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January 29, 2009

 
Thought Leadership for the Wireless Industry
In This Issue
New Model for Wireless Pricing
Themes for 2009
Appearances

CTIA Show
April 1-3, Las Vegas
Session Moderator

Wireless Innovations
March 17-18, Redwood City, CA
Speaker: Shifting Wireless Landscape

Mobile Mondays
January 12, Boston
Speaker: Evolving Business Models




Dear Colleagues,
Lens logoMy Fierce Wireless column this month, in which I call for a new model for wireless pricing, has touched off a storm of responses.  This Lens features an expanded discussion on the topic. 

Also below is an additional opportunity to read my Top Ten Industry Themes for 2009.
 
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A New Model for Wireless Pricing
** This an Expanded Version of a January 28 Fierce Wireless Column**

It became clear in 2008 that flat rate plans are, over time, going to become the prevalent structure for wireless pricing. Nearly every major operator now offers a flat rate voice plan, although there's still quite a range between the most and least expensive services. Many other plans, if you add up the generous minute allocation, free nights and weekends, and free "mobile-to-mobile", are quasi-unlimited. Fewer than 10 percent of subscribers pay voice "overage" in a typical month. Flat rate mania is also spreading to data, with a larger number of users subscribing to a data plan that includes a large suite of services--messaging, email, Web--for a flat rate, especially with the spread of more capable devices. 

Even with these developments, I believe we are starting to outgrow today's pricing model for wireless services.  The wireless future we contemplate imagines a multiplicity of connected gadgets, with users having different devices for different contexts - personal or business, stationary or mobile, productivity or entertainment - in a typical day.  There's an interesting juxtaposition here: a growing number of capable, connected devices and innovative ways to use them, plotted against the backdrop of a mass market whose needs are more occasional and diverse, and whose discretionary budgets are tightening by the day.  

Let's step back to consider what our current pricing structure means for a typical user: a feature phone or smartphone with a decent voice plan and data service costs at least $80 per month. Adding wireless access for their laptop is another $60. Want the new Cameo digital picture frame? Tack on another $10 per month. Pretty soon, our multi-device user is spending $150 per month, which might be OK for the upper, upper end of the market but is definitely out of reach for the average consumer.  

The structure is also sub-optimal for the nearly 40 percent of U.S. wireless subscribers who are on some sort of family or group plan.  Data plans for add-on lines are not significantly discounted, nor are there particularly good options for sharing data "minutes" or "bytes." We need a more flexible pricing structure to accommodate both the next wave of growth into the consumer market, balanced against the requirements of the more casual user, if we're going to sell the Netbooks, Cameos, and other wirelessly connected devices that justify operators' spend on additional spectrum and capex.

Three "Outside the Box" Thoughts

The first thing I would do is allow data plans to be leveraged across multiple devices. Why should a user have to choose between a Blackberry and wireless broadband service, when they need both, at different times and for different contexts? Why not offer a 1 GB price plan that can be used in a much more flexible manner? A user might carry a productivity-centric device by day, and more of a multimedia device at night and on the weekends. A portable SIM, or network-based store of information such as contacts, calendar, and bookmarks, would bridge their multiple "worlds", and keep the operator relevant in the equation. Wireless industry, welcome to cloud computing... or offering to users what they can already do with Yahoo, Google, and on-line banking: access their information from any PC.

The second thing I would do is extend the "family share" concept to data. For example, I can't justify a $60 wireless broadband subscription for each of my wife and daughter, who only need these services occasionally. What I would do is buy a USB modem that can be shared by multiple users, on a secure and password-protected basis, across multiple devices, for a reasonable price. I'm not expecting a cut-rate "unlimited" data plan--just something affordable, say $30 for a generous MB allocation, with reasonable rates for additional data "buckets" (not the data equivalent of 45/minute voice overage). We also need better "occasional use" plans, borrowing from the WiFi playbook, that allow per-hour/day/week connect options. This would be perfect for the periodic traveler, the family vacation, and so on.

Third, I'd like to see reduced reliance on the subsidy model for this next wave of data-centric devices, in return for more share-able, flexible pricing structures. For all but their primary subscription, users are growing weary of the need to have to a big commitment (contract, particular device, monthly subscription) every time they want to try out a new service. The success of the Amazon Kindle, which costs $359 but does not require ongoing subscription fees, is an interesting example of a change in direction.  Also, in a multi-device world, consumers should have a better idea of the true cost of the device. 

This is About More than Just Wireless

As a completely alternative way of thinking about this, I'd expand the discussion to include the broader communications universe, including residential telephony and home broadband. An operator would charge broad-based "connection" fee and then charge for each of the "access" devices, based on some combination bandwidth consumption and, if applicable, "programming" costs. Excluding TV for a moment, let's say you pay a base $30 monthly connection fee for fixed broadband and another $50 for wireless, per individual or household. Then, there is a per device additional charge for each end-device--VoIP phone, PC, portable wireless USB, wireless photo frame, and so on.  These charges could be a flat monthly fee per unit, or users/households would buy a "basket" of voice and data minutes/megabytes that could be shared across users and/or devices. There would generally be a premium charge for mobility because of the different economics. And conversely, devices or content that are ad-supported would cost less. Clearly there's a lot more analysis required on this approach, but I do think we need to start thinking more creatively about how we are going to strike the right balance of providing greater flexibility while ensuring we adequately monetize the traffic and devices utilizing these networks.

Case Study:  Netflix

We see some of this pricing innovation in other segments of the consumer electronics industry.  Netflix provides an interesting case study. For no additional monthly fee, Netflix subscribers can now watch movies on their PC via the Internet, or on their TV through a number of Netflix connected devices, which range from private-label Roku devices to the Xbox 360 and certain Tivo models. The parallels here with wireless are interesting.   Netflix has leveraged its strong subscriber relationships, excellent supply chain, and vast content library and embraced the expanding distribution structure for content and proliferation of Internet connected devices.  Note to wireless operators: Sound like a similar challenge/opportunity?

Coda:  Other Forms of "Infrastructure" Upgrade?

The Fierce column has yielded dozens of e-mail responses and several phone calls in only a couple of days.  The general tenor has been that the back office systems in wireless are outmoded.  Operators have invested significant sums over the past five years to consolidate their billing systems, enable converged services, and expand Web-based capabilities.  But these systems are behind those of comparable industries in their ability to manage complex, multi-user/service/device environments.  Even small structural changes can take months to implement, and involve significant IT resources.  It is time to start thinking more seriously about systems that are an enabler, rather than an inhibitor of new services and capabilities.  They must be more nimble, more flexible, and be able to more effectively integrate with what is an emerging "mash-up" of consumer electronics and digital entertainment services, of which wireless is just a part.  They must also be a less costly part of opex and require fewer resources to deploy and operate.  Investing in continual improvement in back office systems is as important a part of "infrastructure investment" (to use one of 2009's most popular terms), as spectrum purchases and network capex.    

The other piece of this, of course, is security and portability.  Many people I have talked to cite the expanding capabilities of the SIM, and the ways in which it is "unlocked", and hence more open and portable in other geographies.  I personally believe that it is too small, awkward, and fraught with too many other potential security perils to be the default form-factor for a more portable, multi-user/device world.  It's time to be thinking outside the SIM box.  Now, it is specious to think that the Web-services model of merely taking a password to another device, as you do to access Gmail from any PC, is buttoned-down enough for the wireless world.  Some combination of device and network based solution is likely.  Interesting technologies and capabilities are emerging from the nascent m-commerce world, whether it's progress on NFC to certain "recognition" technologies (finger, face, eye, voice).  We might borrow from some of the security capabilities that have been developed for e-commerce, such as in on-line banking,  if they can be effectively adapted for the nuances of the wireless world, with a good UI.  Clearly my analysis of this aspect of the evolution is at a surface level, but I hope it stimulates some thinking.    
Themes for 2009
Despite all the difficult news around us, 2008 was a terrific year for wireless, marked by game-changing improvements to the end-user experience.  Rather than making specific "predictions", I wanted to outline several themes that I think will frame the industry in 2009.  There is little doubt that we are in for some near-term challenges, given the macro-economy, which will result in some changes to our industry structure. Wireless will become increasingly woven into the broader communications fabric.  Below are my seven key themes.  Read the detail by clicking here. 

1.  Battle for the Home
2.  Greater Flexibility in Pricing Plans
3.  Next Phase of Broadband Wireless
4.  Consolidation, Across Multiple Sectors
5.  Focus on "Cost" Creates Opportunities
6.  Infrastructure Gets Hot
7.  Next Chapter in Search, Discovery, Navigation, and Advertising

Read More to see the commentary on the above themes.
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