What Price Mobile Broadband?

Broadband on the move was always the promise of 3G.

Now, three years after the first 3G networks were deployed, the availability of High Speed Packet Access (HSPA) radio technology allows mobile operators to finally offer wireless broadband services at speeds of up to 3 Mbit/s per user.

Without a doubt, this represents a triumph of technology, engineering, and perseverance. But was it worth it? Can 3G deliver broadband services at prices low enough to attract mass-market customers already faced with an abundance of connectivity at home and at work?

This is one of the questions behind the new Unstrung Insider report, Mobile Broadband Pricing Strategies & HSDPA, which examines and evaluates 78 price plans from 24 different operators in 17 countries to identify winning strategies for mobile broadband service provision.

Vital to the debate is the commercial launch of HSDPA (High Speed Downlink Packet Access). With almost 90 networks launched in 2006 and a slew of further network upgrades scheduled for 2007, this technology looks capable of re-casting the economics of wireless Internet services. (See Release 5 to the 3G Rescue and Will the Real 3G Please Stand Up?). It certainly works well enough, according to this end-user review from the U.K., Vodafone’s 3G Broadband Service.

Simply put, HSDPA delivers a vast change in 3G capability thanks to the introduction of more advanced multiplexing and modulation techniques. For the end user, it increases data rates from peaks of 300 kbit/s with regular 3G to almost 3 Mbit/s in advanced HSDPA networks. On the network side, it allows operators to support roughly six times more simultaneous users per cell than before.

Combined with other benefits, such as lower latency (currently in the region of 100 ms to 200 ms), this dramatically improves operator economics and, in theory, means service providers can offer faster, yet lower-cost, services. It's the killer combination that could shake 3G from its slumber.

Pricing services that run over this new network, however, poses a dilemma that echoes the packet- versus circuit-switched culture clash that ripped through the wireline market. It's clear that a metered pay-per-minute/megabyte model is inappropriate, yet how exactly to price services that consume what is still a scarce resource (wireless bandwidth) is difficult, even for operators that are masters at creating tariff structures designed to maximize yield from a mobile customer base.

This challenge has led operators to adopt, or at least to trial, a dizzying variety of pricing schemes. Tariff strategies analyzed in the report include tiered service by data rate; variable data transfer limits; application-specific pricing that sometimes includes a premium voice over IP (VOIP) option; unlimited data plans; extended contract periods; bring-your-own modem deals; special launch offers; discounts for voice subscribers; bundled DSL packages; and embedded modules for laptop leasing schemes.

Such diversity reflects the large number of operators covered in the report that are each working with specific local market conditions. But amid the confusion, from those more enlightened operators, what looks like the sweet spot of mobile broadband pricing is emerging in the form of price plans with data transfer limits of 1GB per month or more on 12- or 18-month contracts with bundled modem cards and overage charges or fair use conditions to mitigate the risk of network congestion from streaming media applications. The average price of this kind contract is around $66 a month.

This highlights another major finding from the research: Very few operators have substantially altered pricing to reflect the improved economics of HSDPA and most have maintained existing tariff structures designed either for regular 3G or, in many cases, even 2G GPRS services. Operators are thus looking to sell faster speeds at old prices.

It’s too early to know if this is a good strategy. There is still not much hard evidence to say that lowering wireless data prices will substantially increase the overall market size, and clearly operators are using high tariffs to fend off low-margin bit-pipe scenarios that they've fought so hard to avoid.

But somehow, it just feels wrong that some of the cost benefits of mobile broadband technology shouldn't feed through to customers in the form of lower prices. Intuitively, that would seem to be in the best interests of service providers.

— Gabriel Brown, Chief Analyst, Unstrung Insider

The report, Mobile Broadband Pricing Strategies & HSDPA, is available as part of an annual subscription (12 monthly issues) to Unstrung Insider, priced at $1,595. Individual reports are available for $900. To subscribe, please visit: www.unstrung.com/insider.

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