Abstract
Pricing decisions have never been more important for mobile operators. Pricing has an immediate role to play in maintaining and growing mobile voice usage and ARPU, and kick-starting much-needed new revenue from mobile data services. It can also have a major impact on the relationship between operators and their customers, and the long term effects of this on churn and price competition. However, mobile service pricing is a complex subject, complicated by the sheer diversity of services, and mobile operators face many pitfalls. Operators must attempt to extract the full revenue potential of each service while taking account of a wide variety of factors, including affordability for end-users, the unique capacity and cost limitations of cellular technology, and the ability to differentiate from competitors.
Pricing Mobile Data Services for Success defines seven golden rules for mobile pricing, as a framework for maximising overall ARPU and profitability. It shows that the emerging approach of bundled pricing adheres well to these rules and discusses how bundled pricing can be applied to deliver major benefits to mobile operators in both the short and long term. The report also evaluates flat-rate pricing, in effect an extreme form of bundled pricing, where unlimited usage of services is provided for a defined price.
Pricing Mobile Data Services for Success answers your key questions:
- How can pricing maximise ARPU and service profitability? What are the golden rules that need to be followed, and how can operators avoid the pitfalls?
- Is bundled pricing the optimum solution? How should it be implemented most effectively?
- How can bundled pricing be used to drive voice usage and the take-up of new data services?
- What are the strategic benefits of bundled pricing? How can it be used to strengthen customer relationships, to increase ARPU, reduce churn and minimise price competition over time?
- Is flat-rate pricing a step too far, or does it have a valuable, albeit limited, role?
- What actions need to be taken by mobile operators, and service management and billing system vendors to seize the opportunities in mobile services pricing?
Who should read this report:
- Mobile operators: for analysis and case studies of the optimum pricing strategies for the wide variety of existing and emerging mobile services, to gain short- and long-term advantage in the marketplace.
- Service management and billing system vendors: to understand the requirements that mobile operators will have in the short and long term for service management and billing systems to implement the best pricing strategies.
Table of Contents
Summary
1. Mobile operators face complicated decisions about service pricing
- 1.1 Pricing will play a critical part in increasing voice and data revenues
- 1.2 The pricing of mobile services is complicated by a range of factors
2. Service bundles satisfy seven golden rules of pricing for growth
- 2.1 Pricing solutions must satisfy seven golden rules to maximise the revenue from mobile services
- 2.2 As more mobile services are offered, pricing schemes will need to be easy for users to understand and for operators to implement
- 2.3 Bundled pricing will be at the heart of future mobile service pricing, while flat-rate pricing should be applied with care
3. Bundled pricing can grow voice usage and drive take-up of new data services in the short term
- 3.1 Bundled pricing can encourage mobile voice usage, in order to reduce downward pressure on ARPU
- 3.2 Bundled pricing can help to drive the usage of individual data services
- 3.3 Bundled pricing of multiple services can be highly effective in encouraging take-up of new data services
- 3.4 Given the proliferation of prepaid users in some markets, operators must develop bundled pricing solutions for them
- 3.5 Mobile operators must design bundles carefully to avoid suppressing usage or damaging profitability
4. Bundled pricing can strengthen customer relationships, with major long-term benefits for operators
- 4.1 Bundled pricing can help mobile operators to increase ARPU, reduce churn and avoid price erosion
- 4.2 Mobile operators can learn about pricing bundled services from good practice in other industries
- 4.3 Customised service bundles for individual customers could ultimately bring the greatest benefits
5. Flat-rate pricing of mobile services may be a step too far
- 5.1 Flat-rate pricing could help to increase ARPU for some services and customer segments, but has disadvantages
- 5.2 Fair-usage policies can avoid the abuse of flat-rate services, but have limitations
- 5.3 Traffic shaping may be more effective than fair-usage policies for flat-rate pricing
- 5.4 Mobile operators should confine flat-rate pricing to services that are well contained and less risky
- 5.5 For mainstream appeal, flat-rate pricing needs to be affordable, but this increases the risks
- 5.6 In the long term, flat-rate pricing may have an adverse effect on ARPU Actions
Companies discussed in this report
3 (Italy), 3 (UK), British Sky Broadcasting (UK), KDDI au (Japan), NTT DoCoMo (Japan), O2 (UK), Orange (France), PlusNet (UK), Proximus (Belgium), SFR (France), Sprint Nextel (USA), Telefonica Movistar (Spain), TIM (Italy), T-Mobile (UK), T-Mobile (USA), Virgin Mobile (USA), Vodafone (Germany), Vodafone (UK)
List of Figures and Tables
- Figure 0.1:A process for using bundles of mobile services to develop strong customer relationships and maximise ARPU
- Figure 1.1:Voice ARPU for selected Vodafone subsidiaries in Europe and Japan, June 2004- March 2006
- Figure 1.2:Factors to be considered in the pricing of mobile services
- Figure 3.1:Average monthly voice usage per user for T-Mobile (USA), first quarter 2003 to first quarter 2006
- Figure 3.2:Proportion of prepaid customers in selected countries worldwide, March 2006
- Figure 4.1:A process for using service bundles to develop strong customer relationships and maximise ARPU
- Figure 5.1:Revenue per megabyte resulting from a range of monthly fees and usage levels
- Figure 5.2:Access, interconnect and content costs of typical mobile services
- Table 2.1: Examples of pricing methods used for mobile services
- Table 2.2: Attributes of bundled pricing that enable it to satisfy the seven golden rules of mobile service pricing
- Table 3.1: Bundled voice tariffs for individuals offered by T-Mobile (USA), June 2006
- Table 3.2: Bundled voice tariffs for families offered by T-Mobile (USA), June 2006
- Table 3.3: Pricing of O2 (UK) SMS contract 'Bolt On' bundles, June 2006
- Table 3.4: Examples of multimedia service bundles offered by 3 UK, June 2006
- Table 5.1: Peak-time usage restrictions applied to PlusNet's Broadband Premier Option 1 fixed Internet access service
- Table 5.2: Vodafone (Germany) WebConnect Internet access pricing, June 2006
