For a tariff innovation analyst, the upcoming launch of another "G" had the mind bubbling with new ways to charge for next-gen mobile services. I was planning to reiterate Ovum's "think outside the box" pricing innovation mantra for communications service providers (CSPs) gearing to launch 5G services for smartphone users in 2019. I then began looking at innovative charging models around quality of service (e.g. speed guarantees), data prioritization, and lower latency (e.g. for a mobile gamer). However, my grand visions of 5G-driven tariff innovation quickly faded away upon speaking with CSPs.
Mobile traffic is growing 40–50% per annum in some markets, and CSPs need to continue to invest to meet that capacity. Theoretically, 5G means increased network capacity in the region of ten times. In other words, 5G allows CSPs to provide more capacity at a lower cost, and that is the heart of the 5G business case. Sound familiar? It should. That is the same business case that drove CSPs to upgrade to 4G.
One CSP went so far as to say that in the event mobile revenues do not grow, the lower cost of delivery means traffic growth at least can be supported. The source continued that 5G is not about individual ARPU increases, rather it is about increased capacity with the prospect that maybe telcos can layer new services over the top. Therein lies the reality check for CSPs.
The consensus is that a 5G early adopter will buy a new 5G phone and upgrade to a larger plan that costs more, with CSPs offering "more for more," as they did with LTE. That assumes consumers will be willing to pay a premium (which will likely be less than it was with 3G to 4G as competition is more aggressive) for what is essentially hotspot coverage that benefits the telco. Only a couple of niche use cases (e.g. fixed wireless LTE) require the full power of 5G from day one – but that's a whole different can of worms!
On the pricing front, CSPs will offer very big data buckets or "true" unlimited mobile data plans (no throttling or data usage caps). Many 5G early movers already have unlimited plans in the market, contributing to the growth in data buckets of at least 25GB (see Figure 1).
Figure 1: Mobile data buckets* almost triple in size in four years
But CSPs still need to remember the Golden Rule of pricing: Remember the Upsell. Where does a CSP with a true unlimited plan for 4G (with no differentiation in any layer) go when it comes to pricing 5G? That is a major problem.
CSPs will still need to innovate around charging schemes with 5G, and that means ensuring upsell is built in. Some telcos are clearly prepping for this – offering "unlimited" plans with data caps (which continue to increase with 5G looming), and building in other differentiation points around content, definition of that content (SD vs. HD), and mobile hotspot usage. We have even seen true unlimited data plans that factor in the upsell with different speed tiers.
Tariff innovation for 5G may be less than I hoped for, but CSPs might regret it if they do not ensure they future-proof for the upsell.
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