Should QoS be part of mobile broadband pricing‾

Klaus von den Hoff/Arthur D. Little's TIME Practice
09 Jul 2008

Mobile operators are considering whether flat rate pricing is still the best way to meet customer expectations and stimulate the take-up of mobile broadband services.

There is no question that mobile customers appreciate the freedom to talk or be online as much as they like, but as competitive stiffens and mobile phone market penetration is already above 100% in most European countries, operators are facing a very serious issue: how to meet growing capacity requirements in the network while average revenues per user (ARPU) are constantly decreasing.

The answer may be putting network access back into the pricing equation by establishing and offering distinct network-based service classes for different customer groups.

Operators argue that the DSL model, with different pricing for different connection speeds, should apply in the mobile space - but speed alone is unlikely to be an effective differentiator. So the worst-case scenario confronting mobile operators involves a flat voice-and-data fee structure that slightly exceeds the cost of providing the services. Not a bright future for operators.

The first problem with flat rates is that they do not leave much room to differentiate on anything other than price. The second problem is that as IP traffic takes off in the mobile environment, operators will need to invest heavily in additional capacity with little or no prospect of generating additional revenues (under flat rate pricing regimes, traffic per customer will increase, but revenues barely at all).

But there might be a way out of this dilemma. Instead of guaranteeing every user the right to fight for access to the mobile network in areas of heavy demand, regardless of the price paid, we believe that the time is right to apply the principle of demand and supply.

Recent Arthur D. Little analysis shows a strong correlation between customers' price sensitivity and the available network quality. Customers of incumbent mobile network operators (MNOs) rank network quality and coverage as one of the most important features.

Having said this, high-end business customers probably would not necessarily switch their operator right away if the connection drops in the lounge at Heathrow Airport, but they eventually might be willing to pay to make sure that the drop is avoided in the future.

So how can operators overcome the commercial death spiral of increasing capital costs for the build-out of radio networks without decreasing quality of service that generates stagnant or even declining revenues‾

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