Key observations
A step towards a pricing emphasis on quality and value is represented by speed tiers.
With unlimited plans, data usage can increase forever without the service provider earning more money.
The conditions of some service providers’ subscription contracts now include yearly price adjustments.
A great deal of the applications that are used most frequently, social media platforms, and streaming music and video services rely on connectivity that is available all the time and everywhere. Mobile phone networks carried 108 EB of traffic per month in Q3 2022, increasing at a rate of about 40% annually. As usage grows, service providers continue to expand the network’s capacity and boost efficiency, such as with the launch of 5G, which is beneficial to all users.
The November 2022 update of an Ericsson study of consumer retail packages provided by 310 mobile service providers in 139 countries revealed that, while the various kinds of service packaging are largely the same worldwide, consumers are given more variety in the majority of markets. In order to learn more about service packaging, Ericsson spoke with ten service providers about their experiences with a few of these packaging concepts.
Does a high-end service come at a high cost?
From an economics standpoint, it makes sense to charge more for a product that offers superior worth to competing goods. It indicates to the customer that there is worth taking into consideration.
However, the percentage of service providers who charge more for 5G has decreased to 25% in the six months that have passed between the two most recent iterations of the research. However, since it has become commonplace to fully replace 4G offerings with 5G, there might be unnoticed price increases among the remaining 75% of service providers. Given that 5G is currently the most effective network available, service providers’ strategies have changed to focus on switching as many users as possible to it.
The following stages entail retiring antiquated technologies, clearing up resources like the spectrum, site distance, and support assets, and concentrating on the most effective systems.
Unlimited data versus the bucket approach
The standard cost structure for mobile data consumption since the advent of smartphones has been to charge in “buckets of gigabytes.” Data buckets are the default approach offered by almost all service providers (306 out of 3110), who aim to reach most or all of their subscribers.
Although this strategy has occasionally come under fire for being challenging for customers to comprehend, it has nonetheless gained widespread acceptance across the globe. Consumers gradually gain knowledge about their usage habits, data allotment, and how all of this pertains to the package they are using, as well as when it might be time to upgrade. The model shows a straightforward yet distinct relationship between user data usage and the revenues that the service provider receives.
There will be a natural transition among the customer base from smaller to larger buckets as long as the buckets are of a reasonable size and usually match usage. However, not all markets exhibit this pattern; in some locations, bucket sizes are significantly greater than real usage. For instance, the smallest buckets offered in some of these markets may give as much as 50 or 100 GB per month, even though the typical usage may be much lower.
Only 3% of customers in the lowest tier, according to one service provider in Latin America, truly meet their quota. Because users never run out of data, there isn’t much logical progression from one tier to the next. Another effect is poor segmentation and a downward price spiral where more and more data is provided with essentially no price increase over time.
According to the survey, about 45% of the internet service providers give smartphone customers real unlimited data packages. These packages are typically the best deals accessible when it comes to monthly bill options.
The main benefit of limitless data is that customers do not have to be concerned about their usage or budget. However, it is essentially a one-size-fits-all approach with no built-in differentiation. As a result, for successful segmentation, suppliers of services must combine this model with other components. Contrary to the bucket model, there is no direct way to link rising income to rising usage.
The reality that unrestricted choices permit data usage to increase forever without generating more revenue for the service provider is actually the most compelling justification against them. One service provider who had discontinued unlimited plans claimed that, because differentiation is essential to its place as a challenger, it needed to look for alternative strategies that would better serve it and prevent it from being driven towards commoditization.
A lot service providers started incorporating boundary conditions into their unlimited services in the early days of 5G. These requirements, which were added to some of the more “traditional” fair-use guidelines, were put in place to prevent misuse or excessive use. Typically, they were focused on very specific situations, such as connecting security cameras or other IoT devices.
or, if the membership was meant for personal use, connecting machines and sharing a lot of information among many people. These behaviours point to some of the dangers of unlimited data plans, particularly when performance enables the generation of large amounts of data quickly. However, a small decrease in the use of such policies can be seen in the most recent iteration of the study, which also happened to coincide with the implementation of speed tiers.
The justification might be that speed, at least in the lowest tiers, is a constraint on the extent to which data can be produced. But given that even a 10 Mbps link has the potential to produce up to 3,300 GB per month, it is unclear whether this won’t turn out to be a bit of a false safety net.
As a distinction, speed
Using speed tiers as a segmentation strategy appears to be gaining favour. The proportion of 5G service companies using speed as a differentiator rose from 18 to 24 percent just between April and October 2022. There is a lot of variation in the subject, unlike fixed networks. A little over 74 percent combine it with the bucket model, and about 45 percent use a hybrid form. (speed in combination with both buckets and unlimited data tiers).
The most straightforward form is one in which each tier of greater speed is also more expensive. Consumers are never offered a guarantee when buying speed; instead, they are given a “up to” pledge. In many marketplaces, particularly in Western Europe where speed tiers are most frequently used, the tiers are clearly separated by a hundred or a few hundred megabits per second. However, in a few areas, service providers have opted to use what might be viewed as slow speeds in comparison to 5G capabilities. One claim made in the interviews is that customers might not require more than 10 or even 50 Mbps for the services they currently use.
Today’s majority of service providers who do not use speed tiers cite the inability to ensure efficiency as their main deterrent. Given that current speeds are much greater than what consumers truly require from a smartphone, some people believe that different speed tiers are irrelevant. Most people also acknowledge that consumers’ perceptions of worth are important and that speed may serve as an emotional driver for higher prices.
Many service providers give customers the option to choose between speed and data consumption by combining speed, buckets, and unlimited plans. Some of the respondents expressed the view that in order to prevent commoditization, speed tiers needed to be combined with other value propositions.
The position with the greatest authority 5G speed and the least quantity of data may be provided to the consumer at a specific price point. Alternatively, they can get unlimited data but only at a speed of 5 or 10 Mbps for the same fee. It’s interesting to note that this variation has come up in conversations with service providers who want to get away from unlimited options.
Since consumers are accustomed to unlimited packages being the standard giving, getting rid of unlimited offers could be difficult. Service providers are seeking a gentle introduction of the bucket approach as a result. Since both the bucket and the limitless offer are priced equally, speed is regarded as the “equalizer” between them. The unlimited option is progressively offered starting with the lowest tier offers.
Going forward
The packaging concepts that service providers use the most frequently are quite simple but still useful for monetizing connectivity. These packaging principles are being modified, developed, and supplemented with other packaging in a growing number of markets. These consist of variations on the bucket theme with family and device sharing plans, as well as nighttime or other low network usage time discounts. In the last six to twelve months, the growth rate of triple- and quadruple-play offerings has accelerated, probably as a result of more mobile-only service companies beginning to offer FWA in conjunction with media service bundles.
It is understandable that market stability is desired, as disruptions can lead to uncertainty and volatility. Short-sighted plans and campaigns that drive down prices can indeed have negative effects on the market in the long-term, as it reduces the ability of service providers to invest and grow.
To promote market stability and long-term growth, it may be helpful to encourage collaboration and communication among market players. This can help to identify potential issues before they become disruptive, and to work together on solutions that benefit everyone. Additionally, it may be beneficial to focus on strategies that create value and differentiation for customers, rather than simply competing on price.
Finally, it is important for market players to think beyond short-term gains and consider the long-term implications of their actions. This may require a shift in mindset from a focus on immediate profits to a more sustainable approach that prioritizes long-term growth and stability.
The present monetary climate appears to have precipitated a few specific developments that could have a long-term favourable impact on sector revenues. One element of this is that service providers believe that long-term contracts will return, which could stabilise the market. The annual hikes in prices (a few percent increase) that many service providers are including in subscribers’ contracts could have an additional, more significant effect. It is intriguing that companies offering services are now taking the risk to raise rates in this manner, and if it spreads, it might help the industry at large by paving the way for more consistent behaviour. It is important that consumers are thought to be among the last to give up connectivity during hard times.
In exchanges with service providers, the topic of 5G monetization has been very obvious. Today’s developments frequently just expand upon earlier technologies. However, speed tiers show a shift in pricing emphasis towards value for money and quality. In addition, several service providers are looking into recently released new services like AR on smartphones and cloud gaming because they seem promising. Revenues from connectivity can increase in the future with the proper business models in place. The case for service providers will be further strengthened by the addition of new features like 5G standalone (SA) and network slicing, as flexibility in pricing and packaging may be significantly improved. This is especially true if more options relating to quality of experience and tied to particular services become a reality.