Wednesday, May 30, 2012

Rethinking Flat Rate Pricing for Broadband Services

The telecommunications industry is facing a fundamental issue: on the one hand, increasing requirements for new investments in broadband Internet access and transport infrastructures that support continuous growth in broadband traffic; and on the other hand, reduced ability to exercise pricing power with customers and, thus, increase revenues.
Meanwhile, traditional voice and messaging revenues have strongly declined due to commoditization, and this trend is expected to continue. Therefore, operators are now relegated to connectivity products. The value that operators once derived from providing value-added services is migrating to players that deliver services, applications, and content over their network pipes.
If this is not enough, Internet access prices are dropping, sales volumes are declining, and markets are shrinking. The culprit: flat rate “all-you-can-eat” pricing. Such a model lacks stability—sending service provider pricing into a downward spiral—because it ignores growth potential and shifts the competition’s focus from quality and service differentiation to price.
Now is the time for the telecom industry to consider innovative pricing models for broadband services to enable a better match between the price customers pay and the value they derive from services. Successful pricing strategies will be essential to directly managing profitability for both fixed and mobile broadband operators.

Download the paper

Friday, May 11, 2012

Observations from CTIA Wireless 2012

I am just back from New Orleans where I was attending the CTIA Wireless 2012 conference and speaking on the Mobile Cloud panel.  The conference has a different feel than Mobile World Congress, with obviously more of an American perspective on what is happening in the mobile industry.  While many of the things that I observed at MWC in Barcelona were equally applicable in CTIA, I also observed a number of different items, or different slants on previous observations, in New Orleans.
The following are my personal observations and extrapolations from the show based on my conversations with operators, customer meetings, colleagues and walking the floor.  I thought that you might find it of interest? 

1. Three Little Words – “More Spectrum….Please” – It seemed that these were the first words out of every mobile executive’s mouth when they got on the stage.  They all made passionate pleas for why they needed more spectrum to be able to meet the huge customer demand and to continue to add value to the economy.  The FCC Chairman, Julius Genachowski, rebutted with a “yes but….” response.  The FCC will make more spectrum available but he wants to encourage competition and the use of technology and business practices to get the most out of the existing spectrum and any new space that becomes available.
2. Follow Me, I’m The Leader – The U.S. wireless industry, once the world leader in innovation and customer demand lost that position over the last decade as it battled amongst itself on competing 3G technologies.  With the early adoption of LTE, the American industry feels that it has regained its mobile hegemony.  The U.S. now has 105% penetration and 64% of all LTE subscribers.  Not to mention that innovation in mobile has shifted back to the U.S., with the likes of industry shaping giants like Apple, Google and Facebook calling the U.S. home.
3. Beyond the Mobile Operator – Unlike MWC, the CTIA show floor had a very healthy representation from all parts of the mobile ecosystem.  From device accessories, to back-up power solutions, to applications, to CNBC broadcasting live, and many things that I couldn’t understand, there were all there on the show floor.  It makes you realize just how big this industry is and how innovation across all parts of the value chain have fueled this phenomenon.
4. Is this an Election Year? – Listening to the mobile executives gush about their contribution to economic growth and the jobs that they have created you would think that they were on the November ballot.  According to CTIA the U.S. wireless industry invested $25 billion in Capex last year, and now has 283,000 cell sites across the country, up 12% from 2011.  More spectrum and approval on current deals (e.g., Verizon and Comcast) and future deals (TMobile-Metro PCS? or AT&T-Leap?) are crucial to the strategies of incumbent operators.  So, I expect industry lobbying to be elevated to election class levels.
5. Is the Wireless Bubble About to Pop? - The challenge from OTTs and their threat to relegate mobile operators to “dumb pipes” like their wireline cousins, continues to be the number one topic of conversation.  Increasingly, however, it seems that people are getting more concerned that if the economic model isn’t fixed, with more of a equitable arrangement between content provider and mobile carrier, then the wireless bubble may pop.  Mobile operators will slow down further investment, higher data charges will drive more users to Wi-Fi, and heavy users and bandwidth hungry applications will threaten the experience for all of us.  It is still unclear how market forces or legislative approaches are going to stop the party from ending.
6. The Wireless Mosaic – Not too long ago one would never have heard mention of alternatives to macro-cellular at CTIA, such as Wi-Fi or small cells.  These terms would never have passed the lips of executives and you would have had to wander to the far corners of the show floor, next to the massaging chairs, to find lonely vendors of these technologies. Today, the world of macro-cellular seems to be coming to an end and everyone is talking of heterogeneous networks that integrate these new access methods for better coverage and customer experience.  And, those lonely vendors are now in the middle of the floor and often found in the booths of the big vendors.
7. Beyond LTE … What’s a “4” Amongst Friends?There was lots of banter amongst executives about the true definition of 4G and how creative marketing in the industry has confused the customer.  While MWC was all about embracing the arrival of LTE, with 64% of global LTE subscribers American carriers are declaring LTE hegemony and looking beyond their technical success to how they can drive true business value from LTE.
8. Is that a Phone in Your Wallet? – Technology and industry pundits continue to be perplexed as to why customers continue to want to carry around a wallet of cards and cash when they can fulfill all their payment needs with their mobile phones.  Once the domain of a number of innovative start-ups, the established players, such the 3 major card companies and the big banks, are making big bets on pushing the adoption to mobile payments.  Given the continued fragmentation, complexity and questionable customer value in many of these schemes I wouldn’t throw away my wallet just yet?
9. There Must be Life Out There Somewhere? – Mobile operators continue to search for the next thing that is going to augment declining revenues and avoid them becoming “dumb pipes”.  AT&T announced their new Digital Life home security offer, and there were many demonstrations and discussions around M2M and enterprise solutions as the new next thing.  And of course mobile cloud.  Judging by executive mentions, vendor demos and the packed room and lively discussion in my panel discussion, the industry definitely are looking to the promise of mobile cloud.  
10. Trust Me … I’m a Mobile Operator – According to a recent study from the Reputation Institute, the reputation of the wireless industry has dropped to the lowest of any major industry; even below banks and cable operators.  The Sprint CEO, Dan Hesse, made a passionate plea for the industry to address issues of customer trust, in order to best position the industry for future growth.  With mobile becoming central to people’s lives, trust, common privacy practices and an industry standard platform will be critical to the long term viability of the entire ecosystem.