Wednesday, December 6, 2006
Mobile Data Prices Need To Come Down
Posted by Nurhisham Hussein in "OFF-TOPIC" @ 02:00 AM
"Mobile operators need to rethink how they price their 3G data plans to better compete with fixed-line broadband services, according to the top executive at Singaporean operator MobileOne (M1)...Mobile data services based on 3G technology are generally expensive to use, partly because operators charge for data using a per-byte or per-minute pricing model similar to voice. As a result, 3G data services primarily serve business customers who can afford the premium charges, rather than the average mobile user. 'We've got to look to the future,' Neil Montefiore said. 'We've got to be competitive with current fixed broadband prices.'"
As someone who uses a 3G data line regularly, all I can say is...Amen Brother! The single biggest hurdle in the adoption of 3G and other wireless technologies like WiMax is quite simply the cost/benefit ratio. 3G compatible handsets and data cards are still at the high end of the cost spectrum compared to GPRS/EDGE hardware, and so are subscription rates. At the other end of the scales is the actual bandwidth you get for your hard-earned money...which is way behind wired broadband at the same price points. HSDPA and HSUPA will help a great deal with that, but that's going to take even more time (and money) to roll out, not to mention the fact that we'll need compatible phones to take advantage of these technologies. Beyond the purely monetary assessment of 3G adoption, QOS and coverage is still patchy as well, at least where I live.
Telcos will tell you that the capital expenditure to fully upgrade their networks to 3G is expensive, and they need to recoup their investment somehow - but that neglects the requirement that you actually have to have a market for your product to get any revenue at all. I still get a kick out of the fact that Celcom, Malaysia's largest telco and mobile operator, has a customer care department that still thinks that 3G is 'video calling' :rolleyes: What a great way to sell your services!
I'm going to get a bit technical here. Basic economic theory says that even for monopolies the point of maximum profit is not where prices (average revenue) are highest, but where marginal cost equals average cost i.e. the point where average cost is the lowest. Since telcos tend to have very high capex and thus fixed costs, the mathematically correct profit-maximisation solution would be to maximise your customer base to the point where the cost of adding extra customers exceeds the revenue gain, thus spreading all that fixed cost over a bigger number of customers.
Which in turn implies you lower prices as much as possible even up to the point where you're only covering running expenses, as this will give the highest level of profit - a point that seems to be lost on Wall Street and telco management with their preoccupation with average revenue per customer. Case in point - the most successful telco in Malaysia is Digi, who've made a name for themselves by offering cut-price services for voice and data. We've also seen many times in the technology age where widespread consumer adoption of new technologies only occurs when prices come down to the point where it makes sense to the man on the street.
So the solution to gearing up 3G adoption, and thus utilisation of 3G services such as video calling and TV on demand, is we need better quality services at much lower prices than we have today. Unlimited flat rate plans on the model of broadband subscriptions help - if they're truly unlimited <cough>fair use policies</cough>. Second on the list is having big enough pipes to handle the load. We're not there yet with either - but M1's example is pointing to the one way that'll guarantee the greatest chances of success.
As someone who uses a 3G data line regularly, all I can say is...Amen Brother! The single biggest hurdle in the adoption of 3G and other wireless technologies like WiMax is quite simply the cost/benefit ratio. 3G compatible handsets and data cards are still at the high end of the cost spectrum compared to GPRS/EDGE hardware, and so are subscription rates. At the other end of the scales is the actual bandwidth you get for your hard-earned money...which is way behind wired broadband at the same price points. HSDPA and HSUPA will help a great deal with that, but that's going to take even more time (and money) to roll out, not to mention the fact that we'll need compatible phones to take advantage of these technologies. Beyond the purely monetary assessment of 3G adoption, QOS and coverage is still patchy as well, at least where I live.
Telcos will tell you that the capital expenditure to fully upgrade their networks to 3G is expensive, and they need to recoup their investment somehow - but that neglects the requirement that you actually have to have a market for your product to get any revenue at all. I still get a kick out of the fact that Celcom, Malaysia's largest telco and mobile operator, has a customer care department that still thinks that 3G is 'video calling' :rolleyes: What a great way to sell your services!
I'm going to get a bit technical here. Basic economic theory says that even for monopolies the point of maximum profit is not where prices (average revenue) are highest, but where marginal cost equals average cost i.e. the point where average cost is the lowest. Since telcos tend to have very high capex and thus fixed costs, the mathematically correct profit-maximisation solution would be to maximise your customer base to the point where the cost of adding extra customers exceeds the revenue gain, thus spreading all that fixed cost over a bigger number of customers.
Which in turn implies you lower prices as much as possible even up to the point where you're only covering running expenses, as this will give the highest level of profit - a point that seems to be lost on Wall Street and telco management with their preoccupation with average revenue per customer. Case in point - the most successful telco in Malaysia is Digi, who've made a name for themselves by offering cut-price services for voice and data. We've also seen many times in the technology age where widespread consumer adoption of new technologies only occurs when prices come down to the point where it makes sense to the man on the street.
So the solution to gearing up 3G adoption, and thus utilisation of 3G services such as video calling and TV on demand, is we need better quality services at much lower prices than we have today. Unlimited flat rate plans on the model of broadband subscriptions help - if they're truly unlimited <cough>fair use policies</cough>. Second on the list is having big enough pipes to handle the load. We're not there yet with either - but M1's example is pointing to the one way that'll guarantee the greatest chances of success.
