The zero rated data connection is happening faster than expected. The first wave of zero rated data took place when Mobile Network Operators (MNOs) provided ‘free’ connection to their selected sites, namely their content stores and service portals, where bytes consumed to browse the content and to conduct transactions were excluded from the users’ monthly data charges. The logic to this is obvious. Free connection is necessary to boost user visits and enhance online customer engagement at selected sites. The content stores offer premium, payable content whose take-up increases with more time spent browsing the store, while service portals save the MNO the costs of managing customer transactions and attending to their requests and issues while at the same time, offering an efficient channel to upsell the MNO's services.
The zero rated data then started showing up on more innovative data plans that grew in tandem with the popularity of social networking sites, such as Twitter and Facebook. MNOs began offering packages that gave away free quota on these applications in their bid to capture and increase their market share. In this phase, MNOs collaborated with application and content providers to facilitate the delivery of the zero rated content (for example, sharing the information of the originating content servers) and in some cases, to host the content delivery network within the MNOs’ data centres, which proved to benefit the MNOs significantly in terms of reducing their internet connection costs. The application providers enjoyed increased traffic and usage of their applications while MNOs retained and expanded their subscriber base, especially among the digital natives and those who are becoming increasingly dependent on mobile data and social media networks.
The second wave of sponsored data
AT&T’s recent launch of its sponsored data marks the start of the second wave of zero rated data schemes, which sees the application and content providers sharing the connection charges, doing away with the double charging that accrues to users who pay for both the application service as well as data charges when they access the content providers’ sites. Under this scheme, content providers pay the MNOs usage-based fee which covers the MNOs’ bandwidth costs, enabling MNOs to offer their subscribers free or subsidized access to these selected sites. Users will therefore be paying only applicable service charges for the use of the content providers’ services, for example, viewing and downloading of videos, while incurring zero or minimal connection charges.
This second wave is expected to gradually change the existing pricing and bundling of mobile data packages as more content/application providers opt to subsidize the connection charges. For MNOs, this will mark a transition in their revenue models, where revenues will now be sourced from major content and application providers via strategic partnerships, rather than from the pockets of their subscribers. MNOs are expected to court enterprises providing these services to form partnerships that will enable their subscribers to access the best-in-class content on zero or highly subsidized data rates while the MNOs receive corresponding reimbursements for the traffic they direct to these sites. The enterprise segment within the MNOs will be seeing increased activity with deals signed not only between content/application providers, but also with enterprises which are willing to subsidize their targeted users, comprising of their clients and employees, on the data charges incurred while using their online products/services.
MNOs will play a bigger role in influencing subscribers's content choices
Another major implication will be the increased influence MNOs now exert on the content choices made by their subscribers. The strategic partnerships entered by the MNOs will determine the kind of content that their subscribers pay zero data charges on, creating a ready incentive for their subscribers to sign on to these select services. MNOs will thus have a bigger hand in forming their subscribers’ virtual ecosystems (discussed in an earlier article on ‘Mobile Operators and Digital Services: How Big Data Perfects the Equation’). In addition, as sponsored content will automatically be promoted on data plans/bundles, new entrants in the content and application market can now sign up with MNOs to subsidize the data charges incurred by their users as means to promote their new sites/content/services in the marketplace.
With their ability to offer zero rated or subsidized data rates to their subscribers, MNOs will see a significant increase in their ability to influence the popularity of selected web content and applications, especially mobile-based content. However, within the MNO pool, there will be stiff competition to sign up the biggest brands in the content and application segment, and to procure the best subsidy rates and content packages. The volume game is expected to accord MNOs with a larger subscriber base an added advantage in negotiating better terms, though to receive better rates, MNOs will need to bring in the numbers expected by the content/application providers.
MNOs will be looking at this new strategy with great interest, especially with the expected decline in the mobile data rates and as the MNOs’ focus shifts to newer sources of revenue, especially in the digital services segment. With the widespread presence of high quality data connection such as 4G LTE and the proliferation of mobile content, the move to zero rated data will definitely spice up the MNOs’ story for the rest of 2014.