Leave Your Worries Behind

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Leave Your Worries Behind

Data usage patterns such as those collected by Allot’s Mobile Trends Report Feb 2013 tell us how people use their mobile devices – such as what applications they use and how their behavior changes over time. One element that necessarily remains out of the picture is how much more traffic there would be if subscribers did not have to worry about traffic caps. How much unmet demand is there for mobile connectivity? And how much money do operators leave on the table by not meeting this demand?

The comparison I propose here is not with unlimited plans. In most markets, if subscribers could pay the same amount of money and be magically moved to an unlimited plan, we would expect usage to increase substantially. If traffic caps were lifted, the increase in usage would reflect the willingness to use the service more; but not to pay for it. It is like proving that people eat more at all-you-can-eat restaurants than at high-end ones with small portions – it is not very revealing.

The trend toward slower growth in subscriber traffic, and the fact that many subscribers use a limited fraction of their allowances, suggests that worry about going over the monthly limits may depress demand for some types of applications and traffic. That potential demand could be addressed (i.e., monetized) by selectively removing the worry element.

Unlimited plans are perfectly effective at removing the worry – but they are also financially unsustainable for most operators. A different path has to be blazed to reduce worry while retaining profitability. One way to do so is to develop add-on services based on specific applications (e.g., Pandora, Deezer or Spotify) or traffic type (VoIP, social networking) that establish islands within which base-plan traffic caps do not apply. Of course, these options do not have to offer unlimited traffic – e.g., a Netflix subscription may be limited to a few GB/month – but they establish a separate usage bucket that reduces subscribers’ worry about overage.

A step in this direction are the optional Spotify Premium packages that many operators offer, which give ad-free and unlimited music streaming and which subscribers can choose in place of the free Spotify account, which is ad-based and limits use. Subscribers who use the premium package still need to fit Spotify streaming within their monthly bandwidth allocation.

In this usage scenario, Spotify (or any other music streaming service) competes with other applications –such as email, messaging, and social networking – which for most subscribers have a higher priority. When trying to avoid going over their monthly bandwidth limits and incurring overhead charges as a result, many subscribers simply try to stay away from services that do not have the highest priority – this is the usage that their worry eliminates. Plans that add unlimited Spotify access, but count Spotify traffic within the existing traffic caps, do not address the subscribers’ need to manage their traffic allowance.

Operators like KPN in the Netherlands, offer a more effective Spotify Premium service add-on that comes with a separate bandwidth allowance of 500 MB in addition to ad-free, unlimited access to Spotify. This approach creates an effective incentive to use the Spotify service more. Subscribers can listen to music without any impact on their main data plan and when they reach their 500 MB limit, they might have to stop using the service for the rest of the billing cycle; but they can still check Facebook.

How is this different from just adding 500 MB to existing plans and charging accordingly? In that instance, subscribers could use the 500 MB for any application they want, so they would gain in flexibility but they would lose the desirable ability to manage their usage for different applications. Most subscribers do not want to have to check their billing-cycle usage before deciding whether they can afford to listen to music.

More importantly, the pricing for the 500 MB allocated to Spotify is likely to be different – and lower – than the pricing for the base-plan allowance. While mobile operators’ profit on a per-MB basis is necessarily going to be lower, the price differentiation enables them to capture marginal revenue (i.e., the money otherwise left on the table) for services that subscribers value but do not consider high priority.

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