Efrat Nissimov Efrat Nissimov Director of Product Management - cVidya

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Why the world isn’t flat (rate)

  • The telecoms industry is in a state of flux. Communications service providers (CSPs) need to invest heavily in new high-speed networks to meet soaring demand for data traffic. Yet, in many markets, CSPs’ revenues are declining as prices come under pressure from intense competition and regulatory changes.

     

    In particular, CSPs’ traditional voice and messaging revenues are being squeezed as consumers increasingly use apps from WhatsApp, LINE, Skype and other online service providers. In some cases, these services have benefitted from CSPs’ experiments with flat-rate “all-you-can-eat” pricing for data traffic.

     

    Although flat rate plans are very attractive for consumers (no surprises or bill shock), such a model is inherently unstable. The deployment of flat rate plans, particularly for data services, tends to send pricing into a downward spiral—these plans effectively ignore growth potential and shift the focus of competition from quality and service differentiation to price.

     

    Still, there are reasons to believe that CSPs can regain pricing power. Demand for connectivity has never been greater. New services and products, such as mobile money, are emerging, creating immense potential for innovation: Video and other bandwidth-hungry applications require advanced access products and efficient networks, while digital connected living, connected cars and other applications of the Internet of Things present new opportunities to monetize networks, services, and operations.

     

    Match pricing with value

    To fund the necessary investment in networks and IT systems, CSPs are adopting more innovative pricing models that provide a better match between the price customers pay and the value they derive from specific services. Successful pricing strategies will be essential to improving profitability for both fixed and mobile broadband operators.

     

    In fact, those markets, such as North America, that pioneered flat rate pricing are now transitioning to a more sophisticated approach. In the U.S., consumers and businesses can now choose from a very broad selection of price plans, including complex tariffs encompassing multiple devices, shared plans, family plans, quality-based price plans and even speed-based data plans. Although flat rate pricing helped kick-start the market for mobile data services in the U.S., the associated risks are now well understood and North American CSPs now recognize that “all-you-can-eat” isn’t sustainable as a “standalone” dominant model. Many European markets are going through a similar transition.

     

    The net result is that a CSP’s business is becoming far more complex than it was four or five years ago and the risks it faces are changing. If they are to build a business case for more investment, CSPs need to combine increasingly sophisticated price plans, with the roll out of new technologies, such as LTE, and new business models, such as sponsored data models, and the emergence of new services, such as machine-to-machine solutions.

     

    Managing complexity-related risk

    More complexity equals more operational risk and a rising need for Revenue Assurance and fraud solutions.  For example, the deployment of LTE brings a number of Revenue Assurance challenges, such as the integrity of porting and mirroring data to new network elements, understanding and collecting data from new elements and the implications of connectivity problems.

     

    Moreover, the deployment of LTE means mobile networks will be mix of 2G, 3G and 4G technologies for years to come. That means subscriber data will be stored in many different locations, typically defined by different access technologies.

     

    At the same time, new pricing models create new Revenue Assurance challenges as consumption or service-based charging is inherently far more complex than transport-based charging. If a CSP introduces Quality Of Service assurances (such as speed of throughout), it needs to verify that the network delivered on those assurances. Furthermore, multiple charging policies might be involved in a single session.

     

    Flat-rate plans aren’t immune

    Unfortunately, there isn’t a single silver bullet. As their service portfolio expands, CSPs will need to use different pricing models for different services in response to the dynamics in their markets. In an effort to compete with online providers of voice and messaging services, many CSPs now offer tiered-data plans combined with flat-rate pricing for voice calls and messaging.  

     

    Flat-rate pricing can reduce complexity, but it doesn’t make the CSP immune to revenue leakage or fraud.  Flat-rate plans eliminate risks for consumers, but not for operators. The wholesale settlement procedures mean operators are still exposed to usage or quantity-based charging, so the operator is still exposed to financial risk and needs to have the relevant controls in place.

     

    For example, an operator could be vulnerable to the automatic redirection of incoming on-net calls to an off-net number. Although the operator doesn’t receive interconnect fees for an incoming on-net call, the redirection means they have to pay for terminating the call on another network. The operator is therefore financially exposed. Controls are needed to proactively monitor such traffic.

     

    In summary, flat rate tariffs aren’t a panacea and CSPs’ world is becoming more complex, not less. Complexity isn’t a bad thing, but the risks need to be properly understood and managed. Now is the time for CSPs to redouble their efforts to counter revenue leakage and fraud.

    Efrat Nissimov
    About Efrat Nissimov Efrat Nissimov works as Director of Product Management at cVidya
    More information : www.cvidya.com