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US Wireless Data Needs to Be Cheaper

LR Mobile Column
LR Mobile Column
LR Mobile Column
6/21/2002

When will wireless carriers take the plunge and start offering data services cheaper? Verizon Wireless just blew its chance to make a name for itself -- as well as build a decent user base and attract enviable revenues -- by deciding to offer unlimited data downloads for $100 a month on its 2.5G Express Network. It seems these carriers do not have the necessary faith in their own networks to stimulate the market.

Regular readers will know that the pricing of data services is something of a bête noire with Unstrung (see Commentary: Cut Those Crazy GPRS Prices!). The promise of next-generation networks -- whatever technology they happen to be based on -- is that the customer gets billed only for the packets of data they download, rather than the time spent on the phone.

However, although packet data services used to be considered a potential panacea by industry watchers a few years back, the pricing strategies of many carriers around the world indicate a reluctance to kickstart the mobile data market.

In Europe, that reluctance is understandable. Carriers have had a comfortable revenue stream from wireless data -- thank you, SMS -- for several years now. And they don't want to mess with it and break the "625 rule" -- so-named because, on average, carriers make $625 per megabyte of text message sent.

However, even taking into account the high prices charged by leading European carriers such as Vodafone Group PLC (see Vodafone Launches (Expensive) GPRS Euro Roaming), they can't reasonably hope to charge much more than $10 per megabyte on standard data downloads over general packet radio service (GPRS) networks.

This is why Euro operators are so gung-ho about multimedia messaging service (MMS), which will allow users to send pictures with audio over the networks. MMS pricing patterns suggest that the price per message will be reasonably low in order to attract consumers. If they get hooked on it (and this isn't as inevitable as some operators and vendors would have us believe), customers just may use it a lot.

In the U.S. there is no real reliance on text messaging as a revenue source, as carriers there are still in "early adoption" stage with SMS and are still texting the waters. However, investors are very keen to see operators offering wireless data services, as it might help to keep the all-important average revenue per user (ARPU) figures steady, now that voice is becoming ever less expensive.

The question keeping the U.S. carriers up at night is: How do we price these services?

Unstrung thinks they should ignore the example set by their European cousins. They should bite the bullet, stack the data high, and sell it cheap. Of course, it'll be costly to start with, and it might also show that the new GPRS and CDMA 1xRTT networks cannot handle the combined weight of voice and increased data traffic (we've heard a few rumors…). But these problems have to be faced sometime, and there's no point in putting it off.

Someone has to start the wireless data revenue ball rolling in the U.S. Intermediate technologies, such as GPRS and 1xRTT, provide a fantastic opportunity to find out which pricing schemes and applications really appeal to business users and consumers.

And it's not as though there aren't other wireless data options available now or just around the corner, such as wireless LAN or Flash OFDM (see Nextel Trials Flarion's Flash). U.S. carriers need to establish some mind-share now and hone their applications, whether messaging or location-based, so they make sense on a mobile phone (this is not the Web in your hand!). And they need to make it cheap.

As far as we know, Sprint PCS is the first U.S. carrier to take on the cost challenge. The company has already said it's planning to come in at a lower price point than its rivals, and all the talk we've heard at conferences just confirms this (see Sprint: Next-Gen Data Services Should Be Affordable). But Sprint mustn't wimp out. It must come in 50 percent lower, not 5 or 10 percent.

So Unstrung issues this challenge to Sprint PCS: Show some faith in your network, your customers, and the future of mobile data services. Set some prices that will get your users downloading, your network jumping, and this industry buzzing.

— Dan Jones, Senior Editor, Unstrung
http://www.unstrung.com

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Guglielmo
Guglielmo
12/4/2012 | 10:11:24 PM
re: US Wireless Data Needs to Be Cheaper
While I agree $100 per month will limit initial acceptance to only the most aggressive users, I applaud VZW for getting the price *structure* right. They initially offered pricing by time duration (clearly flawed for an always-on service), then pricing by byte volume (better but still unfamiliar and thus worrisome to users). A flat rate price is familiar and easy to budget.

I imagine VZW has started with a high price to throttle initial demand, as they iron out early provisioning problems. (Recall the horror stories of early DSL.) Also, they might as well collect these premium prices from early adopters while they can. No different than the high-priced early days of mobile phone service. They can lower price as provisioning simplifies and demand grows.
lrmobile_kr
lrmobile_kr
12/4/2012 | 10:11:10 PM
re: US Wireless Data Needs to Be Cheaper
Dittoes ... It's not a bad strategy and $100 per month is not a bad price break.

The real difficulty with GPRS and 1xRTT is that they share the spectrum with the voice services. Too much initial demand may result in poor latency for data services and poor availability for existing voice customers.

At $5 per megabyte, people may be scared of getting on due to uncontrolled content like pop-ups and Microsoft security updates.

Who do you think the early adopters will be? I think outside salesmen - Real Estate, Food Distribution, Medical Supplies... also insurance claims adjusters and police units where timeliness of accurate data is important. Can they afford $100 per month - only the market will tell. It's hard to bring prices back up when they are low to begin with.

I can imagine you will see $100 per month including 802.11 hot spot coverage from some competing carriers soon. This would satisfy the hunger for mobility and bandwidth, but not at the same time.

kr
Wireless-Steve
Wireless-Steve
12/4/2012 | 10:03:54 PM
re: US Wireless Data Needs to Be Cheaper
I agree that Verizon is getting it right with an "all you can eat" data package from the start. Corporate and government entities are going to compare that to the other major carriers' pay-as-you-use pricing plan (and the better speeds 1xRtt is giving compared to GPRS) and seriously make the switch. AWS wont make the plunge until they loss some substantial business but VoiceStream is looking like they will go for an unlimited price plan soon enough.

The new data networks are a catch-22 for the carriers. They need people to use it to pay for it, but people wont use the new networks until the prices come down. *sigh*
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