Lowenstein: A New Model for Wireless Pricing

It became clear in 2008 that flat rate plans are, over time, going to become the prevalent structure for wireless pricing. Nearly every major operator now offers a flat rate voice plan, although there's still quite a range between the most and least expensive services. Many other plans, if you add up the generous minute allocation, free nights and weekends, and free "mobile-to-mobile", are quasi-unlimited. Fewer than 10 percent of subscribers pay voice "overage" in a typical month. Flat rate mania is also spreading to data, with a larger number of users subscribing to a data plan that includes a large suite of services--messaging, email, Web--for a flat rate, especially with the spread of more capable devices. 

Even with these developments, I believe we are starting to outgrow today's pricing model for wireless services.  The wireless future we contemplate imagines a multiplicity of connected gadgets, with users having different devices for different contexts - personal or business, stationary or mobile, productivity or entertainment - in a typical day.  There's an interesting juxtaposition here: a growing number of capable, connected devices and innovative ways to use them, plotted against the backdrop of a mass market whose needs are more occasional and diverse, and whose discretionary budgets are tightening by the day.  

Let's step back to consider what our current pricing structure means for a typical user: a feature phone or smartphone with a decent voice plan and data service costs at least $80 per month. Adding wireless access for their laptop is another $60. Want the new Cameo digital picture frame? Tack on another $10 per month. Pretty soon, our multi-device user is spending $150 per month, which might be OK for the upper, upper end of the market but is definitely out of reach for the average consumer.  

The structure is also sub-optimal for the nearly 40 percent of U.S. wireless subscribers who are on some sort of family or group plan.  Data plans for add-on lines are not significantly discounted, nor are there particularly good options for sharing data "minutes" or "bytes." We need a more flexible pricing structure to accommodate both the next wave of growth into the consumer market, balanced against the requirements of the more casual user, if we're going to sell the Netbooks, Cameos, and other wirelessly connected devices that justify operators' spend on additional spectrum and capex. 

The first thing I would do is allow data plans to be leveraged across multiple devices. Why should a user have to choose between a Blackberry and wireless broadband service, when they need both, at different times and for different contexts? Why not offer a 1 GB price plan that can be used in a much more flexible manner? A user might carry a productivity-centric device by day, and more of a multimedia device at night and on the weekends. A portable SIM, or network-based store of information such as contacts, calendar, and bookmarks, would bridge their multiple "worlds", and keep the operator relevant in the equation. Wireless industry, welcome to cloud computing... or offering to users what they can already do with Yahoo, Google, and on-line banking: access their information from any PC.

The second thing I would do is extend the "family share" concept to data. For example, I can't justify a $60 wireless broadband subscription for each of my wife and daughter, who only need these services occasionally. What I would do is buy a USB modem that can be shared by multiple users, on a secure and password-protected basis, across multiple devices, for a reasonable price. I'm not expecting a cut-rate "unlimited" data plan--just something affordable, say $30 for a generous MB allocation, with reasonable rates for additional data "buckets" (not the data equivalent of 45¢/minute voice overage). We also need better "occasional use" plans, borrowing from the WiFi playbook, that allow per-hour/day/week connect options. This would be perfect for the periodic traveler, the family vacation, and so on. 

Third, I'd like to see reduced reliance on the subsidy model for this next wave of data-centric devices, in return for more share-able, flexible pricing structures. For all but their primary subscription, users are growing weary of the need to have to a big commitment (contract, particular device, monthly subscription) every time they want to try out a new service. The success of the Amazon Kindle, which costs $359 but does not require ongoing subscription fees, is an interesting example of a change in direction.

As a completely alternative way of thinking about this, I'd expand the discussion to include the broader communications universe, including residential telephony and home broadband. An operator would charge broad-based "connection" fee and then charge for each of the "access" devices, based on some combination bandwidth consumption and, if applicable, "programming" costs. Excluding TV for a moment, let's say you pay a base $30 monthly connection fee for fixed broadband and another $50 for wireless, per individual or household. Then, there is a per device additional charge for each end-device--VoIP phone, PC, portable wireless USB, wireless photo frame, and so on.  These charges could be a flat monthly fee per unit, or users/households would buy a "basket" of voice and data minutes/megabytes that could be shared across users and/or devices. There would generally be a premium charge for mobility because of the different economics. And conversely, devices or content that are ad-supported would cost less. Clearly there's a lot more analysis required on this approach, but I do think we need to start thinking more creatively about how we are going to strike the right balance of providing greater flexibility while ensuring we adequately monetize the traffic and devices utilizing these networks.

We see some of this pricing innovation in other segments of the consumer electronics industry. From the outset, Apple has allowed iTunes accounts to be shared across multiple PCs.  Netflix provides another great example. For no additional monthly fee, Netflix subscribers can now watch movies on their PC via the Internet, or on their TV through a number of Netflix connected devices, which range from private-label Roku devices to the Xbox 360 and certain Tivo models. The parallels here with wireless are interesting.   Netflix has leveraged its strong subscriber relationships, excellent supply chain, and vast content library and embraced the expanding distribution structure for content and proliferation of Internet connected devices. Sound like a similar challenge/opportunity?

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.