Is usage-based pricing inevitable? Page 2

Previous page

According to Kretchmer, such upgrades involve installing new software and transferring data models and subscriber information into a new system. Then, carriers must integrate the new system into existing back office systems such as customer management and financial management. Finally, the new system must be linked to the core network, so it is aware of how subscribers are using mobile data.

Installing such a system may take roughly four to six months, depending on how many subscribers a carrier has on its network.

Dynamic subscriber engagement

Aside from installing new billing systems, the real issue is what carriers will do with them. "Integrating business analytics with the billing environment is important in order to be able to segment the subscriber base and then offer the right packages to the right subscribers at the right time," Kretchmer said.

And there are a variety of options available to carriers.

Convergys' Hanlon said tiered pricing--small, medium, large and extra large--based on different data usage thresholds could be one solution. And Kretchmer said carriers could go a step further by dynamically engaging with subscribers via usage notifications. Carriers could then analyze the usage patterns of mobile data subscribers and offer tailored and personalized pricing plans that fit their needs--and charge accordingly.

"I think the issue here with mobile data is that subscribers have less intuition and less gut feeling into their consumption levels when it comes to data," Kretchmer said, adding that, "this is where real-time charging capabilities are so crucial in the sense of the customer experience. Customers are in risk of bill shock."

Declan Lonergan, an analyst at the Yankee Group, said this "dynamic" approach would need to factor in elements including a user's physical location, the level of network congestion and the type of application running. He acknowledged that doing so would likely instigate fierce opposition from net neutrality proponents who do not think carriers should modify the network experience for different use cases.

But he likened it to the airline industry, where travelers pay based on real-time demand and the type of accommodations they want.

Looking at the situation from the carriers' perspective provides some clarity, said Akil Chomoko, product marketing manager for Volubill, which offers charging, control and policy services to telecom and Internet providers. "If I change the way my network manages my subscriber usage, I can increase revenue, keep valued customers and reduce capex spend."

A business decision

When and if carriers decide to implement usage-based pricing is still up for debate. However, most agree it is a necessary evil.

Frank Dickson Instat"To go to a usage-based model is conceptually very good. And I can see the need to do it," said Frank Dickson, an analyst at In-Stat. "But you can't do it in a vacuum."

Dickson believes that Verizon may have the wherewithal to launch usage-based pricing when it rolls out LTE--but the carrier will have to remain flexible.

"If there's some resistance from customers on usage-based plans for LTE, Verizon is going to change," he said. "Verizon has got to monetize that spectrum. They've got to."

Joel Espelien, chief business officer at PacketVideo, said it will be very difficult for carriers to explain to subscribers why they should switch from all-you-can-eat plans to usage-based pricing. People have gotten used to flat-rate plans, he said, and don't want to give it up. Indeed, Espelien is deep into the issue: PacketVideo offers technology to more efficiently stream video over wireless networks.

Others are convinced it's simply a matter of properly advertising the new pricing structure to users--though that is no small task. "I won't deny it's a very difficult communication and marketing challenge for the carriers," Hanlon said.

Lonergan agreed that tiered pricing would be a tough sell with users, but described it as "a one-off challenge the industry has to take on." He said the only way it will work is if carriers' marketing departments are tightly aligned with users' usage patterns and preferences. "You've got to have that end-to-end solution," he said. "But it's not rocket science to do that."

Carriers have the tools to make usage-based pricing a reality, and it appears there is enthusiasm for the idea. Ultimately, though, operators will have to decide if usage-based pricing makes sense for them from a business perspective.

"This is more a matter of realizing this is a business challenge here," Kretchmer said. "And something needs to happen."

Previous page

Suggested Articles

The CBRS Alliance announced the completion of specifications that support specific OnGo configurations for 5G New Radio (5G NR).

Evenstar will focus on building general-purpose RAN reference designs for 4G and 5G networks.

Nokia is supporting over 160 virtual network functions across Rakuten Mobile’s two main data centers as part of a managed services deal.