Move to 4G Spurs Global Adoption of Tiered Data Plans

(Dec 15 2010) Mobile Broadband

1. By Gordon Mack, Research Associate, Yankee Group

   As mobile broadband matures and users begin adopting smartphones worldwide, operators are increasingly moving to tiered data plans. Recently, Yankee Group examined current mobile broadband device and smartphone data plans-both in terms of price to consumer and price per gigabyte-and found that every region in the world is embracing tiered data plans to some extent, especially as competition heats up with the advent of 4G. However, the number and types of plans available are as diverse as the regions in which they’re offered.

   For the most part, global operators use five types of tiered data plans:

   • Data caps: These provide a set allotment of data usage, with extra fees for every MB of usage over the limit.
   • Time caps: These are allotted for a specific amount of hours or weeks or for specific times of the week, and some plans combine both.
   • Speed caps: These are data caps without overage fees. Instead, when the data allowance is exceeded, the operator drops the connection speed to a fraction of the normal speed, typically down to 256 Kbps.
   • Hybrid: These plans combine several types. For example, they may offer users a 2 GB data cap together with an unlimited allowance between the hours of 9 p.m. and 5 a.m.
   • Unlimited: These plans offer unlimited usage for a set rate.

   Operators in some regions, like Europe, face tight competition. As a result, they are the most innovative and tend to create tiers applying all five methods. North America, on the other hand, has less competition and shows less diversity, although this is changing rapidly. The region is quickly becoming the most competitive 4G market in the world, and the new competition is driving pricing innovation. While the traditional data allowance cap is most prevalent, speed caps and time caps are starting to emerge.

   As tiered pricing expands, however, it presents operators with a dilemma. While tiered plans can both help operators gain subscribers and increase revenue, they also have several pitfalls that if not avoided can thwart both objectives. For example, if plans aren’t designed and marketed properly, bill shock and overage fees may end up leading to churn-especially when consumers are accustomed to unlimited plans.

   Tiered plans also need to be closely aligned with operators’ network and strategic goals. For example, Leap’s Cricket Mobile Broadband service in North America uses low-priced data caps, but once users exceed their limit, it throttles back bandwidth instead of charging overage fees. The strategy allows the carrier to gain market share by targeting younger consumers who can’t tolerate high overage fees.

   Verizon, by contrast, offers a mobile broadband data cap plan that charges a $10 overage fee for every GB over the cap. Since Verizon has a large market share, its focus is more on changing user habits. It seeks to maintain superior network performance by making users who consume high bandwidth pay high fees.

   The key for operators is to be creative. They should create plans to target specific user segments or promote usage at optimal times. The most successful operators will be those that tailor plans to meet the needs of both users and their new 4G networks.

   Bookmark or Share this article

Login to comment