“We believe that strong execution of a tiered pricing model will translate to significant increases in market capitalization for wireless carriers,” said Steve Mather, principal analyst, wireless, for iSuppli.
“Rapidly rising demand for wireless data access represents the biggest opportunity of the decade for wireless carriers,” Mather said.
“iSuppli’s discussions with leading wireless carriers indicates that tiered pricing, like that offered by AT&T and T-Mobile, represents one of the best tactics to monetize growing demand to access their pipes. Tiered pricing will allow these companies to find data consumption sweet spots, enabling them to segment users into various pricing and data cap buckets, and to prompt upgrades as mobile services become even more a part of consumer’s lives. The flexibility of adjusting both the price and the cap is particularly compelling.”
For carriers, the stakes are enormous as they try to regain their share value and profitability. “iSuppli’s analysis of the top 15 wireless carriers worldwide indicates operating margins have dwindled to 20 percent in 2010, down from 22 percent just three years ago,” Mather said. “With the rise of data usage and the arrival of tiered pricing programs, we expect margins to rise over the two years from their summer 2010 lows.”
The figure presents gross margins for the world’s top 15 wireless carriers.
Source: iSuppli, USA.So what is a tier?
T-Mobile’s first tiered pricing offer became available in the United States on Nov. 3.
The first tier is a promotional offer with a two-year contract, priced at $10 per month for 200Mbytes of data. The next tier charges $15 per month on a month-to-month basis, with no contract. Moving up, the next tier charges $30 per month for unlimited data. Finally, tethering costs an additional $15 per month.
T-Mobile also launched of a variety of Android-powered smart phones with retail prices less than $100 to complement its new service plans.
The move follows in the footsteps of the tiered program offered by industry benchmark AT&T for the Apple Inc. iPhone and iPad. AT&T charges $15 per month for 200Mbytes, $25 per month for 2Gbytes and tethering for an incremental $20 per month.
Verizon is also experimenting with a promotional offer of $15 per month for 150Mbytes, $30 per month for unlimited data to phone and $15 per month for 2Gbytes of tethering. It also is charging $20 per month for the phone to be used as a multi-line tethering hotspot.
Tiers put carriers back in control
“Wireless carriers are intent on spurring incremental data usage among their subscribers,” Mather said. “This strategy centers on enticing more consumers to adopt mobile data access as part of life’s necessities. Two tactics to encourage more data consumption are to experiment with tiered pricing, and to heavily market data-hungry devices.”
Tiers put carriers back in control of their pipe’s capacity, with a newfound capability to monetize the increasingly essential mobile data demands.
“The wireless market has undergone a rapid transformation from just a short time ago, when consumers were fearful that caps on their data usage would materialize into massive overage charges,” Mather said.
“Two things changed. First, the new plans come with stop gaps to limit overages that might come as a surprise. Second, the iPhone made mobile data a necessary, useful and value-added service. Traditionally, carriers were limited to capacity-based pricing and applied a simple price elasticity model, where demand equaled price.
“Given the increased utility of accessing mobile data, carriers now can offer market-based pricing, where demand is a function of three variables: tier price, data cap and new tools to promote data use such as tablets, netbooks, and applications. In terms of pricing and profitability, it’s a new world of opportunities for carriers.”
Source: iSuppli, USA.
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