Analysis: To monetize data, pricing will go through a revolution too

With an explosion in usage, many observers today talk about the mobile broadband data revolution.

But that surge in usage is resulting in a revolution – or maybe more accurately an evolution – in operator service pricing as well.

A week ago, the Wall Street Journal printed a story in which Verizon CEO Ivan Seidenberg talked to the Wall Street Journal about the prospects for ‘speed-based pricing – or charging more for more raw download speed.

That’s only one of many game-changing ideas being proposed as mobile operators deploy 4G networks and services and tweak their pricing strategies.

One way to think about this trend is that service providers are generally transitioning away from flat-rate pricing toward “quota-based” pricing – which in turn will will give way to speed-based pricing and ultimately to actual “value-based” pricing, according to Guy Hilton, director of revenue management, product marketing at Amdocs, who also recently blogged on this topic.

“Service providers are eventually going to see that the best way to monetize data services is to move toward more intuitive pricing that consumers understand: for example, having a movie package that allows five movies for a certain price at an ‘understood’ quality level is easier to understand than paying for 2-gig ‘surfing packages’ or ‘1MBps uploads,’” said Hilton.

In other words, to truly improve customer experience and hence loyalty, operators should be adding value on top of basic data packages with easy-to-understand “values,” such as “five Netflix movies per month with a clear picture,” meaning the data speeds are automatically provisioned to ensure the quality of the experience—transparent to the user, who really doesn’t want to talk in terms of megabytes or “gigs per second,” Hilton said.

“Having a ‘social media’ package that allows a certain amount of time on Facebook or Twitter rather than having people pay ‘per-message’ or ‘per-tweet’” would bring a better feeling of satisfaction to customers,” said Hilton.

Moving away from the “gig” game, however, will have an even greater impact on OSS/BSS, namely charging, rating and policy enforcement systems. Where charging for faster surfing speeds or faster screen refreshes can be done with most existing systems, truly moving to “value-based pricing” necessitates tighter integration between charging and policy systems.

For example, if a subscriber who roams frequently wants to buy protection against expensive unintentional point-to-point uploads/downloads, then an operator needs network-related policy that enforces the rules and blocks or unblocks traffic for cost controls promised by the roaming packages, which can vary person to person.

“While there have always been a lot of policy management investments made on the network side of things for network optimization purposes, there really hasn’t been much focus on policy and how it can help to actually monetize data services,” said Hilton.

For that reason, there is more and more talk among vendors about how charging and subscriber management can be coupled with enforcement of rules and policy on the network. Already, policy players are adding charging layers on top of their network products, and BSS players are developing 3GPP-compliant policy layers on top of their charging engines.

Each side can talk about the pros and cons of either approach, but the “proof’s in the pudding” in terms of who can actually prove the holy grail of “data monetization” within their current service structure. It will be a balancing act between sophisticated charging and granular network and service control, which should ultimately lead to personalized offers that lead to an easy-to-quantify experience that leads to more customer satisfaction.