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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.