Can Tiered Data Pricing Win Over Flat-Rate Freedom? – Mobile World Live

Can Tiered Data Pricing Win Over Flat-Rate Freedom?

22 OCT 2009

Mobile operators will probably need to adopt tiered data pricing, with tariffs varying according to volume limits or throughput speeds, if they are going to grow their revenues long-term, according to a presentation by Morgan Stanley analyst Mary Meeker to the Web 2.0 Summit in San Francisco this week.

Citing a 50-fold increase in mobile data traffic on AT&T’s network in the past three years and forecasts that the number of “heavy mobile data users” world-wide is set to triple to more than one billion by 2013, Ms. Meeker believes operators’ networks are going to come under “significant stress.”

Offloading as much traffic as possible to fixed-networks via Wi-Fi and femtocells is one solution and Ms. Meeker believes mobile operators need to forge co-operation agreements with fixed-line and Wi-Fi providers. But such a strategy will only get carriers so far, particularly in developing countries, where fixed-lines are few and far between outside urban centres.

That is where tiered data pricing comes in. In theory, charging heavy users higher tariffs should both limit the number of heavy users and raise extra funds to build-out the necessary network capacity required to handle fast-growing data traffic. As it is technically difficult for mobile operators to guarantee their customers specific throughput speeds, tariff plans should probably be tiered by volume of data used, rather than bandwidth.

Some mobile operators, such as NTT DOCOMO in Japan, already offer these kinds of tiered data tariffs as a matter or course, while others, such as Vodafone UK, offer tiered-plans specifically for netbook users. But operators switching away from simple “unlimited” flat-rate plans will need to tread carefully, ensuring new tiered-plans are fully transparent and easy-to-understand. Most operators won’t want to go back to anything resembling per megabyte pricing and bill-shock headlines.

Ideally, there shouldn’t be more than three tiers, aimed at light, medium and heavy users respectively. Moreover, users should receive a text message alerting them when they are nearing their volume limit, explaining the additional cost of moving into the next tier and asking them for consent. While implementing these kinds of transparency measures won’t be cheap, they are likely to be the only way to make tiered data tariffs acceptable to users accustomed to flat-rate freedom.

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