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Costs are Falling, but Prices are Falling Faster - Time for Operators to Adopt New Monetization Strategies, says Strategy Analytics

Costs are Falling, but Prices are Falling Faster - Time for Operators to Adopt New Monetization Strategies, says Strategy Analytics Image Credit: PCC Mobile Broadband

A simple supply and demand analysis summarizes the state of mobile data pricing observed in some of the more advanced markets today. With huge investments in LTE and LTE-A networks, mobile operators have created a lot more bandwidth and despite the parallel increase in the consumption of mobile data specifically rich content such as streaming video, and despite the peak hour and seasonal spikes in network traffic, mobile operators are still left with lots of unsold data. Data consumers, despite becoming increasingly dependent on mobile data when they are out and about, have also grown savvier in managing their data needs, for example, bandwidth consuming applications are not accessed until they are within a Wi-Fi range, and longer video ads are skipped straight away. Application downloads and upgrades are also postponed until they are back in a Wi-Fi zone and most users take up content bundles that charge zero or almost zero data charges.  

So while mobile operators become busier upgrading their networks for additional speed and capacity, and continue spending millions on R&D to keep abreast of the next broadband technology, in this case, 5G which is expected to see commercial launches in 2020, customers, despite becoming more data dependent, are not increasing their spending by the same quantum. According to Strategy Analytics, a provider of advisory services, consulting and market intelligence across various technology sectors, in its recent report 'Are Telecommunications Operators in Denial? ROI is at Risk and New Business Model is Needed' said that although network operators around the world have invested more than US$700 billion in infrastructure over the past ten years, revenue growth has stagnated since 2007.  

Elaborating further on the trend, Sue Rudd, Director Service Provider Analysis for the Wireless Networks and Platforms service said that new investments in LTE will result in massive reduction of total cost of operations for mobile broadband networking (by a factor of 3) but this will be massively overshadowed by the fall in data tariffs by a factor 10 from now until 2018. Consequently, revenue growth reaches a plateau and margins will continue to be squeezed, added Phil Kendal, Strategy Analytics' Executive Director Wireless Network Services. Phil added that even with carrier network virtualization and adoption of software defined networking, the cost reductions can only improve by a further 33-67% from the projected rate, still a far cry from the slashes expected is operators' data rates. 

Price wars have become quite evident around the globe in recent years. In September last year, major operators in the US slashed their mobile data prices for plans 10 GB and above by more than half. In October, Sprint, the third largest operator, expanded the price cuts to lower tier packages, providing 1GB allowance for US$20 per month for up to 10 lines, starting another fresh round of price cuts. Operators are also bundling in free content, for example, a streaming music service on their data plans. T-Mobile introduced Music Freedom last year, boasting more than 10 top streaming music channels. Music bundling is also adopted by many other operators including Magyar Telecom, Telefonica and Globe Telecom, who have all partnered with major online streaming music services such as Spotify to roll out their own data-and-content plans. 

Late last year, T-Mobile in US started offering 'data stash' on its data plans, allowing users to 'save' unused data for up to one year. Weeks later, AT&T introduced 'data rollover' which allows users to carry their ununsed data quota forward to the next month. This will reduce the top-ups required by users who need a little more data than what their quota allows, and consequently, reduces their spending on data.

With price competition bringing rates further down and revenues reaching a plateau, the way ahead for Operators is to move away from commoditization to offering differentiated products with focus on creating more customization and real-time response to customer data needs. With the breadth of product portfolios offered by mobile operators today - from shared plans to content bundles, from VoLTE to Wi-Fi calling, from Mobile Wallet to Virtual Debit Cards and from Smart Home to Connected Car services, and combined with user experience analytics and insights, mobile operators can create their own unique data and Value-Added-Services (VAS) bundles that meet the needs of target customer segments.

In fact, 2015 has been touted as the year that will see mobile operators moving from providing bytes and content to providing 'experience', which has become a highly demanded commodity among mobile data users. By tapping into this demand, mobile operators can merge customer experience needs with quantity, quality and variety to provide 'connectivity-content-and-experience' bundles that can restore the decline in ARPU and improve susbcriber spending.

Quick infographics on Mobile Operators' Revenues and Expenditures

Author

Executive Editor and Telecoms Strategist at The Fast Mode | 5G | IoT/M2M | Telecom Strategy | Mobile Service Innovations 

Tara Neal heads the strategy & editorial unit at The Fast Mode, focusing on latest technologies such as gigabit broadband, 5G, cloud-native networking, edge computing, virtualization, software-defined networking and network automation as well as broader telco segments such as IoT/M2M, CX, OTT services and network security. Tara holds a First Class Honours in BSc Accounting and Finance from The London School of Economics, UK and is a CFA charterholder from the CFA Institute, United States. Tara has over 22 years of experience in technology and business strategy, and has earlier served as project director for technology and economic development projects in various management consulting firms.

Follow Tara Neal on Twitter @taraneal11, LinkedIn @taraneal11, Facebook or email her at tara.neal@thefastmode.com.

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