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.

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