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Allot: Apps-Based Plans Bring Higher ARPU

Sarah Thomas
7/15/2014
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The percentage of operators offering some form of value-based pricing plan has grown 50% since 2011, according to new research from Allot. The deep packet inspection (DPI) specialist's research suggests an obvious reason why too -- the plans are leading to higher average revenue per user (ARPU).

Allot Communications Ltd. (Nasdaq: ALLT) defines value-based pricing plans as anything that goes beyond just selling bytes of connectivity. By far the most popular variation is application-based pricing -- partnering with app developers to offer their services "toll free," so they don't count against the data plan. When it first conducted its study in 2011, only 35% of operators had delved into this. In 2012, that rose to 59%, but now in 2014, it's up to 85%. (See New Ways to Pay for Mobile Data.)

Allot pulled its findings from the publicly available information of 175 mobile operators across the globe; this year, it also included their financials. From correlating the two, it observed that operators with app-centric plans have a higher average ARPU ($16.71 versus $15.25) and a lower average churn rate (3.21% versus 3.71%) than their competitors. The difference was even greater in emerging markets.

"You are not loyal to gigabytes or connectivity, which is a commodity," says Yaniv Sulkes, Allot AVP of marketing. "If it's bundled with something you use and need, it's more difficult to let go and disconnect and move from one operator to another."

Allot, of course, powers these types of app-based, value-centric data plans, but Heavy Reading has observed a similar uptick in data plan experimentation. Analyst Graham Finnie says that, for several years now, the case for investment has been shifting from traffic management to service differentiation. A lot of the conversation has been theoretical, but in the last year, there's been far more actual innovation going on with real services being tried out. (See Carriers Warm Up to Service Innovation.)

What he hasn't seen is the connection between app-centric data plans and higher ARPU. If it were replicated, Finnie says, it would attract attention, because telcos are often skeptical about new ideas unless they can see evidence they might work.

"The biggest problem with investment justified by its supposed contribution to service innovation is that it's hard to make the business case," Finnie says. "Studies like the Allot one might help to convince them."

The shift to more creative pricing has not been a wholesale move, though Sulkes does say unlimited data plans are "dinosaurs," with the exception of Sprint Corp. (NYSE: S). Instead, operators are forming one-off app partnerships, offering a shared data option, or experimenting with other promotions and subsidies. Facebook , by far, has been the most common app to partner with, due in large part to its popularity and the fact that it doesn't consume much bandwidth.

"Whether its zero-rating, toll-free data, sponsored, etc., Facebook is top app," Sulkes says. "In our sample, we see dozens of operators offering Facebook for free. If you extrapolate to 1,000 operators, we're talking about hundreds offering Facebook as a plan in some way, shape, or form."

The trend of partnering with companies like Facebook is taking off the most in Europe, where there are many regional operators and segmented markets, followed by Latin America and North America. Sulkes says the shift isn't isolated to small carriers or emerging markets. To name a few, Bouygues Telecom partners with Genband Inc. to offer free international calling on fring; complink 1560|Deutsche Telekom AG} has a promotion with Twitter Inc. ; and VimpelCom Ltd. (NYSE: VIP) in Russia has a zero-rating deal with WhatsApp. (See Bouygues First to Use Genband's fring.)

Despite the controversy over some of these app-based pricing models, like AT&T Inc. (NYSE: T)'s toll-free data plan, the overall good news Allot has uncovered is that operators have become much friendlier to consumers over the past three years. There are fewer hard data caps, more notifications being offered, and more creativity. Allot expects those trends to continue. (See More AT&T Toll-Free Data Apps Trickle Out and AT&T Toll-Free Data: Innovation or Rip-Off?)

— Sarah Reedy, Senior Editor, Light Reading

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Liquefied
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Liquefied,
User Rank: Light Beer
7/18/2014 | 3:38:37 AM
Re: churn and ARPU
Facebook/Social Media plans do have their issues. For example, I buy a Social Media plan in order to get free Facebook access. I go to Facebook and watch a video: this action takes me into YouTube: which is not one of the free apps and ends up costing me a lot of money. Queue extreme customer dissatisfaction!

I think Value-Added data plans make more sense when the data access subscription is bundled with a content subscription, e.g. Sky TV, Spotify, etc.
bobmachin
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bobmachin,
User Rank: Moderator
7/17/2014 | 4:53:01 AM
Re: churn and ARPU
I don't think it is about ARPU - not at this point anyway. It's about holding on to the customer and building confidence in mobile data services, ready for the as-yet-unspecified big revenue-earners to emerge further down the track...
sarahthomas1011
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sarahthomas1011,
User Rank: Light Beer
7/15/2014 | 9:39:51 AM
churn and ARPU
The correlation between apps-based pricing and ARPU is interesting about this study. Business models are the one primary thing holding operators back. While I agree that consumers understand apps much better than bytes, I think they will want plans they don't have to think too much about. Zero-rating apps needs to be straightforward and easy to understand and use and result in cost savings. I could see that helping with churn, but I'm not sure I see where the higher ARPU comes in, at least not in developed markets.
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