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July 2010 | Volume 2/Number 4
SDPs, SDFs and Innovation

One Price Fits None

By Grant Lenahan

In my last column, I summarized the margin squeeze facing the broadband industry (especially the mobile broadband industry), and laid down the challenge for communication service providers to be able to price their products so that they can be profitable, attractive to consumers, and be seen as executed fairly within each market segmentation. That sounds simple enough, but I think we are seeing some considerable market uncertainties that could stand the way of innovation. What I hear is: What if...

• Data usage volumes grow endlessly. With the proliferation of the iPad (2 million sold in 60 days), networks and smartphones it is very possible that the heavy users of today will become the normal users of tomorrow.

• Under current business models and technologies, margins evaporate as costs growth mirrors usage;

• Network operators don't get their fair share of the value added through their networks and do not have sufficient incentive to invest to meet the future needs of applications, gaming, and the like;

• Net neutrality limits CSPs' ability to protect their business models and the ability to experiment; and

• All of the above collectively alienate customers through exceedingly complex or difficult business practices.

We could dwell on these issues indefinitely. Instead, I think we need to look at this problem differently. While all these concerns are legitimate, the many analyses are a path to nowhere. Given the ability now to price and charge customers on a personalized, individual basis, we can address enough of the challenges to forge ahead with innovative offers.

A wide array of pricing options – tiered, bundled, on-demand, advertising subsidized, all-you-can-eat, flat-rate or pay-as-you-go – can lead to a wide array of benefits for all. We need to provide a range of plans to meet individual communications and financial needs. These plans must be administered consistently and fairly (especially with net neutrality looming in the shadows). If every user is given the same options – if everyone is treated the same – then consumers can select plans that are most attractive to them, that they deem to be the greatest value for their money. We all make that calculation differently and market segmentation becomes market fragmentation. One price fits none.

The set of pricing options may be as boundless as the thinnest slices of a market carved out by video-on-demand, m-commerce, and social networking. The benefit of creating a wide array of pricing options is to satisfy the conflicting criterion of the commercial objectives with government and regulatory constraints. It will be interesting to see prices lowered for some consumers and allowing heavy users to pay for better performance or capacity – if and when they value it and can afford it and will pay for it. AT&T's recent tiered pricing announcement is a move in this direction – one consumers, CSPs and regulators will undoubtedly be watching closely.

Multiplayer (online) video gamers would likely value a turbo button via their gaming consoles that would offer instant access to increased capacity or better service quality (reduced latency). They might not respond to an offer for a higher-tiered service that's on 24/7. Their Twitter and music downloading may run acceptably well via their standard broadband service; but when they pop in Halo3 on the Xbox 360, they don't want to let their best online buddies down when their cybernetically-enhanced human super-soldiers freeze up in the middle of battle due to a bandwidth deficiency. Gamers are very willing to pay real money to upgrade their game features (to personalize their race cars, for example); if they considered QoS as a feature of their game, would they not be willing to open their wallets?

While gaming might be rather obvious, the rest of the Web may also be loaded with hidden nuggets of value, extracted through more interactive pricing schemes. Facebook seems to thrive as much on its interactive games, as it does on its low-bandwidth social networking. While there are too many applications to push pricing schemes out to, CSPs can profit by exposing their pricing flexibility in a way that customers and third parties can opt into easily. Simply put, people are willing to pay for what matters most to them personally.

We need to look beyond basic 3GPP specification compatibility for our infrastructure – OCSs PCRFs and associated components. We need to look to flexibility to implement any business rule and offer concept that you can dream up, and execute it in a very personal and individualized way. Flexibility is going to carry the day. The flexibility can come from traditional competencies: the ability to track usage, track preferences, track locations, track dates, match to a subscriber or group on the network. And the matching part is important. We can build Ferraris on our networks, and no one will turn down a chance to drive a Ferrari. But most people can't afford them. So, if we build and price our products for the network-Ferrari-loving bandwidth hogs (a very small percentage of users who chew up the network), we risk leaving a lot of value-oriented users out of the picture.

Our goal must be to create plans for every purse and purpose, so that each individual sees a plan that meets his or her needs, usage, and schedule.

In doing so we can not only tailor plans to subscribers' needs, but provide many of them with more attractively priced options, and, in the end, with better margins for the industry.

Grant F. Lenahan is vice president and strategist for service delivery solutions at Telcordia Technologies (www.telcordia.com).

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