Telecom service providers are very capital intense businesses. Everybody knows that. But in addition, they are mostly fixed-cost businesses. Everybody seems to have forgotten that.<\/p>\n
Fifteen years ago, when GSM really kicked off, there were still a lot of PAMR (Public Access Mobile Radio) service providers on the market. For those who don’t know or were too young to know: PAMR were deployed in the late 80s to provide services to corporate customers. Do you remember Dolphin in Europe? Now these operators have all gone, cannibalised as they were by GSM operators. But with PAMR, you did not have to pay per minute. You would pay per user, per month<\/strong>.<\/p>\n Economic theory tells us that in competitive markets, prices adjust (decrease) until they converge to marginal costs. So in business with high variable costs, it makes sense for customers to pay for what they eat.<\/p>\n But when marginal costs have been decreasing by 10%-15% per annum over 20 years, they become very low. Paying on a per minute basis for something that is essentially converging to zero does not make sense any longer<\/strong>.<\/p>\n Fifteen year ago, the fully-allocated cost per minute on GSM networks would still be \u20ac0.1 and more, in particular because the costs – fixed and variable – of Base Stations (BTS), backhauling and interconnection were still very high. But these costs have gone down by a factor 5-10 in the last 15 years! And looking forward the cost per bit on UMTS networks will further go down with the introduction of LTE as well as its successors.<\/p>\n With voice traffic also moving to IP, and the cost base and pricing structures in fixed networks being mostly ‘all you can eat’ already, the tariff structure for voice on mobile networks will go through a major reshuffle over the next couple of years<\/strong>.<\/p>\n There are two other problems with pricing telecom service on a minute, SMS or Mbyte basis:<\/p>\n Take a single mobile service provider, and try to identify the most appropriate package based on various level of consumption (traffic). This used to be hard enough when we had voice only; but now with mobile data as well, you need a university degree to find out what the answer is. Now take 3-5 mobile service providers in a country, and try to find out what the best package is for you, based on your level of consumption (that in most cases you don’t know precisely either) – you need a Ph.D. to answer that question.<\/p>\n So for end-users simplicity is beautiful<\/strong>.<\/p>\n The transition to flat rate pricing for voice in mobile networks has actually started a while ago already. In Germany, E-Plus has been offering its flat rate product BASE since 2005. Its success was tremendous success<\/strong>, with the operator customer base increasing by 100% between 2005-2010 <\/strong>in a saturated market, and its EBITDA margin increasing from 24% to 42% <\/strong>over the same period. What a turn-around for E-Plus who used to be a battling operator with less than 15% market share!<\/p>\n Since January 2012, the new and 4th mobile operator in France, ‘Free Mobile’, has also been showing the way<\/strong>. Its offering includes 2 packages only:<\/p>\n From the end-user perspective, it is hard to make the service offering any simpler! And what a success ‘Free Mobile’ has had so far. The service provider has signed up 3m customers <\/strong>(about 5% of the French population) in less than 6 months<\/strong>.<\/p>\n Summa summarum: we will witness a lot more flat rate packages in mobile networks in the coming years. And if you are a mobile service provider, especially a struggling one, it might be time to review all your product offering and introduce flat rate packages now<\/strong>.<\/p>\n","protected":false},"excerpt":{"rendered":" Telecom service providers are very capital intense businesses. Everybody knows that. But in addition, they are mostly fixed-cost businesses. Everybody seems to have forgotten that. Fifteen years ago, when GSM really kicked off, there were still a lot of PAMR… <\/p>\n\n
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