Thursday, May 27, 2010

Wireless Data Pricing: Making the Complicated, Uncomplicated

As wireless data becomes more popular, there are two issues that collide, consumer’s expectation of unlimited broadband and scarcity of wireless capacity which requires it to be rationed in some degree. That rationing mechanism is price and speed controls on the network. The current wireless carriers want to entice people to use broadband services but they also want to ensure that they do not lose money or create a bad customer experience by over utilization of the network. Carriers have a dilemma: they have to create caps to guard against over use and non profitable customers yet they still want customers to use data services and see the value of data services. Part of the value that carriers can bring to customers is the feeling of unlimited service. So what options are open to carriers?

Create data caps on data usage with some type of event when the limit is reached

These are the options available for this solution:

Charging high overage charges when the cap is exceeded: This is not a good solution because it annoys the customer, makes them feel taken advantage of, and it inhibits usage of demanded service because of the uncertainty of a per MB rate.

Slowing down the bandwidth in areas of congestion after a cap has been reached: When the customer goes over the cap, and is in an area of high bandwidth congestion, the data speed to the devices drops to levels that will allow quality for some services like email and messaging but make higher speed services like video and web browsing less attractive. This is a workable solution but not ideal. It will be annoying to the 3% of people that typically go over the cap. In addition, it leaves the carrier who tries this first in a weak marketing position when most of the marketing around 3G and 4G services are about fast speeds.

Over usage protection with Rollover: This is in effect a prepaid service layered on top of a postpaid service which allows the customer over usage protection for going over their cap. The service allows a customer to pay for additional amounts of data for the typical monthly price. They can use this extra bandwidth in any month they want, and until the contract expires. This gives customers a fair deal on overage, a reason for staying with the carrier, and continued use of services that they desire.

Paying for content or services and including the bandwidth charge inside the total charge

This is already being done with tablet devices like the Kindle and iPad for books, and has been done in the past with downloads of ringtones and games. This can also be done with TV shows, and movies.

Video is clearly the big bandwidth consumer and with 4G there is likely to be more streaming video solutions as per my prior blog posting, “Everywhere Cam” on May 6th. Yes, Skype can do this but it is not ideal for live action. There is an opportunity for a value added service that offers high quality video from a phone to a number of viewing platforms including the PC, TV and tablet. The added benefit is that this video can be stored in the cloud for replay later. This service can be offered in a prepaid construct where a user gets an hour of high quality video for $5 to $10. This video can be used for as long as the customer has a data plan. This service has to be easy to set up and use, and to communicate to the customer. This video service offers the customer convenience, flexibility, and value of transmission and storage.

Incentivize data users to use WiFi and Femtocells

WiFi and Femtocells are two good methods of pulling traffic off of the main network and providing a fast and reliable experience. Carriers also have the opportunity to incentivize data users to use WiFi and Femtocells by adding data to a customer’s overdraft protection, providing free content, free voice minutes, high quality video feeds, and award’s points. In addition the carrier can offer targeted advertising from the various WiFi and Femtocell areas to increase revenue or defer costs. The more traffic that is pulled off the network the less traffic is on the 3G and 4G networks.

Summary: Use different methods to provide fairness and value to the customer

Data pricing can be complicated because of the need to provide safeguards against over usage of the network. In addition, video will put further stress on the wireless network. The main problems is rationing usage and still providing high value to the customer. Creating billing systems that allow for both postpaid and prepaid billing along with easy to understand consumer interfaces can do a lot to bridge this gap, allowing for a satisfied customer and profitable carriers. In addition, creating unique services that the customer will value can allow for data charges to be bundled with content.

Thursday, May 13, 2010

Prepaid equals Wireless Affordability

Prepaid is where the market growth is in the US market. Major prepaid carriers: Metro PCS, Sprint, Leap, and Tracfone added a total of 2.5 million subscribers in the first quarter of 2010. Major post-paid players Verizon, AT&T, Sprint and T-Mobile added about 240,000 postpaid subscribers or about 10% of the 4 major prepaid carriers. There are a number of reasons for this including: the bad economy and people’s desire to watch their spending, but the main reason is that prepaid is very affordable to the average user. The two most cost effective plans that stick out are:

• Virgin Mobile’s (Sprint) Plan of all you can text and use data, with 300 minutes of voice for $25 a month

• Tracfone’s Straight Talk plan of 1000 minutes, 1000 texts and 30 MB of data for $30 a month

In addition, if unlimited voice and text is desired it can be obtained for $45 a month or less.

Business Changes with Prepaid

Prepaid has also lead to a number of business changes in the market:

• Put more competitive pressure on voice prices and voice margins for all carriers. (More minutes used and less ARPU for those minutes)

• Changed where the value customer is going. (T-Mobile owned this space and they lost 77,000 subscribers in 1Q)

• Created a less subsidized model for phones (Virgin Mobile offers the Blackberry Curve for $300)

• Delivered stronger branding for prepaid (Helps bring in customers and lowers churn)

Where does prepaid go from here?

The wireless services market in the US is effectively splitting into two main parts: the high-middle end represented by smart phones and high data use; and middle-low end represented by typical voice and text devices, family plans and prepaid. Prepaid has become and will remain a strong option for certain segments of the middle to low end of the market including single people, people who want to add a second cellular phone line, people who are concerned about their budget, economically challenged people, and youth who want their own cell phone and plan.

There is likely to be some consolidation in the prepaid business as it a high volume, lower margin than postpaid, high churn business where operating efficiencies are paramount to a successful business. The company that is able to create the strongest brands and the best operating efficiencies in this market will be the winner.

Some market disruption is likely to occur in the high to middle end of the wireless services market when smart phone prices come down and prepaid players are able to offer unsubsidized Android phones or other desirable smart phones for under $200. The prepaid carriers will also have to recalibrate their data charges based on the typical data usage of a smart phone, but the data prices are likely to be less than the overall postpaid data deal. What creates opportunity in this segment is that nobody likes to pay $80 a month or more for a service plan with a high end smart phone ($40 for voice, $30 for data, and $10 for text). Another factor that will boost this market is when children start asking for smart phones in droves. When children want goods, their parents look for affordability, and affordability can be found in prepaid.

Thursday, May 6, 2010

Everywhere Cam

There are currently instances of everywhere video. Video shots from security cameras around Times Square during the most recent terrorist attack, police cars videoing chase and arrest scenes, schools using web cams to find missing laptops. But the next step toward everywhere video is smart phones and 4G networks. The most recent example is the HTC EVO 4G phone from Sprint and the prototype iPhone that was shown by These devices have cameras on both sides of the phone to allow for personal video conferencing. Personal video conferencing has a long history in telecom and has not really been a popular application. But that does not mean that putting cameras in different places will not change the way our lives are viewed or exhibited.

A couple of examples come to mind:

Live Streaming Video:

The Flip camera is a popular device that is offered by Cisco and it is popular for its ease of use and good picture quality. It allows a person to basically point and click a video and just plug it in the PC to upload. Every 3G and 4G phone with video capability can be a Flip camera that shows live video. People that are not able to attend a live event like a kid’s baseball game can watch it on the computer or TV and can make comments back to the video camera holder or other people watching the event.

The Life Cam:

A camera wired to a battery pack can be strapped to someone’s head or put on a hat or helmet so that another people can observe what the camera wearer is seeing. The observers may also be able provide comments to the camera wearer about their behavior. This could apply to someone under house arrest, and the behavior of a famous NFL quarterback comes to mind. The intrusion into someone’s life by installing this on them with directions being given using a microphone would be a strong punishment and a possible deterrent to poor behavior. Of course this can be used in a positive way if someone wants to draw attention to themselves.

The Worker Cam:

Currently businesses can track employees using the location of their cell phones but they could also take videos or pictures using a smart phone camera. Having a camera on both sides of the phone can give a 360 degree video of what an employee is doing. Of course this will not work at all times as the phone can be in the employee’s pocket, but the employer can call the employee so they take the phone out of their pocket.

Emergency Cam:

Remote cameras can be quickly installed or deployed to record events, like people following or stalking other people in cars, in law enforcement stake out areas where movement of people needs to be monitored, and there is limited man power or it is too dangerous to maintain a position where the camera is located.

Implications of the Everywhere Cam

As the number of people with phone video cameras increases: more of people’s life will be on display especially famous people, more memory will be needed to store videos on devices and in the cloud, greater network capacity and backhaul will be needed to stream video, data pricing plans will need to be more flexible to account for video usage, and our expectation of privacy will become challenged and may have to change.

The camera phone created a change where at any time a picture could be taken. Pictures are worth a thousand words. A video phone allows a person to take a video or in some cases be watched at any time. Videos are recordings of people’s actions. People are determined by their actions. With video phones and 4G remote cams there will be more judgments of people’s actions.