Analyst: Carriers set to introduce usage-based mobile data pricing

This year may well be the year that wireless operators adopt usage-based pricing models for their heavy-volume mobile data users, according to analyst firm Deloitte. With smartphone traffic eating up increasing amounts of data capacity and a small percentage of those users hogging the largest percentage of that bandwidth, carriers have little choice but to abandon their all-you-can-eat smartphone data plans and implement pricing models more equitable to all of their customers, said Phil Asmundson, Deloitte vice chairman and leader of the firm’s US technology, media and telecommunications group.

“If you look at what’s happening today, they’re being forced by necessity to adopt usage-based models,” Asmundson said. “All-you-can-eat business models depend on your ability to predict how much data your customers will consume. The iPhone has proven that you can’t make those kind of predictions.”

Due to that lack of predictability, operators are witnessing their data traffic increase at far faster rates than their revenues, but the balance is highly skewed toward high-volume users who not only are using more than their ‘fair’ share of capacity and limited network resources but are degrading the user experience for all customers, Asmundson said. Speaking at a recent UBS conference, AT&T (NYSE:T) mobility CEO Ralph de la Vega acknowledged that while AT&T’s data traffic had gone up 5000% in three years, only 3% of its smartphone users were consuming 40% of all network traffic.

Such a system is untenable from both the operators’ perspective and from the perspective of the majority of their customers, Asmundson said. Operators are not only collecting fewer revenues than they would under a usage-based or tiered pricing structure, but lower data-consumption customers are shouldering a much higher percentage of the cost of operating the network based on their usage, Asmundson said.

Carriers aren’t strangers to the concept of usage-based pricing—they use it for overage charges on mobile broadband and to bill customers without data plans—but so far those charges have only served as punitive measures designed to encourage customers to upgrade their service. A true usage-driven model should work the opposite way, Asmundson said. Instead of scaring customers about using data, the rates should be reasonable enough to encourage them to continue using their connections.

At his speech, AT&T’s de la Vega outlined one of the biggest obstacles to usage-based pricing: customer education. Few customers understand how much data any particular application consumes. Asmundson said that while that education is necessary, operators could quickly do it by simply coming up with better notification schemes, such as pre-download alerts detailing how much data a particular session would consume or a simple universal counter that gives customers a real-time measurement of their monthly data consumption.

Asmundson said that the advent of Long-Term Evolution networks in the US this year may be the opening operators need to tinker with their pricing models. “There’s nothing wrong with saying, ‘We’re in a period of transition—let’s try something different,’” Asmundson said.