A Strategis Group study forecasts that location-based services will be a $4 billion market by 2004, while an Ovum report suggests that the global wireless gaming market will be worth the same by 2006. A Gartner report estimates that messaging will account for 48 percent of wireless data revenue in 2005. But if providers do not package services attractively, how will adoption rates, particularly in the United States, grow enough to meet these numbers?
"There is no question that mobile data will be successful," says Ken Dulaney, vice president of mobile computing at Gartner. "It's just how soon do we want to get there?"
James Morehead, Portal Software's director of wireless market development, urges carriers to rethink the subscription model. If he could convey one sentiment to wireless providers trying to tap the content and data delivery space, it would be: "Don't make customers subscribe."
Drawing a comparison to wireline subscriptions, Morehead cites Bell Canada's launch of Busy Call Return, a feature that monitors a busy line and informs the customer when the line is free. Bell Canada sought to charge a monthly $3 subscription fee for the service. Under this pricing structure the service launch was a complete failure, according to Morehead. Yet when Bell Canada relaunched the service without the subscription fee and charged per use, many more people used the service and often spent more than $3 a month to do so.
Morehead says this is just one example of how subscription fees are a barrier to entry for uptake of new services. He adds that this is where most service providers have to be keyed in to the psychology of billing-what the customer will and won't pay for, which pricing structures work for which services, and which ones don't. Today the Busy Call Return service is still offered at 95 cents per use with a maximum charge of $8 per month, or for a higher-than-original subscription fee of $5 per month.
Dulaney says subscriptions are nothing more than "nuisance fees" through which providers are charging customers just for the "privilege" of using wireless data applications. He believes operators should focus instead on getting customers to experiment with the services before asking them to commit to services they do not yet fully understand. "We see action after action [by providers] really cutting off experimentation," Dulaney says. "In a market that's not well-established, you must encourage experimentation."
He adds that the measure of success that Wall Street inflicts on operators-average revenue per user (ARPU)-is causing providers to look for ways to raise the average income per user, rather than making viable rate plans that might entail lower revenue per user but would actually encourage more volume of usage and more revenue across the subscriber base. "[Operators] don't get it," he says. "They don't know how to build a market." Dulaney points to the wireless local area network (WLAN) market as an example of effective pricing, where wireless ISPs would love to charge a monthly subscription fee, but they realize that they must also sell access by the day or hour to entice users to sign on for limited usage.
Carlo Cassisa, director of business development for Telia Mobile's Homerun WLAN service, commented recently at an 802.11 conference about Telia's year-old entry into the WLAN market, offering more than 460 hot spots in Scandinavia. Noting the price plans for the service, he said Telia's analysis has proven that the 24-hour plan offers a favorable outcome for the operator, because users will not typically use the full 24 hours-they will hop onto the WLAN and hop off, sometimes to the tune of $3.60 per minute, as opposed to the 50 cents per hour they would pay if they were logged on for the entire 24-hour period. In the case of Telia's Homerun service, the provider is actually making more profit for usage of its network capacity off some of its smaller, per-use plans. This demonstrates the wireless service mantra: people will pay more-often much more-if they have an immediate need for a service. The role of the wireless operator is to make an effective business case on this point and try to capitalize on the needs and habits of the consumer.
Yet Dulaney believes U.S. providers are being greedy: instead of just charging per megabyte or per transaction, on top of these usage fees they want to add the cost of a subscription merely to access these services. "People are just getting nickeled and dimed," he says. "[Providers] are trying to pump up their ARPU numbers."
And providers are just now getting smart and starting to explain to customers what a megabyte of usage means in practice (see "The Wireless Classroom: Consumer Ed 101" ).
Choosing a Business Model
Dulaney believes consumers-not mobile business users-will determine the success of the mobile data market. He cites Korea, noted for having the highest uptake of mobile data usage. Average revenue per user there is said to be $3 to $3.50 per user-a lot lower than might be thought of in such a successful wireless data market. Clearly, volume is the issue in mobile data, not ARPU.
Amdocs' Darren McKinney, director of product marketing, on the other hand, believes the subscription model will not go away. Some services are best suited for subscription-based pricing, he says, while others are not. Some customers may consider being charged per event as a barrier to entry for a certain service, he says. Price plans that charge per event could be difficult to understand or could vary greatly by transaction or service, so much so that customers hold back.
Convergys' Rick Findlay, director of wireless industry solutions, also believes pricing will ultimately depend on the service. For example, gaming should be charged by duration, while video postcards should be charged per transaction, he says. However, flat-rate pricing plans offer customers predictability: It is easy to budget for them, they are easy to understand and they make cost control simple. Further, U.S. consumers are accustomed to subscriptions.
For providers, subscription-based pricing translates into predictability for cash flow, with few or no additional billing or mediation requirements. Yet billing and mediation are core to driving value in 2.5G and 3G networks, Findlay says. He believes many legacy systems are constraining the movement away from subscription-based pricing. Measuring volume becomes a mediation concern. "If you can't collect and understand it, you can't rate it," Findlay states about mediation, which he considers the biggest bottleneck for wireless data charging. He believes providers must bolt on systems over their traditional billing mechanisms to bill for new services.
However, Findlay also notes that in a subscription model an operator becomes little more than a pipe provider: "Turn on the spigot and out comes the content," he says. For higher value content, a content provider might demand more compensation. This is where the subscription model breaks down; the content provider in a sense is locked out. Wireless operators cannot fully recapture the true value of the services offered, and hence they miss out on incremental revenue that could be realized through unique and value-based pricing. Findlay states, "Operators will hinder revenue potential by going on a subscription basis."
Many providers are charging for wireless data to make money today, but Findlay says they should be thinking more long-term to get customers signed on to services now to ensure revenue into the future. As an example, he points to Telecom Italia Mobile, which launched multimedia messaging services (MMS) in May and allowed free usage until September.
While an operator may offer four or five different pricing plans for SMS or MMS, a basic plan should at least include per message charging with no subscription fee. Findlay believes people feel more in control when charged per message.
Some U.S. operators are selling flavors of free access. AT&T Wireless, for example, offers free received SMS and instant messages, while charging 10 cents per message sent. T-Mobile (formerly Voicestream) offers 50 free incoming SMS messages per month as part of all of its plans to encourage experimentation and return messaging. Both also offer a monthly flat rate for a higher volume. AT&T, T-Mobile and Cingular each charge a subscription fee for wireless data, in addition to usage fees.
In Canada, Telus Mobility offers SMS with no subscription. Instead, it charges per message, encourages limited free Web surfing for all its customers, and charges per use for gaming or directory usage (see "Free Wireless Data Access: A Winning Business Proposition," Billing World and OSS Today, June 2002, page 60).
While wireless operators continue to build their next-generation networks and determine which services can best offer a return on their technology investments, they continue to be ahead behind of the game in pricing and packaging their services. Many industry experts agree that wireless providers have yet to fully find the pricing niche for data services, especially in the United States. For wireless data subscriptions, however, the advice of Gartner's Dulaney is simple: "Drop the stupid fee!"
| The Wireless Classroom: Consumer Ed 101 By Hanna Hurley Although consumer education has never been a core strength among telecoms, wireless carriers are now explaining the difference between megabytes and kilobytes to the masses. “Americans like minutes per use. They are used to the rating plan, and they can understand minutes. Once you get into packets there is a disconnect,” says Garner Bornstein, CEO at Airborne. “Carriers will have to be creative in how they package packets per use so that subscribers will know how much the services will cost them.” AT&T Wireless and Cingular have already launched edification campaigns aimed at preventing subscriber outrage when the new sign-ups incur excess usage fees. To help subscribers translate a page view or site search to kilobytes, Cingular provides a conversion table. A stock look-up equals 6 kilobytes, while getting travel directions rounds up to 10 kilobytes. At AT&T Wireless, subscribers can take a usage profiling quiz about their email, SMS and Web surfing habits. After answering questions about how often they send a text message, visit Web sites and receive email, the survey application determines approximate usage and advises the best rate plan to keep the subscriber from accruing usage fees. On the same path, Verizon Wireless offers a similar bundled-service-plus-usage plan to it subscribers. But rather than explain bytes, Verizon charges by alert, and then defines the vague term as an event notification. Telus chose to avoid potential confusion by eliminating usage fees in its packages. “We offer no airtime charges. Our philosophy is that charging by minute or packets is not incremental revenue,” says Darcy McNeill, the company’s manager of business development and strategic alliances. “We don’t want subscribers to scale back on voice minutes because they are increasing their data packets.” |
