Tiered pricing not enough to alleviate congestion

At the recent Broadband World Forum in Paris, Alcatel CTO, Marcus Weldon, explained during a press conference that declining revenue per mobile subscriber and the rising cost per subscriber of operating a mobile network are "converging to the point of a lack of profitability." The network equipment cost per subscriber is falling, but this is still not enough to offset the rising cost per subscriber of operating the network.
According to Weldon, as more operators introduce tiered mobile data pricing in a bid to alleviate strain on their networks and boost revenue from heavy users, it will not be enough to make mobile data services profitable. To make matters worse, tiered data pricing could compound the problem.
"Wireless voice revenue is still offsetting the cost of delivering mobile data – this cannot go on," said Weldon.
Total Telecom reported that AT&T in June became the first big operator to scrap its unlimited data plans in favor of a $15 tariff covering usage of up to 200 Megabytes per month, and a $25 monthly plan offering 2 Gigabytes per month aimed at heavy users.
Weldon noted that AT&T's low-cost plan is cheaper than the average mobile data tariff, while its 2 Gigabyte plan is more expensive than the average.
"Data revenue could fall if a high number of users go for the cheaper plan," he said, commenting that even some heavy mobile data users might opt for a lower cost option while they evaluate whether they require a large data allowance." There's going to be an acceptance period as consumers adjust to the new structure," he said.
Meanwhile, AT&T itself insists that the new pricing structure has helped it to attract new entry level smartphone customers who may not have previously considered upgrading to a high-end handset.
O2 in the UK has followed suit with a range of data packages priced between £25 and £60 per month.
Both AT&T's and O2's 3G networks had been criticized for lacking the necessary capacity to support heavy mobile data usage.
Verizon has also announced its plans to introduce tiered data plans starting at $15 per month for 150 Megabytes. However, the operator is also expected to keep its $29.99 unlimited monthly tariff. In this scenario, potential abusers of data will probably not be attracted to the tiered plans and the issue of heavy usage will probably not go away. As a result, it may be some time before the effect of tiered plans is realized, and it may not be possible to force people to move to tiered plans at all.
In Asia, fair usage clauses and throttling are the preferred means of control where regulation allows. Other operators in Europe are resorting to deep packet inspection, to monitor and weed out machine to machine (M2M) usage that may be contrary to the conditions attached to unlimited plans. Again, only time will tell if the means to control the minority impacts the take up of the majority of fair-minded customers. Perhaps we will see more use of dynamic billing for data where rates are discounted during low usage periods and increased during busy hours.
Those operators that can accurately determine the exact cost of providing data service will have the advantage of determining profitability across the whole subscriber base, much the same as fixed-line ISPs that have to purchase Internet bandwidth from other networks or via Internet exchanges at contract rates.
Tony Poulos is the BSS evangelist at TM Forum
This article originally published in TM Forum’s Inside Revenue Management newsletter