Pay-per-use pricing not the mobile-data solution

The need to move away from flat-rate, all-you-can-eat data pricing has become increasingly clear as data usage continues to proliferate amongst a disproportionate group of heavy users. Many operators, including AT&T (NYSE:T), have discussed the possibility of moving to usage-based pricing, but Andre Weber, a partner at strategy and marketing consultancy Simon Kucher & Partners, said not to expect a pay-per-use revival anytime soon.

“You have to offer something in return,” Weber said. “It’s a big psychological issue that you are going up against when you are taking this free access to the buffet away from people.”

Paying for usage, based on minutes or megabytes, conflicts with today’s always-on mentality prominent amongst social networkers, Weber said, and it can cause bill shock for users who forget to log out, not to mention attract high data users in short amounts of time. Consumers have gotten use to worry-free usage, and they won’t take kindly to seeing that go away – however misinformed they are about that “benefit.”

“The flat-rate is probably one of the most unfair pricing structures that exist, because the vast majority of normal and low users basically cross subsidize the heavy users,” Weber said. That is simply the nature of the wireless industry – the majority of users split the bill for a handful of outliers, he said. But, even so, it’s hard for wireless operators convey that and then take the free access away. Hence, the need to offer something in return.

Weber said that even though most consumers never use the maximum bandwidth offered, the fact that they could use as much as they wanted factored heavily in their value perception. New charges that are put in place will have to enable operators to monetize technological improvements, such as speed, and encourage users to pay with better pricing. This could include charging for new applications that come along with smartphones, such as voice-over IP, or providing a minimum quality of service guarantee in return.

Other options include improving the bundle with a free device or promise of no overage charges for the first year of service – basically anything that will ease consumers into giving up their full flat access. Attractive bundles will allow for a smoother introduction of more profitable charging structures, he said, adding that some customers might be more than willing to pay for 3G access or priority bandwidth on certain services. It is going to be much harder to take something away entirely then it is to give something new.

“Everyone is waiting for an operator who successfully pulls it off and reigns in the user flat-rate and shows it can be done,” Weber said. “It will be very difficult to alleviate the situation going forward, but the thing is, the operators have to. AT&T is already feeling the pressure from its customers since service quality is going down significantly. You can’t just simply add capacity on top. That will be costly, so you at the very least have to find a way to limit the very heavy users who make life difficult for the majority of normal users.”