We’re off and running for another year of rapid evolution in the mobile space, and I'm expecting to see a lot of disruption in mobile tariff pricing.
Here are the 5 key mobile pricing trends I’m expecting to play out in the UK and other mature mobile markets during 2013.
1. Tariffs based on data ladders, not voice ladders
We’ve already seen this trend emerge in the UK during 2012, with Vodafone and Orange following O2’s lead in offering unlimited voice and text allowances for their flagship smartphone tariffs, then tiering these tariffs via data volume allowances - usually 1GB, 2GB and 3GB options.
I can see this trend continuing in 2013, but with a further stretch of the data tiers, say to 1GB, 5GB and 10GB.
On the other hand, the multitude of tiers for voice tariff allowances will collapse, until consumers are left with only two or three choices for voice allowance - say 300 minutes, 500 minutes or unlimited voice.
2. Withdrawal of unlimited data tariffs
Three, T-Mobile and Orange are the only main operators still offering unlimited data tariffs. Three have been very successful with their unlimited data “The One Plan” tariff plans, which has allowed them to grow their UK market share significantly over recent years (as covered in a past post Tariff Wars).
I’d argue that T-Mobile only offer unlimited data tariffs because they feel threatened by Three, and Orange only do so to match their sister EE company T-Mobile.
Vodafone and O2 firmly refuse to offer unlimited data tariffs, and no doubt wish market-leader-by-volume EE via their Orange and T-Mobile sub-brands would adopt the same stance. There is a need for UK network operators to start rebuilding operating margin into tariffs via data tiers, but this process is hampered by the continued availability of unlimited data tariffs in the UK market.
Unlimited data is a double-edged sword for Three. It has allowed the network to dramatically grow their market share, but it also must be putting a very heavy load on the network, as Three has become the mobile network of choice for very heavy data users.
Three made subtle attempts early in 2012 to introduce traffic management controls on their unlimited data tariffs, but this initiative was quickly shouted down by an angry customer base, many of which joined Three on the promise of truly unlimited data tariffs.
I expect pressure on Three’s network from excess data loads will become unbearable in 2013, requiring Three to move away from - or at least heavily traffic manage - unlimited data tariff options. This move will then provide cover for T-Mobile and Orange to do the same.
3. Shared device data tariffs
If we believe that the data tariff ladders will stretch to bands such as 1GB, 5GB and 10GB in 2013, what will be the incentive for customers to walk up the data tariff ladder given that 1GB is usually more than enough data for an average smartphone customer?
The answer is allowing customers to use multiple devices on their data tariff.
In the past the most common need for this functionality came from people using 3G enabled iPads. These people felt frustrated by the need to purchase a separate data tariff & SIM card for their iPad on top of the data tariff they already had bought for their smartphone.
There have always been workaround solutions for the need for shard device data plans via smart phone tethering and MiFi devices, but these solutions are fiddly and not as convenient to an iPad user compared with a direct data connection via a dedicated SIM card.
I’m predicting we’ll see a step-change in 3G enabled tablets in 2013 driven by Apple enjoying runaway success with the iPad Mini, which will open up the 3G connected tablet market to a much broader audience. Indeed I expect we’ll see the iPad Mini quickly become Apple’s bestselling iPad model, and the smaller size will mean it is more likely to travel with its owner when they’re out and about, driving up demand for 3G connectivity.
The ability for people to share their smartphone tariff with their iPad or other 3G tablet via a second SIM card will be a highly valued feature that will encourage customers to trade up the data ladder beyond the entry level smartphone tier.
4. Flight from 2 year smartphone contracts and growth in 30 day SIMO tariffs
Given the pattern of annual product cycles for hit mobile devices such as iPhones and the Samsung Galaxy S range, and also the iPad / iPad Mini, I can see growing resistance from customers to being locked into two year contracts on their smartphones and tablets.
Apple have done a good job of educating consumers about the true price of their iPhones by presenting subsidised and unsubsidised prices in their stores. This coupled with clear price disclosure of unsubsidised iPads allows customers more information to weigh up the pros and cons of subsidising their devices via mobile networks over two years.
Additionally consumers are getting frustrated with having their phones locked to a network, requiring them to jump through hoops to get their device unlocked at the end of the contract.
Further, smartphone prices are dropping, with solid options appearing in the sub £200 and sub £100 price bracket which encourages customers to self-finance device purchase.
On the network side, operators are transitioning their networks into 3G+ and 4G configurations, which can open up transitionary pain or pleasure points for their customers depending on the experience they receive from the network as it makes its transition over the coming years to a stable 4G roll out.
Fluctuating network performance may encourage customers to switch networks more frequently to take advantages of short term sweet spots in network performance, or to get away from short term failures in network performance.
All of the above factors will conspire to drive demand for short term 30 day SIM Only (SIMO) contracts. Customers will choose to either subsidise their own device purchase, or I expect we'll see disruptive new entrants coming into the market to offer customers alternative device financing solutions on a 6 or 12 month repayment schedule for smartphones and tablets.
Network operators have been able to grow their base of 2 year contract smartphone customers over recent years because consumers strongly valued the implicit device financing service provided by networks via these 2 year contracts.
Going forward, consumers will look increasingly at financing their devices themselves or look to alternative financing solutions to perform this job.
At this point, the 2 year smartphone contract customer base moves into decline.
5. Extreme price points for tariffs
What tariff value could be offered at £5? What tariff value could be offered at £50?
Current tariffs are heavily weighted around the £25-£35 bracket, driven by the subsidy required to put a mid-to-high end smartphone into a customer’s hand for little to no upfront cost. Once customer demand for this subsidy declines, network operators will need to put more thought into their tariff price points.
Currently there is a lack of imagination from mobile networks about what could be achieved by stretching minimum and maximum price points.
A £5 price point could become feasible by significantly stripping out features and value from a standard tariff package to provide a customer a basic level of connectivity with little or no support. A disposable tariff could also be partnered with a disposable device to provide connectivity for a very limited period.
Network operators are vulnerable to attack from aggressive price discounting MVNO’s, and need to watch their entry level price points carefully. Similarities exist with UK supermarkets who have needed to aggressively manage entry pricing for key staples to defend against new entrant price discounter Aldi.
It could also be argued that there is a lack of imagination from mobile network operators as to what compelling value offers could be sold at higher price points of say £50, £60 or £70 per month. Offerings at these price points could include VIP customer service levels, more frequent handset upgrades, inclusive data roaming connectivity, or perhaps using the higher price points to unlock large bundles of high speed 4G data.
As a comparison, Sky‘s pay-tv portfolio offers price points ranging from £20 up to £75+, with price tiers in between this range having clearly defined offerings.
Sky appear to be a good example of a service provider that focuses carefully on what additional value they can offer at their high-end tiers to command high premium prices and fight downward churn, yet simultaneously focusing on what value or features could be stripped out of their bottom tier to enable an aggressive entry level price point.
Get ready for more change and disruption to occur in the mobile pricing space during 2013.