Pricing schemes key in LTE future

September 12, 2011 - Openet

As a new service LTE presents operators a chance to move to new innovative pricing and packaging models at the onset. But early movers in Asia-Pacific have so far displayed only some innovation.
So far, six operators have launched LTE services in the region. Korea’s KT and LG U+ provide usage based plans with a data cap. NTT DoCoMo in Japan has launched usage based plans with the ability to buy more data when caps are exceeded.
In Hong Kong, CSL has usage based tiers, but their most expensive plan is unlimited. Also, Singapore’s M1 has launched its LTE service to business customers and has offered it based on unlimited use. In the Philippines, Smart is providing LTE service and demonstrations only on a limited basis on the holiday island of Boracay.
According to the GSA in Asia Pacific, there are 36 more operators who have made commitments to launch LTE services and another nine who are running LTE network trials.
LTE presents a significant opportunity to develop new pricing and packaging models. What customers will pay for, the amount they will pay, how they will pay and how much operators should charge for a service in order to ensure profitability – these are all important questions for determining effective pricing models.
According to recent research from Telesperience, price is not the most decisive factor when consumers select a mobile operator -- value is more important. Once operators embrace the concept that value is more important to customers than the lowest price, they will no longer need to commoditize their services and get involved in a downward price spiral.
Different people have different needs and what they value from their mobile operator will vary. Understanding an individual’s mobile requirements and providing a service that this person will value is vital. 
LTE can deliver a wide range of products and services that customers can use and value, and play an important role in peoples’ mobile lifestyles. The ability to differentiate LTE based data offerings can be tied into the degree of value that these offerings provide to customers.
As such, the dominant pricing model that should prevail is value-based pricing, where customers can pay for the services they value. But getting there will require pricing and marketing dexterity and a deep understanding of the customer. This will lead to micro-segmentation and very flexible pricing options.
At present, some operators in the region provide usage and speed based tiered pricing models for, while others offer all-you-can-eat. There’s some innovation, but it’s probably too early for LTE operators to get really creative with pricing. There’s no doubt that innovation will be spurred by competition as the market moves away from the early adopter phase.
Tiered pricing is even starting to spread into 3G. People will pay a premium for what they value most – some people are OK with slower speeds, while some will pay more to be certain of high speed.
Different applications have different value to different people. Being able to bundle applications together and sell these to different segments will open up new revenue streams. For example, a basic package with access to Facebook and general browsing could be sold for, say $20 per month. Add YouTube access to the package and the price goes up to $40. Access to movie sites and content -- such as five HD movies a month for, say, $70 -- could be packaged as another offering.
Operators can boost speeds for certain content to improve the customer experience. This creates opportunity for variable OTT content partnerships, where some content can be delivered with a higher quality of service. This provides a better customer experience, a competitive differentiator for the content provider and a new revenue stream for the operator.
When working with content partners, operators can zero rate the data usage associated with accessing content against a customer’s usage quota, and capture a percentage of the content sale. A faster, higher quality delivery mechanism for content and services will differentiate an OTT content provider’s offerings and can increase revenues from direct sales and also advertising.
Some Asia-Pacific countries, such as the Philippines and Indonesia, are predominately prepaid. Others - such as Japan and Korea - have a much higher percentage of post-paid customers. Typically the usage and payments of these customers are processed on an intelligent network platform for prepaid and a billing system for post-paid. LTE can help operators deliver convergence across services - regardless of the method the customer uses to pay - by delivering an experience that fits subscribers' lifestyles.
Understanding what customers value and providing services that meet this will be key to getting happy customers and driving up LTE profitability.


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