Avoiding the 'AOL problem' - page 2

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Second, we have to re-think wireless pricing. We have downward pressure on price at the same time many believe we can't sustain a flat-rate model. In a more extensive Lens piece on price (e-mail me for a copy), I argue that usage-based pricing will be a nightmare. But I do think there are some alternatives, such as:

  • Tiered pricing, similar to what we've seen with DSL. If people want to download an episode of Lost over the WAN (2GB, by the way), they should have to pay for it. Why not a good-better-best approach to wireless data plans?
  • Pricing built into content similar to the Kindle model. If certain apps are highly consumptive of network resources, charge a premium for them. Example: The HD version of a TV program on iTunes typically costs $1 more.
  • Surcharge for select apps/content. Sort of like a prix-fixe menu at a restaurant with certain "premium" items incurring a surcharge.
  • Congestion pricing. Charge more to use the network at certain times of day, or encourage big downloads to occur at "off-peak" hours. We do this with airlines, and roads, why not networks?

2. Better Management of the Network

Fourth-generation networks, with their added capacity and spectral efficiency, provide some relief--to the order of about a 50 pecent reduction in data delivery costs. But if wireless continues on its current trajectory, traffic growth will continue to exceed capacity growth. There are lots of opportunities for those able to help operators with network and congestion management. What I have seen so far is evolutionary, rather than revolutionary, representing a range of tools, rather than a silver bullet. Examples here include intelligent caching, and packet flow optimization techniques. There is also a greater sense of urgency with respect to backhaul: we need more of it, and for it to cost less. This would mean a more competitive backhaul market than we have historically had.

In addition to technology solutions, there are some tactics to encourage more intelligent use of network resources. People with iPhones, wirelessly embedded netbooks, and other high-end phones/low-end computers use these devices as a substitute to their PCs in many scenarios, even inside the home and other locations where broadband networks/WiFi are available. I think the operators recognize this, which is why even the hold-outs such as Verizon Wireless are now offering smartphones with WiFi and doing deals with WiFi providers, as a way of offloading traffic from the WAN where it makes sense. As part of this, I believe that Femtocells, rather than being a customer-centric solution for indoor coverage, represent more of an operator-centric solution for effective network management in buildings, leveraging the broadband network.

3. Customer Service

This is an overlooked elephant in the room. Customer service might seem tangential to a discussion of wireless network capacity, but it is a huge (and disproportionate, compared to other industries) drain on opex and one significantly affected by the network neutrality debate. Wireless operators are still handling all manner of customer service--for free, not outsourced, and increasingly for issues having little to do with the core "wireless" experience. As an example, if I am having trouble syncing my MAC and my BlackBerry, I call my operator. Why? I have to pay to call Apple, and I can't call RIM. In most corners of the Internet and PC world, you have to either pay for customer service (Dell, Microsoft, Intuit), or it's nearly impossible to talk to a human being at all (Amazon, eBay, Skype, Google).

Why is this relevant here? Well, in a network neutrality/open access world, it might be great to use Skype or Google Voice over 3G networks, but who do customers call when the quality of the call isn't too great or they have some technical issue? Not only are these issues far afield from typical wireless customer service agent expertise, but call volume from smartphone users significantly over-indexes that of feature phone users. Going back to the AOL analogy, remember that AOL held consumers' hands onto this thing called the Internet in the mid-to-late 1990s. Their care centers became as overwhelmed as their modem farms, and the reputation of the company was tarnished forever.

As operators consider how to allocate their capex and opex resources in this new--but different--growth phase, they will be looking to other entities riding the wireless data wave to take on some of the support costs.

(Note: For an in-depth look at the issue of network neutrality and wireless economics, email Mark and he will send you the latest Lens newsletter).

Mark Lowenstein, a leading industry analyst, consultant, and commentator, is managing director of Mobile Ecosystem. Click here to subscribe to his free Lens on Wireless monthly newsletter.

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