It’s not wise to sell Mercedes to everyone

By BP Tiwari

I was reading an article by Andrew Mitchell in which I found KDDI president and chairman, Tadashi Onodera in MWC, “explained to the audience that the economics of mobile broadband and flat rate pricing are “a big headache for operators.” The panel also reviewed the challenge operator’s face in finding ways to pay for infrastructure.  Flat rate pricing and the ever-increasing demand for data services to deliver new applications implies that this challenge won’t be going away any time soon.” KDDI does not plan to implement tiered charging. However China Unicom has plans to introduce Quality of Service (QoS) based differentiated pricing. [1]

Clearwires in US offers unlimited flat internet plans which are starting at US$ 30 without any QoS(quality of service) commitment. They sell their service with best effort delivery of data and promise better speed than 3G with speeds up to 6 mbps.

Yota promotes it WiMAX as a flat unlimited internet with monthly service plan at US$30 and UQ Communications in Japan offers their unlimited flat internet service at US$50. There is no quality of service promised in these networks and I do not see tiered charging in these new 4G RANs. Notable, KT in Korea as well sells their service at flat US$22 and promises speeds up to 3mbps in downlink and 1 mbps in uplink.

But in Asia the trends are quite diverse. Packet one sells it packages with tiered charging [2] and differentiated QoS for home and office users. In India, TATA and Reliance sell QoS based tiered charging in their Fixed WiMAX networks. I see a larger number of operators selling their packages in tiered charging in Asia and Africa.

The data as a percentage of total revenues in countries like India, Brazil, Thailand, Mexico and others are very low as compared to some of the more matured markets in the world. Countries like India and Brazil has less than 10% of total wireless revenues from Data and most of the revenues are generated form SMS based services .On the other hand, nearly all of the major operators around the world have double digit percentage contribution to their overall ARPU from data services. Operators like DoCoMo, and Softbank are over 44%. KDDI, 3 Australia, 3 Italy, 3 UK, Vodafone UK, O2 UK, KTF, Telstra, and 3 Sweden exceeded 30% and many others are on the verge of crossing the 30% mark [3].

3 Australia operators reported the highest increase in data ARPU from 2008 with 31% growth. Other notable percentage increases in ARPU were from 3 Italy, SK Telecom, KTF, T-Mobile Germany, 3 Sweden, and T-Mobile Austria. The Japanese operators saw a decline in ARPU by 3%. In terms of absolute dollar amount, NTT DoCoMo leads the pack with $25 data ARPU. The average Data ARPU .

I see a strong relation with counties purchasing power parity per capita GDP (PPP) and affordability to pay for broadband services. Countries like India, Brazil, and Thailand will continue to sell tiered charging based packages for their customers as their data ARPU is far small than other matured markets. To make broadband affordable and outreach to masses low entry tiered packages would continue to be sold in these markets. Both WiMAX and LTE have capabilities to support this kind of charging mechanism.

I can understand, when KDDI president said “we do not plan to implement tiered charging“, he might be referring to US$50 flat internet which their consumers can possibly pay. In India operator will have to serve five broadband connections at that price ( taking US$10 as average revenues). I am certain we will see tremendous innovation to drive down cost of infrastructure and opex to make broadband affordable but that itself is not enough to provide flat internet in very low ARPU. This could be one of the reasons for China Unicom’s strategy of introducing plan for tiered charging and QoS for their Customer [4]. Tiered charging will continue in low data ARPU countries for making broadband affordable and entry price as low as possible. “It is not wise to sell Mercedes to everyone we need Nano for some”

Thanks