Breaking down usage-based data pricing

Lynnette LunaThere's no doubt that usage-based pricing in the LTE era is going to be a hot topic during this week's CTIA Wireless 2010 trade show in Las Vegas, and more statistics are pointing to the need to move in that direction.

The latest information is from policy provider Sandvine, which tomorrow will release its semi-annual Internet traffic trends report, which looks at the state of mobile networks and analyzes mobile broadband traffic trends using a representative cross-section of 13 mobile broadband operators worldwide. The conclusion: Traffic mimics the kind of traffic seen on fixed broadband networks. Echoing what AT&T Mobility has said about a minority of users eating up a majority of capacity, the study also found that 5 percent of users account for approximately half of the data traffic on average. 

This isn't surprising given the fact that users want to access the same applications and services on wireless as wireline, as well as the growing number of laptops and dongles accessing the network. However, the smartphone era is emerging with devices that have greater computing capabilities (think Snapdragon) and impulsive users who have to check their Facebook pages incessantly, browse the Internet or watch the latest YouTube video. In fact, Sandvine found that Facebook is the most widely used application on mobile data networks, with users connecting on average once per hour.

Indeed, social networking overall accounts for up to 9 percent of total bytes on any given mobile network, and YouTube accounts for 10 to 15 percent of total bytes on a given mobile network.

Facebook is hardly a bandwidth hog, but what if it decides to make its applications more media rich, such as enabling different kinds of connections with images and videos? "That can have a dramatic impact on the traffic patterns of networks," said Sandvine's Tom Donnelly.

Bolstering the move to usage-based pricing is a report earlier this month from analyst Chetan Sharma, who indicated that U.S. mobile subscribers used almost 400 petabytes of data last year, up 193 percent from 2008. As expected, operator revenues are not staying in step with that growth.

Sharma said data traffic outpaced voice traffic by nearly 400 terabytes in 2009, and he anticipates that ratio to double this year. Meanwhile, U.S. mobile data services revenues increased 24 percent year-over-year, and are expected to only grow 20 percent in 2010.

Operators see LTE as an opportunity to introduce a new pricing regime because they can position their services as something significantly different from 3G networks. But network executives--those from Verizon Wireless and AT&T--keep talking about charging customers based on how much bandwidth they use. Can that really be a transparent process? Monitoring broadband usage is certainly not like monitoring minutes of use. This type of pricing early on is what stymied the mobile data market in the first place.

Moreover, every time we write something about usage-based pricing being the future, it really brings up the ire from readers. Clearly, usage-based pricing is perceived as prejudicial. Donnelly believes, and so do I, that the trick for operators is to come up with usage-based pricing that isn't perceived as usage-based pricing at all and makes the subscriber feel like they are getting their money's worth.

Some examples might be offering free and paid zones, a la cart usage, tiers of access and classes of service. Why can't operators actually offer pay-per-minute or hour plans for Web browsing like hotspot providers do? Skype recently introduced Skype Access that allows users to connect to a WiFi network and pay by the minute using their Skype credit. Maybe free all-you-can-eat browsing comes after peak times. (Hmmm, this sounds just like voice pricing, and it's something folks are accustomed to.)

Donnelly said the trick is to constantly give customers in a timely manner information such as a "you are now entering a paid zone" so they can decide whether they want to pay for it, and align pricing and services around customers' usage habits.

I also like the idea of classes of service. Enterprise users, for instance, would be willing to pay for higher bandwidth, reliability and QoS. The basic user would be willing to pay much less for lower throughput. It's a model most of us are accustomed to with our DSL and cable operators.

Maybe operators just don't want to show their hand as to how they might create a good user experience in the usage-based pricing world. I know this will be quite challenging, but the plain usage-based pricing rhetoric isn't making people excited about the next generation of services. --Lynnette

P.S. As always the FierceWireless, FierceMobileContent and FierceBroadbandWireless editorial team will be in Las Vegas covering all the news and events from the big show. Our team of Sue Marek, Mike Dano, Phil Goldstein, Lynnette Luna, Jason Ankeny and Tammy Parker will be out in full force. Stay on top of everything at our CTIALive page. And don't forget to RSVP for our free networking event at The Terrace @ PURE in Ceasars Palace on March 23. You can find more details here.