Innovation in mobile service packaging

Mobile service packaging trends

Increasing performance levels of 4G and the introduction of 5G drive innovation in mobile service packaging

Key findings

  • 260 of 264 service providers studied were found to be offering the “bucket model” as the basis of their offers
  •  Recently, more service providers have been including service-based packages which focus on a specific group of apps or services, such as streaming video
  • There was also an increase in family and data-share plans which were found to be offered by 95 service providers and have proven to reduce churn

Buckets of data are the basis of offerings from nearly every service provider. The amount of data traffic in packages has increased and – in most markets – voice and text messaging are included in the package. Recently, service providers have been creating packages that cater for the usage of specific services or devices in various combinations.

A recurring question is how 5G will open opportunities to increase revenues. A recent survey[1] indicated consumers were willing to pay more for the performance improvements 5G will bring. However, they also expected a range of new services, as well as new ways of paying for them. During August 2019, Ericsson updated a desktop study of 264 service providers to determine what type of packages they offered to consumers.[2]

The “bucket model”, which provides the consumer with a data allowance in gigabytes per month, is a key component of the overwhelming majority of tariff plans – 260 out of 264 service providers are using this model as the core feature of their offers. A slight increase in the number of service providers offering an option with unlimited data packages could be seen. These packages are generally provided as premium alternatives in a range of offerings commonly starting with small buckets. Only four service providers were found to offer solely unlimited packages.

The main benefit of the bucket model is that it forms a connection between data traffic growth and mobile revenues. The model can generate revenue from both a growing number of subscribers and a continuous increase in average data traffic per subscriber.

Out of 264 service providers, 260 were found to be using the bucket model as the base of their offers.
Service providers typically offer various combinations of these components of service packages - EMR

Unlimited has limits

A total of 31 percent of service providers are providing packages that offer unlimited data traffic. Mostly it is used to attract premium customer segments. However, four of them are solely providing unlimited data packages. In order to differentiate between packages and segment the market, they use speed tiers. This unlimited model faces a number of challenges. Firstly, it restricts options for growing revenue per user as traffic increases. A second challenge has been reaching lower market segments due to the packages’ typically high prices. In addition, although speed tiers generally work well, they lose effectivity at higher speeds as it becomes increasingly difficult to discern differences on a smartphone with currently available applications.

Service providers try to mitigate these shortcomings by bundling extras to motivate customers to upgrade to higher tier packages. These typically include roaming data and/or services such as cloud storage and video/TV subscriptions. To cater for lower segments, service providers have introduced low-priced packages with speeds limited to around 1Mbps. However, in the study update, one service provider that previously offered solely unlimited had reintroduced data buckets to attract lower segments. The new packages offered 0.5–2.0GB per month, at a 40–60 percent discount to unlimited packages providing similar speeds.

Future of 5G offerings

An area of particular interest is offerings related to 5G services and consumer IoT. At the time of the second study in August 2019, 181 service providers indicated that they expected to have commercial 5G services available in coming years. A total of 21 had already launched services for smartphones and another 5 were offering 5G services for fixed wireless access (FWA). Additionally, 16 service providers indicated they would be launching 5G services during 2019.

In the consumer survey conducted earlier in 2019, we found consumers were willing to pay an average of 20 percent more for 5G than they were paying for their current mobile service. The introduction of 5G also provides an opportunity for service providers to start packaging their services in new ways. A few have been preparing for 5G by partnering with other ecosystem players in gaming, entertainment and sports, as well as consumer hardware. The aim is to launch services which take advantage of 5G’s low latency and high capacity capabilities.

Many service providers are creating packages aimed at capturing extra value when launching 5G. One option involves the bundling of specific services, although many are simply pricing 5G packages higher than their 4G alternatives. Of the 21 service providers that had already launched 5G targeting smartphones, 16 had priced 5G packages higher than their nearest available 4G option. On average they were around 18 percent more expensive, a mark-up of between 6 and 50 percent from the closest 4G option.

Number of service providers offering service-based packages specifically targeting videomusic streaming  -EMR

Service-based offers: a big change

The most significant changes since the previous study were in offering variants of service-based packages. This model targets a specific application or group of applications, providing services such as social media, music or video streaming. At the time of the study, 114 service providers, around 43 percent, had such variants. An increasing proportion of those with such packaging were specifically focused on data-intense applications, such as streaming media. This group has increased by 110 percent, to 78, since the initial study. Ways these service-based packages are constituted include either offering unlimited streaming or imposing a limit to how much streaming will be allowed.

While there was an increase in the number of service providers offering unlimited streaming, the largest increase was observed in those offering packages with clear differentiation and segmentation through the use of either data or time limitations. The most common practice is to use gigabytes as the limiting factor, with 39 out of the 114 offering packages with a number of gigabytes dedicated to a set of streaming services. However, there were 10 service providers offering packages delimited by time instead of data traffic– an increase from only 3 in the previous study. Most of these allow for a limited number of hours of continuous streaming, starting from when the package is bought. But a few were found to sell varying sized “buckets of hours”, allowing users to stream the purchased amount of time spread out across the month. We expect to see further experimentation with models using time, as it is easier for consumers to relate to time than to gigabytes.

Internet of Things for consumers

Device-based offerings also showed a notable increase. We observed 43 service providers selling a device where mobile data traffic was generally included (i.e. not charged extra for). The focus of the offering is on the value provided by using the device. Many service providers in the updated study were targeting cars, using a device which plugs into the on-board diagnostics (OBDII) port in the car to offer vehicle location and in-car Wi-Fi, as well as various add-on services. However, the most common area was tracking devices for pets, bags or children. Some service providers offer safety devices for elderly people and a couple of them had surveillance equipment utilizing the mobile network rather than Wi-Fi connectivity.

As 4G keeps evolving and 5G is introduced there will be a growing number of services and IoT devices that can be used to complement traditional smartphone offerings.

Percentage of service providers offering FWA

Figure 32: Percentage of service providers offering FWA

FWA on the rise

Although FWA has been around since 3G was introduced, the number of service providers offering it has increased dramatically as LTE coverage has expanded. The evolution of LTE networks with increased network capacity and faster data speeds – and the advent of 5G – has seen FWA further emphasized by service providers. In just 6 months, the number of service providers that offer FWA has increased from 103 to 140, resulting in 1 out of 2 service providers having FWA. In Western Europe 2 out of 3 service providers offer FWA services. In addition, 32 are offering broadband services using a mobile battery-powered pocket router device. However, the number of service providers offering only these devices has decreased from 36, indicating a move toward focusing more on household broadband at fixed locations. It is not uncommon to bundle FWA with some form of media service, such as a TV package or video streaming services.

More choice for the consumer

Family and data-share plans have also increased, with 95 service providers offering this type of package, up from 87 in our earlier study. A key benefit of such packages, involving multiple users, is reduction in churn. The number of service providers offering night and weekend plans promoting usage during off-peak hours has risen dramatically from 9 to 40. In particular, the Middle East and Africa and Asia-Pacific regions have seen significant increases in this type of offering. The most popular packaging includes extra gigabytes to be used at night.

Many service providers are increasing the breadth of their offerings, providing more choice for consumers while exploring new forms of segmentation and differentiation in their search for fresh paths to revenue growth. This may complicate choices for consumers, and many service providers have streamlined their offerings by limiting selections to a few per type. Additionally, most of the newly introduced elements are provided as add-ons, while buckets remain the basis of the offers. There is a slight increase in the use of unlimited packages as a top-tier option, but this has been overtaken by service-based offerings which are seeing a faster rate of increase.

5G offerings present a clear opportunity for service providers to try new ways of packaging in search of new revenues. FWA is already increasing rapidly due to improved 4G networks, and the introduction of 5G creates new opportunities.

In general, as service providers explore more possibilities for segmentation and differentiation, the increased breadth of offerings provides more choice for the consumer.

[1] - Ericsson ConsumerLab, 5G consumer potential (May 2019)

[2] - Mobile service packaging towards 5G