With the advent of LTE technology, mobile operators across emerging and advanced markets are riding a wave of change. Together with providers in the US, Asian players are leading what will likely become a new era of data connectivity and technological advances and they are now given a new chance to get their charging models right.
Having learned from their 3G experiences, operators know that unlimited offers in the LTE era of 50 Gbps+ are a risky proposition. Of 65 operators polled, only 3% are offering unlimited LTE plans. The combination of new billing options and reluctance to offer unlimited plans is bringing about a new wave of pricing innovation.
We, however, acknowledge that with the exception of shared plans, most of the pricing alternatives are not new in concept but are simply being perfected, applied more aggressively and with greater success with the advent of LTE.
Although still in its infancy, LTE pricing is evolving differently in various regions around the world.
Being LTE pioneers and concerned about the consequences of unlimited pricing, European operators opted for an LTE premium in a range of 50-80%, according to Wireless Intelligence, but with a unit cost (per MB) of almost half of the world average.
This speed-based pricing approach is not new, but the higher speeds of LTE allow for a broader pricing range. This model has two advantages: it monetizes additional LTE investments, thereby gaining the confidence of investors, and it enables differentiated value propositions for operators whose network quality is visibly superior.
However, higher prices for early adopters result in a flatter penetration curve. Two years after launch in Sweden, take-up remains below 5%.
The US is at the other end of the pricing spectrum. After a race to launch LTE and make 4G claims, all operators have chosen to be technology-agnostic and instead price access according to the number/type of connected devices and the data volume consumed. This allows for affordable ways to use tablets on-the-go and increase revenue per customer.
Operators in Singapore have reduced data caps on 3G plans to align them with LTE offerings, while also announcing a S$10-11 ($8-9) premium. This premium has not yet been enforced but will likely be when coverage from LTE leading players M1 and SingTel spreads across the island-state.
In South Korea all three operators have entered into sophisticated pricing models to match a data-hungry user base. VoLTE, premium services under the rich communication suite (RCS) umbrella and "freemium" models are being tested to elevate ARPU. Bolstered by a regulatory ruling, LG U+ has started charging for users going beyond a pre-specified VoIP usage level. South Korean operators have waged a heated battled with over-the-top (OTT) providers and these models are aimed at recouping some of the value lost.
Japan's DoCoMo has moved away from unlimited pricing in an attempt to monetize heavy investments. Interestingly, its LTE offering has a separate brand name, Xi, under which DoCoMo offers a variety of products enabled by high speeds. Around 70% of new activations are on LTE-enabled devices.
Hong Kong's CSL offers a range of pricing plans that combine almost all of the above options. CSL's investments in LTE have augmented network capacity in such a way that the operator can now comfortably accommodate unlimited subscriptions and will only manage wastage and prioritize at peak periods.
For lower consumption, tiered plans provide affordability, yet an unlimited package for ~$50 is available, which includes Wi-Fi hot-spot usage. Shared data plans are offered for up to five devices. CSL also added content to its higher-end plans. Overall, LTE is priced at a marginal premium over 3G.
LTE's higher speeds, lower latency and spectral efficiency provide the opportunity to charge for services beyond pure connectivity via three avenues:
- Monetization beyond access to new revenue streams by capturing the so-called extended value chain beyond traditional telecom services. This includes content such as HD video.
- Differentiation and shielding from OTT players as the same services consumers have become accustomed to from OTT providers are theoretically offered at a better quality on an operator-managed IP network. In this category we see concurrent voice, video and file sharing communications available on Skype.
- An opportunity to migrate away from the feared "dumb-pipe" perception. Operators can now get back in the game with the help of equipment and software providers that are trying to come up with new service ideas enabled by LTE, such as HD gaming, real-time voice translation, multi-device content access or place-shifting.
Some of these measures are already having a positive impact on the bottom line. SK Telecom's ARPU for LTE users ($46) is 21% higher than for other smartphone users.
With some exceptions, LTE has not yet led to the emergence of radically new pricing paradigms, but it is assuring the success of concepts which in the past failed to gain traction. Armed with the lessons learned from the 3G-pricing pitfalls, operators now have a second chance to get it right. And as the precedents set by early adopters are followed by the bulk of operators, we expect to witness the emergence of further industry evolution.
Operators should leverage LTE to reshape their pricing models by firstly deciding whether or not to charge a premium over 3G depending on strategy and market conditions. Secondly, they should ensure that the new pricing is tiered and/or with sharable allowances. Thirdly, they need to implement ARPU uplifting services for which customers are willing to pay more.
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