Thursday, September 8, 2011

How to charge for video? part 2 - pricing models

While 4G is seen as a means to increase capacity, it is also a way for many operators to introduce new charging models and to depart from bundled, unlimited data plans.
Let’s look at some of the strategies in place for data pricing in a video world:
·         Unlimited usage: This category tends to disappear as data demand increases beyond network capacity. It is still used by new entrants or followers with a disruptive play.
o   Fair limit: even with unlimited packages, many operators tend to enforce a fair limit, usually within 90% of their subscriber’s usage.
·         Capacity capping: this mechanism consists in putting a limit to the subscriber’s capacity to use data on a monthly basis. It is usually associated with a flat monthly fee. It is mostly a defensive measure. Past that limit, the operator has four choices:
o   Hard cap: no data usage is allowed beyond the limit. The subscriber must wait for the next period to use the service anew.
o   Hard cap with overage fee: Once the customer has reached her limit, a fee per metered usage is imposed, traditionally at a very high rate. For instance, 20 € for 2GB and 1 € per additional 10MB
o   Soft cap: The operator introduces several levels of caps and usage and once a customer reaches a cap, she switches to the next one.
o   Soft cap with throttling: The operator throttles the speed of delivery of data past the cap. Usually at a rate that makes it inefficient/impossible to use data intensive applications such as video. It is called as well “trickle-loading”.
·         Speed capping: As video, P2P and download usage becomes close to fixed broadband, operators have started to provide means to measure and charge for different speeds and usage. It allows to create different packages for the type of usage
o   low speed for transactional (email)
o   Medium speed for real time (social network, internet music and radio)
o   High speed for heavy use (downloads and videos)
·         Application bundling: This method consists in grouping applications or usage by bundles with individual tariffing schemes. For instance, free, unlimited IM, Facebook, Twitter, Email at 20$ per month up to 2GB, No P2P...
·         Metered usage: This method consists on charging based on the amount of data consumed monthly by the subscriber.
·         Contextual charging:
o   Content based charging: This is the target of many operators, being able to differentiate between the types of content, origin, quality and create a tariff grid accordingly. For instance: a pricing structure that will have different rates for HD and SD video, whether it is on deck or off deck, whether it is sport or news, live or VOD...
o   Time of day charging: This is a way to make sure that peak capacity is smoothed throughout the day or to get the most margin from busiest times.
o   Location based charging: Still embryonic. Mostly linked to Femtocells deployments.
In my next post, I will look at the pros and cons of each charging model.

1 comment:

Anonymous said...

Hi Patrick, great article!

Take a look at what some operators are doing in non-mature markets in Latin America: in order to capture new users by positioning their plans as very easy to understand, they are offering plans based on time spent. If you browse with a smartphone, 24 hours of access cost US$ 0.12 (twelve cents). With a dongle it is a little bit more expensive.

Of course, it is still a plan with a throttling mechanism that is activated after a certain amount of data is downloaded - all in the name of the "fair usage".

I personally think it is a game changer for certain markets - especially the ones that are still in the adoption phase: since average users may not have any idea of what a megabyte is, it is much more straightforward to market mobile broadband plans based on time periods (hour/day/week/month).