The Next Evolution: Upside-Down Pricing Models

Operators and vendors agree that new creative service plans based on such variables as download speed, time of day and parental controls will appeal to subscribers’ preferences and will boost profitability. While we expect to see new permutations enter markets across the globe, there’s a completely different “upside-down” pricing model on the horizon in 2012.

Most new proposed offers are to upsell from a base monthly plan (e.g., $2 for a one-time turbo boost or $10/month for unlimited social networking). But operators see another option: Establish a higher-priced baseline of data tiers and a second set of discounted tiers for subscribers desiring a lower bill in exchange for best-effort speed when the network is congested. Here’s an example:

Multiple Tier 1 operators in different regions of the world are investigating this approach. It’s a win both for both their businesses and for their customers because:
 
•    Subscribers personalize plans by the amount of data and the quality of service they desire. They can elect to pay for a consistent speed at a higher price or to receive discounts during congested periods. Instead of subscribers paying for more with a variety of upsell options, they can pay less. In addition, those desiring simple pricing tariffs have a new option to choose.
•    Operators establish a profitable baseline. Subscribers who want consistently high speeds and no restrictions on types of content — including video — regardless of time of day or location in a congested area will pay appropriately for their bandwidth speeds and traffic in the network.
•    Regulators get network-neutrality compliance because subscribers choose to receive best-effort service.

This model is analogous to what some power companies are employing. Utilities in many U.S. markets offer customers the choice to lower their summer electricity bills by permitting the power company to shut off their air conditioners during times of peak usage. Progress Energy in North Carolina, for example, gives participants in its EnergyWise program an annual $25 credit. According to the utility, “EnergyWise Home plays an important role when a period of high electric demand places an unusual burden on the area’s power supply. The program helps ensure the reliability of the electricity system by spreading out energy usage over a period of time.”

The exact timing for operators to introduce their versions of an EnergyWise-like plan will be based on a variety of factors, including adoption of current plans, net-neutrality regulations and the frequency of network congestion. The end result is that upside-down pricing will be another tool in operators’ tariff strategies as they continue to seek new profitable business models.

Doug Suriano is CTO and vice president/Engineering at Tekelec. Contact him at Doug.Suriano@tekelec.com.