Tiered Pricing- Where Does Mobile Money Fit?

on July 16, 2010  

“Open Buffet” and “All you can eat” plans can bring in the customers. It works for restaurants, casinos and other establishments where competition is high, and where the economics make sense as a loss-leader and/or where there is adequate margin on volume or turnover.  But, with the recent announcement by AT&T that they are ending their unlimited data plans in favor of tiered pricing (i.e., pay for what you eat), it looks like they have come to learn what MNOs in the more mature mobile markets of Europe learned.  Namely, that once you have captured a customer, you need to find other ways to keep them.  Using unlimited data plans as the “sticky” service to keep a customer, can cause an operator to lose their shirt through service degradation, and sully their reputation with the overwhelming majority of their other customers.

Customers who use the iPhone, which is sold through AT&T in the U.S., consume seven times the bandwidth of typical mobile phones, according to Sanford C. Bernstein & Co. in New York, as reported by Bloomberg, But, that is not all.  They also quote company sources at AT&T who say that 98 percent of their smart phone customers use less than 2 gigabytes of data a month.  The Handset-Base Station Radio Network is still a limited resource, and having a lot of smart phone users can “hog up” this most precious resource for an MNO.

European MNOs learned this lesson a while ago.  They offer data plans either prepaid or postpaid with varying pricing based on tiered usage and contract type.  I tried a prepaid 3G data stick on one of my visits to London last year.  It cost 39 GBP and included 1 GB of data with 1 GB top ups for 15 GBP.  I was very happy.  It was a cheaper solution than paying for daily Wi-Fi access in Starbucks or at the hotel, and I was connected everywhere.  I have seen the light and I have become a believer.

European MNOs also learned another lesson early on in the mobile life cycle.  That they have another resource that is generally underutilized, and that they can use to increase revenue with very little risk- their Billing System.

MNOs, and most Telcos for that matter, are exceptionally adept at tracking and charging for lots of very small events.  Billing calls in One Second Increments, user authentication, fraud detection, and service monitoring is not trivial.  The infrastructure that is in place to accomplish all this is very robust and is capable of processing payments for other things, as evidenced by the revenue growth of Premium SMS, and WAP Billing.  But, they were just the beginning.  Web payments, person to person remittances, salary disbursements, NFC point of sale payments are all up and coming applications that have begun proving themselves in various markets.

In a conversation I had with Rob Strickland back when he was Senior Vice President and CIO of T-Mobile USA, I said that “T-Mobile can use it’s tens of millions of dollars invested in billing and user authentication systems to become a PayPal”, and he corrected me.  He said, “No Jeremy, T-Mobile has hundreds of millions of dollars invested in these systems, and yes, we would like to use this infrastructure to become a payment processor for our subscribers”.
Mobile Money is a clear win for MNOs.

Watch this space for more.

About the Author: Jeremy Kagan is an internationally recognized expert in online and mobile payments.  Jeremy founded eBIZ.mobility in 2002 with the mission to expand the internet commerce ecosystem by enabling more people to participate via Telco and other alternative billing.  eBIZ.mobility accomplishes this by providing the real-time universal clearing solution called OneTouch Online Purchasing(r) that enables any Telco, Mobile Operator, Internet Provider, Bank, or prepaid company that has a trusted billing, prepaid, or other financial relationship with consumers to clear their online payments.  Jeremy shares his mobile money experiences on a consulting basis with selected client companies.
Contact: jeremy.kagan@ebizmobility.com, Tel. +972 54 8080 541

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