A New Approach to Pricing Mobile

Bcg perspectives realise how subscribers' thirst for data seemingly insatiable, these should be heady times for mobile network operators. Spurred by smartphones, 4G networks, and bandwidth-intensive applications like video, global mobile data traffic grew 81% in 2013, according to Cisco’s Visual Networking Index. And no slowdown is in sight: by 2018, traffic is expected to be nearly eleven times greater than in 2013. Yet many telcos are experiencing flat, and even declining, revenues.

Forward-thinking providers have gotten the message: pricing should be centred around data. This lets them monetize the extraordinary growth in that traffic and, crucially, make the economics of the business work. The growth in data requires huge investments in network capacity—investments that can pay off only when revenues are aligned with usage. BCG estimates that this new approach—called “pathways conjoint”—can boost margins for the same target of gross adds by up to 10 percent over traditional conjoint-based pricing. This is growth that would otherwise be left on the table. And it can be obtained far more easily and quickly than providers might expect.

• Building a better plan
  Before telcos can employ pathways conjoint, they need, as always, to develop the general contours of their mobile plans—parameters that BCG’s approach will then help them refine. Although there is no perfect template for creating a modern, data-centred mobile plan, BCG has identified an essential group of practices that provide a solid starting point.
• Implement more data tiers at a stable price per megabyte 
  Mobile operators have largely moved from unlimited data plans to tiered data buckets—a sound policy that allows them to provide similar value to customers at less risk to themselves. But often pricing hasn’t been linear: larger buckets tend to cost far less per megabyte than smaller buckets. That gives users an incentive to buy more than they need—a nice model for the moment, but one that could prove unprofitable as usage goes up.
• Embrace multi-device and multi-user plans with shared data
  With the growth of smartphones and tablets, households and individuals possess more devices than ever. Telcos can take advantage of this trend by moving beyond traditional one-SIM-card contracts and letting multiple devices share one bundle of data. This will bring a number of important benefits. (See image above). For one thing, it will allow providers to price data higher than for a standard one-SIM-card plan, as customers can still realize savings over the multiple individual plans that they would otherwise need. Higher data prices, in turn, allow telcos to offer additional SIM cards at low cost—an incentive for customers to add more devices and more shared data as well.
• Take a fresh look at subsidies 
  Smartphone subsidies tend to be far more costly than those for more basic phones (in Europe, they typically run €100 to €200 more per handset). And they can be risky. Given the off-network uses of smartphones, telcos can end up footing the bill for an expensive gadget if they don’t carefully design their plans. Yet there is good reason to keep these subsidies. They make plans more attractive to customers who want the latest phones.
• Set a fixed ARPU for voice and text 
  The impact of OTT players on traditional voice and text volumes isn’t likely to subside. Indeed, Juniper Research estimates that, by 2018, OTT services like WhatsApp are expected to control 75 percent of all mobile messaging traffic. In light of this trend, providers might consider offering flat-rate, unlimited-use voice and text for all but their low-end packages. By doing so, they can protect their business model from drop-offs in usage. Yet here, too, operators should proceed carefully. Some may find that there is still some value in voice allowances.

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