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James_B_Crawshaw
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James_B_Crawshaw,
User Rank: Blogger
1/10/2017 | 7:00:24 AM
Revenue and cost per bit analysis
Globally, I think most mobile data services are now sold as bundles (albeit with tiered usage caps) rather than on a per GB basis. Given that these bundles usually also include voice and SMS I don't know how operators would work out the revenue per bit. Vodafone, Verizon and others stopped reporting mobile data ARPU several years ago for this reason. Calculating consumer fixed data revenue should be simpler if it is priced separately from voice minutes and line rental.

Usage based pricing for telecom data is unpopular with consumers as this Cisco study indicates.
http://www.cisco.com/c/dam/en_us/about/ac79/docs/clmw/Usage-Based-Pricing-Strategies.pdf

Other utilities such as electricity and natural gas are priced per usage. But for these services the cost of the product being delivered (gas, electricity) is a much greater proportion of the total costs of the service (including infrastructure) than it is for telecom operators. That is to say, the marginal costs increase significantly with usage for gas and electricity providers while the marginal costs (excluding fixed costs) for telecom operators are insignificant (inter-connect, additional electricity to process packets).

Calculating the cost per bit for telecom operators might be as simple as dividing total costs by the number of bits. But is it a meaningful metric? Surely what is more relevant is understanding the incremental cost per MB (additional capex/depreciation) and comparing this with the incremental revenue per MB. I think we would end up comparing a number that is close to zero (incremental cost per MB) with zero (incremental revenue).

Anecdotally, Swisscom and Vodafone do not appear concerned about rising data volumes as this article points out:
http://5gwnews.com/index.php/90-r/574-100-wireless-demand-increase-easily-met-swisscom

"the move from 3G to 4G LTE reduced costs [per GB] from 50%-90%. We're seeing a similar fall as telcos go from LTE to LTE Advanced".
Gabriel Brown
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Gabriel Brown,
User Rank: Light Sabre
1/10/2017 | 3:33:54 AM
Re: Profits
I'd be very cautious about this claim that the cost to transport bits is greater than revenue. It's not spelt out in the article or the blog post what is referred to. Does he equate revenue to the retail price?. As Iain says, many (most) operators are profitable. 

The only way this might make sense is SVPCloud29186's comment:

The study referred to at Verizon was looking at the backbone costs of transport, not the access, and certainly not 4G and beyond.  The way I think about it is that now the access services (broadband, video, advertising) must subsidize the transport network.  Profits are still generated, but there is incerasing drag on them.
brooks7
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brooks7,
User Rank: Light Sabre
1/10/2017 | 1:04:21 AM
Re: usage based billing
Carol,

If there are retransmitted packets, one might count them against the usage cap.... :) 

Edit:  I just realized that you might not know that there is an anti-congestion protocol that tosses away random traffic.  You could have it on and then change the parameters anytime you wanted to make more traffic happen.  Not good throughput, but just bits.

So, how about this...all Internet Service is free up to 1 TB of traffic.  That number doubles every 2 years.  After that you can charge.

seven

 
mcande
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mcande,
User Rank: Light Weight
1/9/2017 | 7:09:12 PM
Re: usage based billing
I'm not saying charge more for a better experience. When you sign up for electricity, you don't ask for a 20Amp service because you only have two light bulbs and a toaster; you get a 200Amp service and you consume only what you need and are billed accordingly.

Service providers could charge a base rate for internet and only bill for the usage. If someone only emails and does light social media, why should they subsidize the heavy video user who should be paying more for their usage. Every consumer (rich and poor) should have the best connection (experience) possible.
Carol Wilson
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Carol Wilson,
User Rank: Blogger
1/9/2017 | 6:36:00 PM
Re: usage based billing
Service providers would love to charge more for a better experience, but regulation makes that unlikely. 

 
Carol Wilson
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Carol Wilson,
User Rank: Blogger
1/9/2017 | 6:35:16 PM
Re: usage based billing
Okay, I'll bite - how does throwing away more packets in WRED generate more revenue?

 
brooks7
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brooks7,
User Rank: Light Sabre
1/9/2017 | 5:37:00 PM
Re: usage based billing
 

No fast lanes...Title II remember.

 

And Carol, all the SP would have to do to increase revenue is to throw away more packets in WRED.  

seven

 
mcande
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mcande,
User Rank: Light Weight
1/9/2017 | 5:27:50 PM
Re: usage based billing
Where consumers will see the value is by eliminating the tiered pricing. They will be willing to pay for a better experience. We have been doing it for years with natural gas, water, electricity, etc.
Carol Wilson
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Carol Wilson,
User Rank: Blogger
1/9/2017 | 5:22:32 PM
Re: usage based billing
Possibly because consumers would revolt. There was a usage-based billing push for broadband about 10 years ago and regulators and consumers alike pushed back. It turned out almost no one truly understood how much bandwidth they were using. Consumers didn't like the idea of bills that fluctuated and some of them didn't trust their service providers to accurate track their usage. 

I think it would still be a hard sell today, but maybe I'm wrong. The closest thing is the usage buckets that wireless providers offer. 
brooks7
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brooks7,
User Rank: Light Sabre
1/9/2017 | 5:22:00 PM
Re: usage based billing
 

All of the plans - SDN, NFV (usage based pricing) are all about increasing the price of service.  What I think there is little discussion of is the value that customers are going to derive from that increase in pricing.  By trying to raise the value of Enterprise cost per bit per second, the carriers are going to drive the bulk of traffic into large data centers where Enterprises will simply bid out to the lowest bidder the required bandwidth.  Consumers will simply complain to the FCC who will probably slap on price caps.

So, if you want adoption of all this modern stuff...figure out how it will drive down Enterprise spend.   Because THAT is the value that people will pay for.  You won't raise the top line, but the goal is bottom line - so less expansion to make the revenue number.

Other than that, you will see ongoing consolidation plays.

And Telecom Equipment has been in a depression since 2000.  It isn't coming back to where it was in the hey day of the CLEC/dot.com days.  The money has moved into other places.

seven

 
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