How to make it easier for consumers to choose a service package
Last month, my family and I upgraded our smartphone plan to unlimited data. We did this because we were tired of running out of data halfway through the month. We had tried hard to keep track of our usage in the past, but as a family we simply don’t think in terms of gigabytes used. Instead, we think in terms of time: How many videos and how many songs can we watch or listen to tonight?
So, we needed a plan that suits our web surfing and video watching lifestyle, but some service providers offered as many as 85 different links to various plans, which makes it nearly impossible for users like us to make an informed choice.
I’ve always thought that we use a modest amount of data. Individually we listen to about two hours of music or news commuting an hour each way work and school. Our teenager, for some reason, watches about two hours of video each day. That time works out to about 30 gigabytes each month, which I wouldn’t have known if I hadn’t found the time-gigabyte convertor on the Ericsson website.
Check it out here: Ericsson Mobility Calculator.
The price of unlimited can sometimes be more expensive, but you certainly avoid the shock of receiving and having to pay an unexpectedly high bill at the end of the month. Also, service providers are planning to offer much higher data speeds and better capacity as we move from 4G to 5G, and this move is pretty popular with everyone.
“The most compelling reason for operators to invest (in 5G) is that they can lower their cost per bit [for users] to maybe one-tenth of what it is today,” said Thomas Noren, head of 5G commercialization at Ericsson at the NGMN Industry Conference & Exhibition 2018.
Proof of the popularity of what’s being offered, and perhaps also of what’s coming up next, can be found in the fact that we’ve seen a 25 to 30 percent increase in data usage annually from existing subscribers, according to the Ericsson Mobility Report 2018.
Let’s take a look at what’s driving this popularity.
The current smartphone market has grown to be the main source of revenue, driven by data growth, for most of the world’s mobile communications service providers. The challenge, however, is in developing new opportunities within this market – and the key to achieving this is through service packaging models.
One leading idea involves enhancing the bucket price model, which was created to allow users to purchase a set amount of gigabytes each month. A few providers are starting to offer some form of package that allows for video streaming and music at a reasonable price, which is great – I hope more operators adopt this approach.
Smartphone users can buy additional data later, if their bucket runs out. This means they spend more money over time, and this is commonly called topping-up.
Bucket price model
Typically, consumers upgrade to larger and more expensive packages over time, especially when their usage starts to regularly exceed their bucket, like my family did. Recent surveys have found the “sweet spot” for packages to be somewhere in the 1–10 gigabyte range, according to Ericsson’s Service Packaging Towards 5G report.
This is where the majority of subscriptions are globally found today, and it is also where we see the most movement between tiers, from smaller to larger buckets. On average, around 18 percent are reaching the limit of the bucket each month, and up to 30 percent a year are moving up to a larger tier.
Unlimited data plans
Unlimited data plans are popular because they feed a growing desire to use data-hungry streaming services, in particular video streaming services like YouTube, and the abundance of other streaming subscription services that are available.
But the challenge here is the ceiling that unlimited data places on revenue growth for operators, which must somehow be reflected in pricing and which results – very unfortunately for me and you – in a service that is very expensive and available only for those who are lucky enough to be able to afford it.
During the past two years, unlimited offerings have become a hot topic among analysts, media and mobile service providers alike. But despite all the attention the model has received, we found only three mobile communications service providers out of the 262 studied who rely completely on this model, according to the Service Packaging Towards 5G report.
Still, there were 81 mobile operators that included unlimited offerings in their top tier packages. But the research also found indications that some service providers are trying to move away from unlimited packages.
In Asia the survey found, for instance, a service provider with a recent policy change removing unlimited data and introducing other services of interest such as music and sports as bundles with their bucket pricing. The survey also revealed that service providers in the Middle East and Eastern Europe are discussing ways to remove unlimited packages, which they felt could potentially destroy their market by making it too expensive for them to operate.
An alternative that seems to be growing in popularity is what is referred to as service-based offerings. Instead of unlimited everything, these types of offerings target specific services or groups of services. Besides those focusing on social media which have been around for many years, the new thing is to target the more data hungry ones, such as video or music streaming.
The Ericsson survey revealed that around 35 service providers now offer some form of package that allows for streaming of video and/or music. Around two-thirds of these allowed unlimited streaming and the rest of the service providers had placed some form of limitation, typically in the form of gigabytes allowed.
What’s important, however, is that the packages are generally positioned to act as add-ons to existing buckets. Even where they allow for unlimited usage, they don’t directly cannibalize the bucket model, thus representing a separate growth path. For the most data-hungry application, video, all service providers had also placed limitations on video quality.
Another approach that could offer advantages to both users and operators would be time-based offerings. These packages are essentially variations on the service-based model, but they use time as a means of differentiation/segmentation. So, it’s mimicking the bucket model but it’s structured around hours of streaming a set service, such as video.
These hours could be used freely during the subscription period in the way that gigabytes are now consumed. For many consumers, myself included, it’s a bit easier to relate to time or hours of streaming rather than gigabytes, which is how things are being offered now.
This would certainly have made my life easier not having to convert hours of listening to music or watching video into gigabytes in order to find a package that would suit my family.
Device-based offerings will likely increase in popularity. These focus on the device’s capabilities and its value to the smartphone users. The key selling points brought up by the service providers were the value of the devices and their functions, as well as that consumers don’t need to worry about the data usage, which is typically included in the fee. In many cases the data traffic from the devices found would be insignificant anyway.
An effortless buying experience
At the end of the day, I think the operators need to provide people with a more effortless buying experience.
More than half of all smartphone users are finding it too complicated to understand what is included in mobile data plans and, according to the Service Packaging Towards 5G report, and a similar percentage say that wading through all the options for the best plan is difficult. And that’s, after all, why my family ended up with an unlimited plan. Even though the price for it was probably on the high side, it was too much effort figuring out the alternative as they were not really obvious to us.
The frequent price changes, campaigns and introductory promotions from service providers only compounded the confusion. So, why don’t they make it easy? One way to do this might be by offering some help in analyzing my family’s usage and providing a package based on that. Perhaps a decent bucket of data to share between family members for our regular browsing and social media. And since we consume so much video, why not include a video pass on top of it, all for a reasonable price?
So, if service providers are looking to continue growing their revenue, they need to start thinking about new ways of charging for usage. I’m sure my family would “top up” a Video Pass as our usage increased. And perhaps we could add a “Virtual Games - Pass” for those times when we are at sporting events and want to enhance our experience with all the cool things people talk about are coming in 5G.
In the end, we need to make it simple for people like us to manage our subscriptions and to add or remove options and packages on the fly and help us to find the right size package for our usage patterns.
Please explore the topic further in our new report on mobile service packaging towards 5G.
Or you can download the full report here: https://www.ericsson.com/assets/local/reports/mobile-service-packaging-towards-5g.pdf