Steven hartley ovum-thurs_zone-2_masterclass-2_thurs

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Global LTE Pricing Strategies

Steven Hartley, Practice Leader, Telco Strategy

[email protected]

May 2012


Steven Hartley, Practice Leader, Telco

Strategy

Leads team of analysts providing

strategic advice to world’s leading

operators & vendors

Over 15 years’ experience in fixed &

wireless communication market

analysis

Topic Focus

Next generation business

case & commercial strategies

Mobile broadband

Market forecasting

Femtocells


Agenda

Example LTE tariff strategies

LTE premiums

MBB tariff models: What we like, what we don’t…


Example LTE tariff strategies


LTE tariffs: more of the same

Initial Ovum research on LTE tariffs (conducted May/June 2011) found:

Lack of innovation in LTE pricing models

Large number of unlimited data offerings: Japan, Hong Kong, Singapore, Sweden & US

Dongles dominate

Fast forward to November 2011:

Still lack of innovation in LTE pricing models

More smartphones become available (US, South Korea, Japan)

Asian operators see sense: Unlimited either disappears (Singapore), watered down (Japan, Hong Kong) or does not get rolled over from 3G (South Korea)

LTE tariffs get tweaked – still early days, lot of fluidity in pricing


Europe: Big buckets dominate

LTE as fixed broadband replacement service?

Telekom Austria offers one 40GB plan only

Largest data cap in Europe

Up to 30GB buckets in Norway, Denmark, Finland & Germany

Swedish LTE operators offer 20-40GB buckets & unlimited pricing

Operator

(Sweden)

Data/mo. Peak DL

speed

Monthly

fee

Contract

length

Telia 40GB 80Mbps $60 18 mo.

Telenor 20GB 80Mbps $60 24 mo.

Telenor UL 80Mbps $45 24 mo.

Tele2 UL 80Mbps $60 18 mo.

Tele2 UL 80Mbps $60 None


South Korea: Deliberately expensive

In August 2010 SKT launched unlimited data for 3G users paying Won55,000 (US$50) or more / month

Data traffic increased by 30% a month on average since

Did not roll over unlimited to LTE

LTE sold on premise that can offer killer services, including video calling & HD video streaming

Costs Won100,000/month (US$90) for 10GB

Excess data options: pay Won9,000/month or throttling

Expensive vs. 3G (Won55,000 unlimited)

Two positives in pipeline for LTE take-up:

Abolishing 3G unlimited plans

Likely rate cuts by govt. in 2012 will reduce LTE tariffs

Plan

(SKT)

Voice

(mins)

SMS Data

W52K 250 250 1.2GB

W62K 350 350 3GB

W85K 650 650 7GB

W100K 1,050 1,050 10GB


Japan: Competition forces LTE price re-think

NTT DoCoMo launched LTE (big-screen only) December 24, 2010

5GB capped plans & 2 promotions offering unlimited data (ended April 2012)

By October 2011 only 480,000 LTE customers as no handsets

October 2011 announced two new promotions:

Lowered two-year unlimited promotional rate by 12%

Same monthly fee as Softbank’s iPhone 4S plan

Free on-net LTE-to-LTE smartphone calls for additional charge per month

Christmas 2011: 14 of 24 new smartphones LTE-enabled

>2.5m Xi subscribers, April 2012

Throttling rather than charging for excess data usage beyond 5GB


Hong Kong‟s CSL makes transition from unlimited

At launch (November 2010) had one big-screen plan:

Unlimited data for HK$399 / month

August 2011 LTE tariffs revamped:

Withdrew all 3G mobile broadband plans from the market

New LTE tariffs:

1GB or 5GB introduced

Unlimited plan survived but expensive

Has only sold 4G big-screen plans since August 2011

Goal is to eliminate unlimited plan & migrate all 3G customers to LTE capped plans

Marketing message: “Why pay more? Pay for what you need”

CSL claims:

Not losing 3G customers

>60% LTE customers on volume-based plans


Australia: No premium for LTE

Less than a week after LTE launch in Sept. 2011 Telstra changed its 3G big-

screen tariffs

One price plan for 3G & 4G big-screen customers

No premium for LTE!

4GB, 8GB and 15GB plans

Largest plan was 12GB, increased to 15GB for A$10 more

“Primary device” now being sold is LTE USB modem

Assumption is that LTE users download more, reach data caps faster & upgrade

to larger, more expensive plans

Telstra has deployed this same price strategy in the past

E.g. when migrating from 21Mbps to 42Mbps big-screen service


US: smartphones & larger “limited time” bundles

Verizon wants to migrate its CDMA subscribers over to LTE ASAP

$30 unlimited small-screen data offer abolished in July 2011

Verizon claims 95% of customers use 2GB or less per month, so most users won’t face a price increase

Same tariffs across 3G & LTE / big- & small-screen

2GB for $30, 5GB for $50 and 10GB for $80 for

Big-screen caps intentionally small to protect fiber revenues

Doubled data allowance as a promotion in response to AT&T

AT&T launched one big- & three small-screen plans:

Small-screen: 200MB for $15, 2GB for $25, 2GB for $45 via tethering or MiFi

Big-screen: 5GB for $50

Sprint & Metro PCS still have unlimited offers in market


„All-you-can-eat‟ going, but not gone completely

Unlimited plans are easy to communicate & easy to understand

Not all operators are created equal

Great at growing traffic on empty networks

But don’t want to fill up networks too fast

Common sense prevails on ending unlimited data for LTE

Verizon abolishes unlimited data

South Korea: Operators do not offer unlimited data

It removes “any motive in making investments*” Pyo Hyun-myung, KT Mobile President

Japan: No unlimited from May 2012, 5GB caps only

Hong Kong: CSL distances itself from unlimited data

Swedish FUPs: Not really unlimited pricing…

Telenor FUP: a user's traffic is throttled if monthly data

consumption exceeds 10 times the national average.

(Monthly average consumption per user :20-25GB)

* Korea Herald, July 2011


LTE premiums


LTE premium averaged 123% in Sweden versus 3G

36 3843

79

95

87

119%

129%

121%

0

10

20

30

40

50

60

70

80

90

100

Tele2 Telenor Telia

Mo

nth

ly f

ee (

US

$)

0%

20%

40%

60%

80%

100%

120%

140%

% p

rem

ium

ch

arg

ed

fo

r 4G

Monthly fee of high-end 3G package up to 16Mbps (US$)

Monthly fee of high-end 4G package up to 80Mbps (US$)

Premium charged for 4G (%)

Source: Ovum


Asia-Pacific steers clear of premiums for LTE over 3G

Europe: improved latency + faster speed = LTE premium

Norway (Netcom): 52% premium, 275% more data

Denmark (Telia): 56% premium, 50% more data

Finland (Sonera): 150% premium, 50% more data

Austria (Telekom Austria): 156% premium, 30% more data

Asia: cost benefits + migrate to LTE asap = no/low LTE premium

Japan (NTT DoCoMo): 9% premium, (5GB capped plan)

No premium: Australia (Telstra), CSL (Hong Kong), Singapore (M1)

Operators must be careful not to alienate high-end

customers that have paid a premium by reducing LTE

tariffs too quickly or drastically


MBB tariff models:

What we like, what we don‟t…


What we like: Tiering makes sense

Common in the fixed world so why not mobile?

Tiered pricing can be applied on the network

for utmost control

Enables segmentation & upsell path

Can use different devices to segment

Tier by speed & data allowance:

E.g. Vodafone Germany’s, Telia in Sweden

Average speed is an opportunity for operators to gain credibility

Fixed & mobile ISPs coming under increasing pressure from advertising

standards agencies

Verizon Wireless markets "typical 4G speed" of 5-12Mbps (downlink)

Up to regulators to formulate common methodology for speed claims?

Users need usage monitors & clear upsell path to manage excess usage

Source: Telia (Sweden)


What we don‟t like: Surprising customers

“Unlimited*” data plans for LTE

Charging & Fair Usage Policies that are not upfront & clear

Another opportunity for operators to earn credibility

Low volume users are subsidising the “bandwidth gluttons” today

Don’t penalise them, e.g. OFTA bans imposing FUP on capped plans

With LTE, more pertinent to charge for excessive data usage?

Operator reluctance to enforce Fair Usage Policies

Creates confusion – does it apply or not?

Wide ranging average speed claims (e.g. 10-80Mbps)

Bill shock

Let customers see what they’re doing

Excessive additional data fees

Does Coca-Cola charge more for additional cans?

Source: Daily Record


Key messages


LTE pricing: key messages

Preferred approach today is to stagger tariffs by speed & allowance

Step outside your comfort zone to ensure profitability

E.g. DoCoMo introducing capped plans

LTE perceived as a “new” service in mind of the consumer

Moving forward:

Simplicity

Honesty & realism

Beware hidden & opaque charging & Fair Usage Policies


Thank you

Steven Hartley, Practice Leader, Telco Strategy

[email protected]

May 2012

Steven hartley ovum-thurs_zone-2_masterclass-2_thurs

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