Mobile operators in China and Taiwan face a 5G pricing conundrum. They are not alone. The challenge is this: how to charge for 5G, when there are already cheap unlimited mobile data plans in the market?
5G's increased capacity allows operators to launch unlimited mobile data plans with no usage restrictions, which we refer to as "true" unlimited data plans. These plans exist in many markets today, but for the purpose of this opinion piece, we will discuss market conditions in China and Taiwan. In both these markets, government influence (pro the consumer) resulted in the launch of unlimited plans, and at low monthly price points. In China, the unlimited plans have data usage caps in a similar way to the US. In Taiwan, "true" unlimited data plans exist.
On tour recently to both these countries, operators expressed concern about "where next?" In Taiwan, one leading operator said it did not even want to launch 5G in 2019 but had no choice, since the competition was circling and would do so. We discussed new digital services as a differentiator (e.g., VR games) and how this was an opportunity to launch a higher-tier unlimited plan and drive upsell. The operator's response was that it didn't know what those new 5G-enabled digital services would be.
The situation is dire in China. Current unlimited plans do not differentiate on OTT video or premium content (e.g., sports rights), which is considered to be one of the main ways to drive upsell and differentiation of service plans in a 5G world. Rather, price and data allowance are the main differentiators of unlimited plans in China. Only once has a Chinese operator ever invested in premium third-party content rights – China Mobile did so earlier this year, by buying the World Cup soccer rights. The reason is simple – the rights are too expensive and not monetizable in such a low ARPU market. Also, the OTT video giants in China have no need for a Chinese mobile operator to drive scale – they already have all the scale they need.
Therein lies the conundrum. Operators in these markets (and others) need to offer something more to consumers with 5G, so that they, in turn, can charge more for apremium plan. The Korean operators are ahead of the curve, investing heavily in VR and AR as differentiators. In the lead-up to 5G mobile services launching in March 2019, all three operators launched true unlimited data plans, with additional shared data buckets (e.g., for family, friends, or secondary devices). However, these plans (LGU+ was the first to launch in February 2018; KT was next in May 2018) did not help stem declining average per-megabyte prices (of 30-day postpaid plans) in Korea (see Figure 1). It did not help that they were launched at the same time as government pressure that led to the launch of cheaper tiered plans. Regulators in Korea, Taiwan, and China are obviously part of the mobile charging dilemma, and should take a more hands-off approach, or their intervention in (low) tariff setting could jeopardize 5G investment.
Figure 1: Despite true unlimited plans, per-megabyte prices tumble 15% between 2016 and 2018
The world's eyes are on what new digital services the Korean operators will launch with 5G. They are particularly upbeat about VR, for instance – more so than operators in Western Europe. Some new services could be standalone (and charged individually), but most are likely to be added to the premium mobile plan. Not all operators, of course, can invest in new or better digital services for 5G – nor should they strive to. In fact, some operators will provide connectivity only with 5G. The challenge for operators is to understand the new 5G value chain and their role in it.
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