Traffic management gets practical

Ovum recently attended the Broadband Traffic Management conference in London. While the event traditionally focuses on vendor solutions, it was refreshing to see examples of how operators are approaching the commercial aspects of managing traffic.

 

From a tariff perspective, it was pleasing to see examples of the “bucket of data” concept. The central premise of this type of tariff is that a mobile user subscribes to a data allowance, which is then shared among several devices. This is a shift from the traditional model where each new device requires its own individual plan.

 

Belgacom presented its version of the tariff for SME customers, which allows users to share data between devices after charging them a one-off €5 fee for each additional SIM. As more consumer electronics devices get connected, this model will become more prevalent. However, operators must be aware of the potential customer service complexities of linking multiple connections to one account, and the potential revenue cannibalization that could occur from introducing these tariffs.

 

Another notable trend at the event was that plans tiered by quality of service (QoS) were no longer being touted. The burden of proof required to justify spending on these approaches has always concerned us, particularly in the consumer market. The lack of real-life examples implies that operators also found communicating them to users difficult as well. Elisa in Finland was the only operator to launch this type of tariff commercially, but uptake was low and it has since adapted its offering so that users no longer pay purely for “improved” QoS.

 

Operators are instead opting for a “gold, silver, and bronze” approach aligned with applications, meaning that the benefits of QoS are aimed at the content provider, which pays for an optimal end-user experience. This keeps the customer out of the equation, but opens up new “two-sided” revenue opportunities for operators.

 

 

The most common word at this year’s Broadband Traffic Management conference seemed to be “segmentation”. On the first day, Deutsche Telekom, Pakistani WiMAX operator PTCL, Du, Orange Group, and Turkcell extolled the virtues of customer segmentation for creating tailored packages. While acknowledging this was another example of operators realizing what needs to be done commercially, we question their ability to effectively use this strategy.

 

Operators have been notoriously poor in mining their customer data, and they have been even worse at using it to define segments. The prime example comes from the mobile arena in which “postpaid” and “prepaid” are the prime customer categories. However, even prepaid is now evolving.... As such, operators must improve their systems and implement analytic tools to give them the edge in the fiercely competitive broadband market.

 

Ovum hosted a briefing on tariff innovation at the event, which was attended by several solution vendors. The discussion focused on tariff innovation, and it was interesting to hear how vendors perceive the tariff options available to operators. There was a consensus among vendors (with a clear vested interest in promoting their tool’s sophistication) that the future will see operators offering highly tailored packages to end users and content providers. However, this view was somewhat tempered by the operators at the event, which spoke of simplicity and clarity as the key means to win customers.

 

Belgacom most clearly highlighted the difference in outlook. It noted that over half of its customers could not say what tariff they are on. As a result, operators must keep their tariffs clear and simple. Similarly, Orange and other operators spoke of wanting simple, speed-based tiers. As such, it is unlikely that the vendors’ vision of a sophisticated, hyper-segmented future will come to fruition. This is not simply because of the aforementioned analytical limitations, as segmentation will be needed to ensure that tariffs are correctly targeted.

 

However, the structure and presentation of the tariff is a different matter altogether. If our vision for Telecoms in 2020 holds true, the long-term outlook for operator tariffs will need to be wholesale offers for SMART players, meaning that complexity will not be at all desirable.

 

 

Orange UK’s residential broadband division presented an interesting take on the non-technical approach to traffic management. Its studies revealed that most fixed broadband customers underestimate their traffic use.

 

As an example, Orange presented statistics showing that average fixed broadband usage in the UK is 17GB per month. However, in 2Q11, approximately 50% of tariff purchases across all UK ISPs had a download limit of less than 10GB. In addition, 54% of the plans taken had peak and off-peak traffic management. As a result, UK customers are purchasing plans that result in the regular triggering of traffic management policies and a reduced customer experience. To correct this, Orange advocated improved point-of-sale transparency to allow users to choose the best plans for their needs and understand the policies associated with them. Ovum wholeheartedly agrees with this approach, and we have regularly called for greater policy transparency for customers.

 

Another example from Orange showed how technical and commercial resolutions can sit alongside each other. Orange claimed that half of its customer’s performance issues were related to installation in the home. While this is officially outside of the network operator’s domain, Orange instigated home visits to resolve these issues. It concedes that these were expensive, but witnessed a massive boost in customer loyalty among those receiving support.

 

Therefore, commercial propositions, simplicity, and good old-fashioned customer service are just as important to managing user’s broadband experiences as greater bandwidth and policy engines.

 

Most importantly, operators are finally beginning to understand this.