Operators Must Tackle Unpalatable But Inevitable Price Rises

I’ve been listening closely to the tone of announcements made by mobile network operators and infrastructure suppliers since the start of the year. They seem to be trying to outdo each other with Doomsday scenarios of where the mobile Internet’s headed. It’s clear operators are barely coping with huge increases in data traffic, and the situation’s only got worse as waves of new smartphones have appeared.

Obviously, the easiest — and most costly — option would be to expand networks by installing new base stations in already crowded areas like Manhattan or central London. But that’s a solution aimed at the effect, not the cause. Building a new lane on a congested freeway usually just means an extra lane of stopped traffic.

In the short and medium term, we’ll see lots of solutions that use a combination of technologies such as Wi-Fi, unlicensed mobile access (UMA) and femtocells, as well various network improvements like microwave and fibre backhaul, to offload data. And in the longer term, the continued roll-out of WiMAX and LTE will help solve some of today’s problems.

But operators will need to address the cause of the problem, and that means stifling demand or controlling the rate of data traffic. They’ll have to change the way they charge for data, especially if they’re to avoid repeating today’s problems on future 4G networks. Operators’ business plans for upcoming spectrum auctions will be impossible to justify to shareholders without changes in the way they approach pricing.

From recent announcements, I think operators are preparing for increases in the price of mobile data access. They’re inevitable if the pace of demand continues, though operators are unlikely to simply raise prices tomorrow. Doing so would probably allow many subscribers to terminate long-term contracts without penalty.

A more likely strategy is that operators will start to offer new and upgrading customers less for their pound, euro or dollar. This should curtail demand with little impact on the bottom line. Increased segmentation of offers will mean that operators can persuade customers to use networks at less congested times or on lower-speed frequencies, keeping the most-valuable places and frequencies free for those willing to pay a premium for unfettered access.

The challenge, of course, is that mobile network operators have never put up prices. They’re struggling to persuade themselves it’s possible (it is, by the way) and then to work out how to communicate increases to subscribers who’ve not had to worry about this before.

I’ve noticed some carriers are already investigating how to tackle the problem. In its latest quarterly results, KPN hinted that it plans to start charging different tariffs for light and heavy data usage. It characterised light usage as a phone and heavy usage as a connected laptop.

I’m sure the current situation can’t continue in developed markets. Operators don’t have the luxury of waiting for next-generation networks so they can start to segment their markets better. I’ll be watching the aftermaths of licence auctions in the Netherlands and Germany next month with interest, as I’m keen to know how each of the winners justifies the amount paid for a licence. Their responses will give a good indication of what to expect in mobile data pricing around the world over the next two years.