93), HK$499, and HK$599 that includes data buckets of 5-GB, 15-GB, and 30-GB respectively. All of the plans also include unlimited access to CSL’s Wi-Fi hotspot network. The primary SIM provides 3,000 voice minutes and unlimited intra-network texts, and the minimum contract period is 24 months for device connections.
CSL’s bucket plan is cheaper for users than separate dongle and smartphone subscriptions. For example, a 5-GB mobile broadband dongle plan costs HK$349 per month while an 800-MB smartphone LTE plan costs HK$299 per month. This works out to be 8% more expensive than CSL’s high-end bucket plan, which provides a 30-GB data allowance.
This price gap increases to 15% if CSL’s unlimited tablet and unlimited smartphone plans, which cost HK$249 and HK$439 per month respectively, are considered against the HK$599 bucket plan.
However, as a result of this pricing structure, CSL faces a considerable risk of revenue cannibalization if an existing smartphone, dongle, and tablet customer moves to a bucket plan.
Cheaper for operators to manage unified accounts
Bucket plans provide operators with significant cost savings as they do not have to acquire and manage two separate subscriptions for a single customer. A combined account also makes it far easier for operators to find out what a customer is using their device for and when. This information makes upsell opportunities clearer and easier to implement, and enables the possibility of providing the data to third-party applications and advertisers.
Unified plans increase customer stickiness, which results in lower churn. As the initial target audience of bucket plans is likely to be high-ARPU users, it is in operators’ best interests to retain these customers. Bucket plans could also provide a key source of differentiation, which will enable operators to retain customers and poach valuable subscribers from their competitors.
Rather than picking plans from several different operators, bucket plans enable customers to have all their mobile data needs served by one contract from one operator. Rogers Wireless, which launched data buckets in 2009, claims that its data buckets attracted a lot of traditional voice/messaging users to data services for the first time.
Bucket plans here to stay
Consumers will need to be educated about bucket plans, especially in markets where family voice and data sharing plans don’t already exist. Indeed, more than 25% of Roger Wireless’ shared data plan users are existing family-plan subscribers.
Operators will also have to ensure that bucket plan users are provided with adequate data monitoring tools to prevent excess usage charges if big-screen devices unknowingly consume a high proportion of the bucket. These should also provide a mechanism that enables customers to upgrade to a larger plan if required.
One of the biggest issues for operators when moving to data buckets is the increased complexity of provisioning the service. Many operators will need to add more flexibility to their billing systems if they are to provide a unified bill for their customers.
As the vast majority of consumers use tablets over home Wi-Fi services (Telstra says that less than 1% of its tablet customers use its mobile network), operators need to provide a compelling argument for consumers to take up a bucket plan. As a result, the initial target segments for these plans are likely to be enterprises, road warriors, and early adopters.
While it is still early days for bucket plans, it is clear that they are here to stay and will become increasingly pervasive. Between 2011 and 2016, Ovum expects that mobile broadband connections from smartphones, tablets, and USB modems will grow at a compound annual growth rate of 24% to reach almost four billion connections.
This rapid increase in smart devices accessing the network will force operators to re-think their pricing models towards data buckets. Ultimately, we believe that this type of plan will become more popular as the “connected person” market expands and the number of connected devices increases.
Nicole McCormick is senior analyst – telco strategy for Asia Pacific at Ovum. For more information, visit www.ovum.com/http://ovum.com/authors/nicole-mccormick/