How low can you go? October 15, 2009
Posted by wirelessinformatics in Mobile Operator, News.trackback
As the market for mobile data (either through appstore downloads, mobile email, web or mobile broadband etc) finally starts to reach its tipping point in the mass (western) markets, a new goldrush has begun. The last 12 months have seen massive price erosion across many European networks as networks battle to maintain share in a saturated market.
Finally realising the need to lower the barrier to data access and mitigate the threat of bill shock, price plans that include unlimited data have started to creep in under GBP£20 in the UK (US$32). That’s a huge shift from where we were even just 12 months ago.
Now, the US carriers are upping the game. Not content with unlimited data, a number of carriers are circling around the notion of completely unlimited plans. And I mean completely unlimited; unlimited data, calls and texts.
Retail goliath Wal-Mart has this week announced a $45 a month plan that gives unlimited everything. Its Straight-Talk service is a no-contract plan that undercuts almost everything else in the market by some margin.
Wal-Mart’s press release notes that the average ARPU in the US is $78 p/month. So how do the carriers respond? It seems illogical that the Tier 1 community would slash their ARPU and effectively cap their revenue opportunity per subscriber? However that’s exactly what T-Mobile is rumoured to be working on under the codename ‘Project Dark’. The one difference is that Wal-Mart’s line-up of available handsets aren’t likely to be sat connected to streaming media content 24/7 or tethered to a notebook (three year old Samsung anyone?). T-Mobile, however, investing heavily in HSPA (including a 21Mbps service in trial) will be opening the floodgates across some seriously data-centric devices.
If Project Dark sees the light of day, it’ll be a seriously disruptive force. You’ve got to be spending upward of $90 a month on Verizon, Sprint or AT&T to realise the same unlimited benefits.
However, the most immediate impact of this price erosion is likely to be felt announcing the the Tier 2 and regional US carriers. Wal-Mart’s retail footprint across the US, coupled with an industry-busting price plan is likely to unsettle the non-contract players such as Leap and MetroPCS. It’s perhaps within these non-contract networks that the subscriber base is also more fluid and willing to churn.
At what point will the cost of support become too great to include in these tariffs?
All you can eat data tariffs imply that they will be sold with smartphone or USB dongles – all of what have high post sales support costs. This will erode an already low margin for the service providers.
Premium rate support must be just around the corner for the customers, isn’t it?
Premium rate support – It’s a distinct possibility.
If carriers are forced into seeing ARPU decline as a result of lower, unlimited tariffs, then margins are going to have to improve to maintain the EBITDA that the shareholders expect.
If you consider the cost of ‘owning’ a subscriber in the network, there are two key areas of significant cost; a) Subscriber Acquisition (the cost of the handset subsidy, advertising, retail environment etc) and b) Support.
I’ve mentioned this before, but dial up customer care and talk to a tier 3 tech-support and your profitability as a subscriber is wiped for a month.
Do carriers have the mettle to introduce paid-for support? That’s another question.
Do carriers have a choice?
Is probably more the point – when involved in flat rate tariffs and business models with Apple App Stores, Ovi and other solutions eating into or wiping out additional revenue opportunities with the subscriber.
Are subscribers – ready for the bill shock when they realise that the 5 hours spend on the phone to the customer care units in low cost environments off shore just cost them $250 …
Let’s be pragmatic about this though. There are other industries that have seen their business models forced to take the flatrate route. The Internet Service Providers are the most obvious example.
In these cases, there’s little in the way of ‘premium’ support. Instead you see increasing reliance on web tools to resolve issues (selfcare). These deliver lower cost-per-head support than telephony. It’s actually increasly difficult to find a phone number on an ISPs website.
The ISPs are also competing against low-cost rivals who bundle free broadband as part of their package. OK, market shares across the ‘ISP establishment’ have dropped, but not enough to force changes such as premium paid-for support. Instead the ISPs have focused on QoS and, importantly, looked to concentrate on what they do best – the provision of a ‘utility’ service.
Long gone are the days of the ISP trying to control our multimedia world and looking to position themselves as content companies (sound familiar?) These ventures were expensive, and hit bottom lines like a sledge-hammer.
I could get my Internet connection for half the price but I don’t. And that’s not because my ISP crowds my universe with value-add; it’s because they are very good at doing what they say they’ll do. Deliver a consistently high connection speed. And I’m happy with that. Is there a lesson here?