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June 20, 2012

Value-Based Pricing Starts to Take Hold

By Gary Kim, Contributing Editor

Both service provider executives and their suppliers have been talking for quite some time about ways to shift the retail pricing of broadband access from either flat rate or metered mechanisms to charging mechanisms that price by “value.”

Some will dispute whether many of the innovations actually represent value-based services, and which are new services and features. In the former case, one might argue, a service provider changes a “commodity” into something with differentiated features.

In the latter case, a service provider creates a new feature or service that incrementally increases revenue associated with an access service. Both methods increase revenue, but some might argue the former approaches are strategically more important, as they change the user perception of access from a simple commodity to a range of discrete access products.

Still, a new study by Allot suggests those ideas are becoming policies. Some 46 percent of service providers polled by Allot (News - Alert) now offer some sort of value-based plans, with services such as parental control or music streaming providing examples.

The study suggests that, at least in the mobile realm, users are willing to pay more for a better Internet experience. Value-based charging strategies make it possible to charge subscribers based on the perceived value of a used service, rather than on time, volume or speed. 

For example, depending on their needs, subscribers of some operators can now choose to purchase a multi-device plan or a parental control service.In some cases, operators also partner with over the top (OTT) application and content providers to monetize traffic on their networks, simplify billing and improve user experience for their subscribers. In other cases, OTT content is zero-rated, to differentiate the operators’ offering.

The point is that selling broadband Internet access in ways that make the service a "commodity." Text messaging, various forms of voice, video entertainment and broadband access all use the same "pipe" and require "bandwidth." But the features and retail pricing of each service is distinct. Ideally, that should be possible with various types of access services as well.

Edited by Amanda Ciccatelli
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