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Usage-based mobile broadband pricing a touchy subject

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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."

Recently, Verizon Wireless said it most likely will offer usage-based pricing 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


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More stories about Verizon Wireless   Mobile Broadband   LTE   Dick Lynch   Ralph De La Vega   Data Traffic  

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"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." Explain how when Verizon is making on average 4 billion a quarter ON DATA ALONE that use is outpacing revenues. I have a real hard time believing that for one second. I am sorry but tiered pricing isn't about being fair, it's about making more money for their investors...period. All the telcos have limits on data now at 5GB. None of them want to talk about this fact. It isn't like someone on a cell phone is downloading 10s or 100s of GBs a month, they would be kicked off. If they cannot support their customer base, stop accepting customers until you can. They won't do that though because their investors would lose money. No one forget that: Verizon or any of the companies only care about the customer enough to keep them paying so their revenues stay up, and their stock price keeps going up.
Who said anything about being fair? I spell it out plainly: Operators are in the business of making money. Verizon may be raking in money now from data but it knows in the long-run revenues will decouple from revenues if it continues down this route.--Lynnette
Lynette, I appreciate that you are in the business of representing the interests of the carriers to some degree. However, implementing a usage based price model so a telecom can make 4b a year instead of 3.75b a year is being a glutton. Instead, Verizon should streamline their operation by getting rid of products that are not popular and instead costing more than they earn. I think, after the last 8 or 9 years the American people are sick of getting price gouged and cheated on service from the entire service industry. Change is in the wind as we have a pro-regulatory government now and this is a good thing. The FCC will enforce fairness on an industry that has gotten away with too much for too long now.
They can stick it straight up their........sses, And i thought the Big O was going after those greedy big companies(consumers)..!!! I geuss we are going to get it from both ends.
I realize that to wireless industry investors, executives and advocates like yourself, the prospect of the commoditization of wireless data is quite possibly your worst nightmare. But I don't see how it isn't inevitable. As you say, it only takes one renegade breaking ranks with the implicit cartel to upset the applecart. And Sprint/Clear is already developing a nationwide WiMax network that it seems to be determined to offer traditional all-you-can-eat 'dumb pipe' service on. And this FCC seems inclined to impose some sort of net neutrality principles on wireless ISPs. So it seems to me like the LTE net operators need to just accept that commodization is inevitable and begin building business models that will accommodate it. Otherwise, when it does inevitably happen, there's going to be a lot of pain in the industry that could have been avoided had it been planned for.
Look at the state of development of North American wireless data services compared to much of the rest of the world. The utility and variety of uses we have available on our cellular data networks is years behind what is available in other parts of the world. I attribute this to the long period of time during which the networks languished in their development due to the walled garden approaches American cellular operators took during the early days. If VZW and ATTM are again able to enforce those sorts of controls and effective per-bit prices on the market, we'll spend another decade languishing behind the rest of the world.

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