An airline model for mobile data

(This story is part of Connected Planet’s Mobile Data Paradox microsite – an ongoing collection of features, blogs and opinions on the key question facing mobile operators today: how do you make a business of 4G and mobile data?

It all leads up to the 4G Salon event at our upcoming Connected Planet Virtual Industry Forum. Register now to join us at this exciting, interactive event.)
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We’re just at the beginning of our new interactive feature, The Mobile Data Paradox (for the rundown see my intro column). We’ve gotten a few topical blog postings up on the microsite, but for our first feature we decided to tackle a subject that at first glance isn’t obviously related to the problem of ever-increasing consumer consumption: machine-to-machine communications.

The premise of the feature is that M2M allows operators a much more granular approach to charging for mobile data than in the consumer market. By selling network access by the kilobyte, by the connection and even by the use-case, operators get build a much more realistic business model for mobile data billing, more accurately trading off costs for revenues, than they can for all-you-can-eat or loosely tiered consumer data plan. I wanted to explore the possibility of applying these more-specific billing models for the consumer space.

The conclusions were a bit mixed. To a certain extent some of those M2M business models have already permeated the consumer world. The Amazon (NASDAQ:AMZN) Kindle is probably the best example of consumer broadband application that uses a transaction-based billing model that you’d find in the M2M world. But the Kindle is also a purpose-built device designed to do one thing: download books and magazines. Because there is basically only one kind of data transaction you can perform on it, it’s easy to introduce a specialized billing scenario, which lumps the cost of data and the cost of content into a single charge.

Now take the Apple (NASDAQ:AAPL) iPad, an e-reader that does so much more. Introducing data pricing models that charged different rates or used different billing schemes for each application would be a nightmare for operators and consumers alike. So while data plans may tend to move away from unlimited to usage-based, they’ll probably still be generic data plans, which make no billing distinction between types of application or use case. The level of complexity a consumer with a single subscription is willing to put up with is much lower than that of an enterprise with thousands if not millions of devices attached to its bill.

But in exploring the topic of M2M billing models, another interesting question was raised. Would the rapid growth of M2M communications make the issue of consumer data consumption moot? It sounds like the plot of a dystopic science fiction movie in the vein of The Terminator, but all research points to the rise of the machines. Some analyst predict that the number of machines connected to the network could outnumber "connected humans" by 50 to 1. If that’s the case, could the wireless industry be raking in so much money from enterprises — all of which would presumably use these more granular M2M business models — that it doesn’t really matter if the operator is making little, or actually losing, money off of generic consumer data plans?

In my interview with Kore Telematics chief operating officer and president Alex Brisbourne he compared such a scenario to the airline industry, in which business travelers pay a premium for tickets while leisure travelers get a discount for purchasing well in advance and a willingness to be flexible in their travel plans. Though the analogy isn’t exact, you could envision a wireless network where businesses pay extra, or at least full value, for their ride on the mobile network, while consumers get a steeply discounted fare. That hardly seems fair to enterprise M2M customers, just as business flyers often see it as unfair that they pay so much more for the same seats as their vacationing counterparts. That’s one way to look at, but as Brisbourne points out you could also view the Airline model as one in which leisure travelers actually subsidize business travelers.