Usage-based mobile broadband pricing a touchy subject

The mere mention of usage-based mobile broadband pricing throws a lot of people into a tizzy. As such, how can operators step back from "unlimited" (well, not quite unlimited since they impose data caps) and move to metered pricing? The answer: carefully.

Last month, AT&T's Ralph de la Vega confirmed industry reports indicating about 3 percent of AT&T's smartphone users are generating about 40 percent of its data traffic. He added that the company is studying consumer mobile data usage patterns and trying to come up with ways to encourage these users to modify their usage. However, he stopped short of saying that the company will implement usage-based pricing--but did say that eventually mobile operators may need to consider it.

While he only brushed the topic of usage-based pricing, the subsequent firestorm over his comments prompted him to tell the Wall Street Journal: "We have not made any decision to implement tiered pricing [1]."

Recently, Verizon Wireless said it most likely will offer usage-based pricing [2] when it introduces commercial LTE service in markets later this year. Verizon Communications CTO Dick Lynch said this shift in the pricing paradigm comes because so many devices that will run on the LTE network will be ones that will come outside of Verizon's traditional sales channel. Verizon's 700 MHz spectrum comes with the stipulation that it allows outside devices on the LTE network.

"The problem we have today with flat-based usage is that you are trying to encourage customers to be efficient in use and applications, but you are getting some people who are bandwidth hogs using gigabytes a month and they are paying something like megabytes a month," Lynch said in an interview with the Washington Post. "That isn't long-term sustainable. Why should customers using an average amount of bandwidth be subsidizing bandwidth hogs?"

It isn't a sustainable model. When I say that, I ultimately get the email or comment that I'm on the operator's side. the reality is, operators in the 3G realm face a situation where data traffic is growing much faster than revenues. Despite the capacity improvements LTE offers, the same problem will creep up again. Operators are in the business to make money, after all.

LTE offers that opportunity to start over again in the mobile data market because operators can position the service as something significantly different from 3G networks. I suspect we'll see much experimenting and hopefully education. Lynch said Verizon will likely introduce a pricing scheme in which customers will be charged a base rate for using the network on LTE-connected devices--including tablets and appliances--but will then charge customers based on how much bandwidth they use. Charging by bandwidth, however, needs to be a transparent process. Monitoring broadband usage is certainly not like monitoring minutes of use. This type of pricing early on is what stymied the mobile data market in the first place.

I like the idea of classes of service. Enterprise users, for instance, would be willing to pay for higher bandwidth and reliability. The basic user would be willing to pay much less for lower throughput. It's a model most of us are accustomed to with our DSL operators. And vendors have a whole host of ideas on how operators can monetize the network in the application arena.

We're only at the cusp of more creative mobile broadband pricing. Still, I wonder if all operators will be on the same page when it comes to the need to change LTE pricing. It only takes one major competitor to to kick off an all-you-can-eat price war in this next technology era.--Lynnette [3]