Mobile data innovation: not just for emerging markets

It wasn't long ago that there were only a few ways to sell what mobile operators had to offer: minutes and texts by the minute, data by the byte. That gave way to unlimited offers (for voice, text and data), data tiers and ultimately shared data offers. Prepaid operators typically charged by the drop, while postpaid providers built bundles to entice higher-ARPU customers.

When 4G arrived – and not coincidentally, mobile voice and SMS revenue started to decline – new approaches to packaging and selling mobile service, and in particular mobile data, started to arrive. But they didn't arrive equally. Somewhat surprisingly, mobile data-pricing innovation appeared first at prepaid operators, most often in emerging markets.

The urgency there was clear: customer pockets weren't deep enough to pay a lot for mobile data. Some creativity was required to sell mobile data. Meanwhile, premium postpaid operators were happy to sell their bundles and data tiers to customers eager to make the most of their new smartphones. That's finally begun to change. As a New Year dawns – and 5G looms on the horizon – the time is right to examine these shifting tides.

The 451 Take

In 2017, we'll be talking a lot about service provider 'digital transformation,' a phrase that heralds a new start while also harkening – unfortunately – back to previous industry failures. But for the first time, the idea of becoming a 'digital telco' actually means something – putting the customer first, as well as self-directed, personalized experiences that expand beyond simple connectivity to content and collaboration. Creatively pricing and delivering mobile data, and ultimately the services that ride over the data network, sits at the center of this challenge. The path toward mobile operator innovation in this area has hardly been a straight line. But today, whether it's prepaid operators in emerging markets or multi-play providers in more premium markets, there's more than one way to sell mobile data – many more ways, in fact. Mobile operators must view these approaches as tools in the toolbox: zero-rating, sponsored data, app-based pricing, access/content bundles, fixed/mobile convergence, OTT partnerships and more. How they use those tools will depend on the competitive challenges they face, and the wants and desires of their customers. That, more than anything, is what it means to be a digital telco.

For years, when seeking examples of innovative and more dynamic approaches to monetizing new mobile data networks, the easy path was to look to emerging markets. With relatively low ARPU and a customer base that needed some coaxing to fully embrace smartphones and mobile data, such carriers turned first to out-of-the-box data pricing – things like sponsored data, zero-rating, app-specific pricing (such as social media tiers or by-the-day of WhatsApp access).

Meanwhile, larger, tier 1 mobile operators – led by the Big Four US carriers – were happy and successful, monetizing mobile data by the bushel via postpaid subscriptions, big-data tiers and even bigger shared data plans.

The approach paid off. US mobile subscribers today consume almost 4GB per month per user on average, growing to 10GB per user by 2020, according to 451 Research's Mobile Data Forecast. US operators used that boom to offset falling voice and SMS revenue; mobile-data revenue outgrew voice revenue for US operators way back in mid-2012, with mobile data representing more than 70% of mobile service revenue today. Meanwhile, US-operator ARPU remained relatively flat during this period – and at just under $50 on a mixed basis (accounting for pre- and postpaid), it continues to be double of Western Europe, the next closest region.

If that represents a successful first act of the 4G/smartphone era, US operators are now well into their second act – with early returns showing similar success, albeit via radically more disruptive tactics. T-Mobile, of course, leads the way. Its Uncarrier strategy has captured the attention of other operators worldwide, and resulted in both significant subscriber gains at the expense of rivals, and compound annual revenue growth across the past three years of more than 15% – well above the 2.5% growth that 451 Research calculated across more than 40 of the world's largest mobile operators.

In many ways, T-Mobile broke nearly every rule in the US mobile market: disrupting the status quo by ending two-year contracts and phone subsidies, doing away with data overages, drastically undercutting international pricing, zero-rating over-the-top music and video services, and ultimately moving exclusively to unlimited data plans by down-encoding many high-bandwidth services, lessening its network burden while giving customers more for less. More than anything, T-Mobile's success demonstrates the power of out-of-the-box, customer-first thinking – even (or perhaps especially) in mature mobile markets.

Arguably prodded by that Uncarrier success, T-Mobile's rivals have been forced to respond, tapping an array of unique approaches to service delivery and monetization. AT&T has made a tremendous investment in video services, acquiring satellite provider DirecTV, proposing to buy content house Time Warner and launching a full-scale telco OTT video service – DirecTV Now – that includes zero-rated mobile access to its streaming content.

Sprint has followed T-Mobile down the path toward a highly optimized mobile network and unlimited data pricing, and has returned to subscriber growth via aggressive Cut Your Bill In Half data pricing. LTE and fiber pioneer Verizon has been more challenged by disruption, but is looking to leverage new media investments in AOL and Yahoo into new digital service offerings.

The lessons are clear: even in a mature mobile market characterized by enviably high customer spend, successful mobile operators today must actively disrupt each other – and themselves – via digital reinvention, creative service monetization and a focus not on the industry status quo but on creatively meeting their customers' rapidly evolving mobile needs.

Rich Karpinski

Principal Analyst, Mobile Operator Strategies

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