A May report from Finnish market research firm Rewheel highlighted the huge differences in mobile data pricing across Europe, with Germany held up as the most expensive at over €24 (around $31.50) on average for 1 GB of smartphone data, and Finland as the cheapest at €1.60 ($2) for 1 GB of data.
The situation in Germany was partly attributed to the fact the market there is dominated by large incumbent operators that have not been threatened by the kind of maverick operators like Iliad's Free Mobile, recently forced down prices in France, for example.
While pricing can never be low enough from a consumer perspective, the ongoing quest for operators is to find a balance between competiveness and the ability to fund future investments. The situation in France, where Free Mobile has brought in a €19.99 price plan that includes 3 GB of data and has forced rival operators to follow suit, may be good for subscribers, but what about the need to invest in LTE networks?
"The situation in the UK and France is hardly desirable from a German operator's perspective, or indeed from any mobile operator's perspective," Current Analysis analyst Emma Mohr-McClune, said. "From a consumer perspective, of course, I'm sure pricing can never be low enough, but network evolution comes at a terrific cost-- that's something that needs to be taken into account when we're talking about margins."
Finding a 'sweet spot'
Whether there is a "sweet spot" for mobile data pricing or not, in order to even come close to this operators have to take a number of different issues into account, such as competition, huge debt levels, national and European Union regulation and general economic influences.
Operators are trying to price their LTE plans "just right," which is easier said than done.
Austria is an example of a market that has experienced cutthroat price competition and also has a very strictly regulated market. Telekom Austria introduced a new tariff concept in the spring that puts data first and treats voice and SMS as commodity services that are offered on an unlimited basis. While other operators in Europe are also now offering voice and texts on an unlimited basis and therefore using data as the basis for prices, Telekom Austria is still the only operator in its market to take this approach.
"Data is now the differentiator," Telekom Austria spokesman Peter Schiefer said. "It's what sets our prices."
Competition plays a strong role in setting prices in Austria, and Schiefer maintains that little has changed since Orange Austria and 3 Austria merged. Although a report published by Rewheel in September said 3 Austria's smartphone prices have increased by an average of 60 per cent since the merger, Schiefer noted that 3 Austria has retained the €7.50 SIM-only price plan for 1 GB of data at full 3G speeds.
"That's clearly a price where you cannot invest any longer," he said, in an indication that Telekom Austria is unlikely to drop its data prices to this level. Currently, the company's lowest SIM-only smartphone tariff is €22.90 for 1 GB of data, or €12.90 for customers who also subscribe to fixed-line services.
In other words Telekom Austria is not just competing on price alone: as Schiefer said, the operator places a large emphasis on providing cost assurances for its customers. It also relies heavily on its Kombi multi-service plans to tie customers to more than one of its services and thereby increase loyalty. Unlimited is not on its agenda: "We think there has to be a cap on data, otherwise it makes no sense," said Schiefer, who noted that Telekom Austria also uses different data speeds to sell its smartphone plans.
Avoiding a price war, and charging a premium
Like Telekom Austria, EE in the UK has no intention of entering into a price war with rival operators Vodafone and Telefónica's O2, which launched competing LTE services at the end of August. The operator also believes its focus on LTE coverage, higher data speeds and network consistency will help it compete with 3 UK when the operator launches unlimited LTE plans in December.
"Unlimited is good because it gives you peace of mind," an EE spokesman said. "But it's not really necessary. We have been trying to give peace of mind in other ways," such as sending text messages when users reach 80 per cent of their usage allowances, and also giving assurances on network quality. "Unlimited is not the only answer," added the spokesman.
EE has been fairly open on the fact that it not only charges a premium of around £5 (€6, or $7.80) for its LTE plans compared to 3G, but it also believes that this is a sustainable approach. Telekom Austria also charges a premium of €9.90 for a bolt-on LTE plan, but Austrian operators are still waiting to buy the 800 MHz spectrum that will allow them to speed up the rollout of LTE services across the country.
In general, the advent of LTE is bringing in a new element that is enabling operators to restructure their tariffs and charge more for certain plans. CCS Insight analyst Kester Mann pointed out that it's still very early days for LTE pricing in Europe, but operators are currently falling into two very district camps: those that do charge a premium for LTE and those that do not. The preferred method is to charge a premium in order to recoup investments on spectrum purchasefs and networks, and to generate extra revenue.
Seeking points of differentiation
CCS Insight has identified a number of recent tariff innovations including LTE pricing tactics, and said this trend looks set to continue as operators seek new ways to differentiate themselves. It will be this level of differentiation, rather than pricing on its own, that will help them compete in a market where access to data and value-added content services are becoming king, according to the research firm.
Vodafone is focusing on special content, such as Sky Sports, to set its LTE plans apart.
Indeed, in the UK both Vodafone and O2 are using content as the main marketing tactic to sell their LTE services, rather than competing by undercutting EE's prices. "We don't believe that unlimited data tariffs are sustainable in the long term," an O2 UK spokesperson said. "Our focus is on delivering a high-quality and sustainable network experience for our customers, whilst making 4G accessible to as many people as possible."
Examples of recent innovative approaches to tariffs include Swisscom, which has taken the slightly unusual approach of offering tariffs based only on speed and not data volumes, although the operator does have a fair usage policy. Its "Natel infinity" plans range from 59 Swiss francs (around €47) to 169 Swiss francs (€136) per month, with speeds ranging from 200 Kbps at the low end of the price range to 150 Mbps at the high end.
"Natel infinity is the most successful tariff plan ever launched in Switzerland," said Swisscom spokesman Olaf Schulze. "After nearly 12 months we already have more than 1.3 million customers using infinity (one-third of all Swisscom postpaid customers)."
In Swisscom's view, usage-based fees no longer make sense, and customers no longer accept classical rated products for voice, SMS or data.
"But for telecom operators this is also an opportunity," said Schulze. "Customers use their smartphones very intensively, and for many people the smartphone is essential for their daily life. That means access to mobile communication is a basic need and we believe that customers are willing to pay a fair price to get access to a high quality network. That is why we believe on our infinity strategy and that is why we think that access is the sweet spot for the telco industry."
Swisscom's approach is not going to be possible for everyone, however, as it requires a good network and a dominant position in the market. Swisscom has both.
Other innovative approaches highlighted by CCS Insight include shared data plans, which are still relatively rare in Europe and are currently marketed by TeliaSonera and EE, and O2 UK's O2 Refresh plan, which splits the cost of a device and airtime into separate contracts. The research company noted that the O2 Refresh plan is similar to the model introduced by T-Mobile US in March under its Simple Choice tariff, but is unique in Europe.
"We've actually addressed what we believe is the biggest customer frustration of getting the latest handsets with O2 Refresh--it lets customers upgrade easily when they want," an O2 UK spokesperson said.
Indeed, the connection between devices and tariffs is likely to be a further avenue that operators can explore in order to differentiate their tariff structures.
In summary, CCS Insight notes that "new tariff models present an increasingly rare opportunity for operators to differentiate themselves in mature markets." and more changes lie ahead--particularly as operators get to grips with charging for LTE.
It likely will not be an easy process. CCS Insight's Mann said it took O2 UK a year to work out the billing for O2 Refresh, for example. But in the fight against low-cost and over-the-top providers, operators need to make customers more receptive to new ways of paying for access to mobile services.