Telcos are not overly good at pricing innovation, but it is key to data monetization. Too often, pricing strategy for fixed broadband or mobile is done in isolation. However, we are starting to see those lines blur, with mobile operators taking best-practice charging lessons from fixed broadband.
For one, 4G and 5G operators in Western European markets, including Finland and Switzerland, are borrowing a page out of fixed broadband's book with speed tiers. For 5G, Swisscom offers three tiers, 50Mbps, 100Mbps, and up to 1Gbps. It turned on its 5G services in April 2019. This charging scheme is well known in the fixed world, so it is easily transferrable to mobile. On the other hand, the Korean operators did not introduce speed tiers for 5G. Rather, SK Telecom added 5G-enabled differentiators – VR, AR, and UHD video – to already plump plans with oodles of differentiation around key drivers such as content. In short, we do not see 5G as a catalyst for all operators to launch speed-tier plans. Only some will.
As a second example, Nextel in Brazil is letting mobile users pick and choose what video services they want in a mobile bundle. This is reminiscent of broadband/integrated operators giving consumers more flexibility in their pay-TV choices (e.g., skinny bundles). Nextel has gone one step further in its innovation. A postpaid consumer gets points equivalent to their monthly spend (so 20 points for $20). The points can then be used in the My Nextel app store to choose services (points cannot be accumulated). Consumers will be pushed preset applications should they not use their points. The results are quite staggering: churn (outgoing) is 40% lower than for those not on the new plans, and ARPU is 19% higher.
Mobile operators can spend a lot on buying premium content rights (e.g., sports) and third-party over-the-top (OTT) content (e.g., Netflix). But one of the most asked questions from telcos to Ovum's consumer pricing team is "What value do we get?" from this financial investment. Anecdotally, we know mobile-services bundling is about differentiation: in your home market, you are most likely to know who bundles Netflix, local sport, or Apple Music. And your kids can tell you too.
Ovum's survey of consumers in six countries late last year supports Nextel's early demonstration of KPI success: a telco bundling relevant premium media services can potentially improve churn and ARPU. Our survey of those with a mobile bundle found that 36% of consumers were less likely to churn because the premium media service offered value (see Figure 1). A further 20% of respondents mentioned spending more on their mobile service to attain the bundle they wanted.
Figure 1: Choose all options related to the bundling of your premium mobile media service
Operators need to use 5G as a launchpad to something new – and attach a premium to it. Operators should step back from their current price plans, reassess how many plans they have (Swisscom now only offers three main mobile plans), what differentiators have become redundant (e.g., are mobile hotspot limits necessary with an empty 5G network?), and what 5G-enabled digital services to add. It's the latter that has the industry most in a bind. To put it simply, premium content and OTT video services as a differentiator are relevant today, and that will not change with 5G. As for new 5G-enabled differentiators, so far only one operator, SK Telecom, has launched 5G plans with AR, VR, and 4K+ content.
The industry has a long way to go to prove itself as a tariff innovator. It may help to look to fixed broadband peers for inspiration.
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