All players face the balancing act of ensuring demand for differentiated services is met while offering LTE price points that entice lower-value customers or lighter data users to migrate from legacy 3G offerings.

Shifting attitudes toward LTE pricing worldwide

Recent figures from The Global mobile Suppliers Association show that 57 operators worldwide had launched LTE offerings by March 2012¹. Early LTE pricing approaches varied as operators consider how best to monetize demand for mobile data while ensuring that LTE becomes an attractive proposition for the majority of their existing mobile data users.

To date, most operators have charged a premium compared to 3G services, though US operators have been early movers in LTE services. Unlike European operators who charge a significant premium, US operators are foregoing the charges to take advantage of strong consumer demand for smartphones and tablets.

Figure 1. LTE pricing approaches by region

The move towards tiered pricing by operators for LTE has been clear in 2012. Volume-based LTE pricing is part of a broader move away from all-encompassing packages. While the economics of flat-rate plans have long been flagged as an industry pain point, in some cases regulators are driving the shift away from unlimited tariffs in mobile broadband.

Ultimately, the need to differentiate from competitors is sustaining unlimited strategies. But many operators that are retaining unlimited data usage for LTE are also raising prices and revising throttling policies.

Pricing for demand has become more challenging as operators formulate new volume-based tariffs for LTE. End-user behaviors are evolving as mobile broadband functionality improves.

Higher LTE data speeds are enabling more mobile video usage, yet early reports suggests that LTE iPad users in the US are using their monthly data allowances much more quickly than before as a result of increased data throughput.²

Meanwhile, customer expectations of service performance are increasingly being conditioned by WiFi connectivity, which accounts for most smartphone-originated data traffic in many markets.

Figure 2. The role of WiFi in smartphone data traffic origination

In the past, the fair usage policies that came with unlimited data tariffs gave operators scope to throttle speeds, yet the trend toward tiered pricing in LTE may force operators to revisit the data excess charges if consumer demand for mobile video is to be met.

Meanwhile, ongoing regulatory scrutiny of “bill shock” alongside demands for clear communications of traffic management policies mean any overhaul of LTE pricing structures has to be carefully executed.

Although current LTE usage caps may hamper video streaming for extended periods since LTE can function as a fixed broadband alternative only for lighter internet users for now, long-term price competition could make LTE services a more viable alternative in the future. Yet pronounced substitution of fixed broadband seems unlikely, particularly in Asian markets where a range of low-price, high-performance fiber offerings has been available for some time.

While local markets in part dictate the contrasting approaches between regions, all players face the delicate balancing act of ensuring that demand for premium, differentiated services is met while offering LTE price points that entice lower-value customers or lighter data users to migrate from legacy 3G offerings.

Mobile operators up the ante in mobile advertising

On the back of strong growth in smartphones and tablets, the mobile advertising market is expected to grow strongly in coming years, from US$3.3b in 2011 to US$20.6b in 2015.⁴

Asia-Pacific leads in regional terms and mobile operators are playing an active role in this burgeoning industry segment. According to a last year’s survey by Amdocs, 75% of operators are already pursuing mobile advertising and search engine marketing strategies, with an additional 18% preparing new initiatives in this area in the next twelve months.⁵

Consolidation has been a feature of in the Asian mobile advertising market, with many types of players moving up the value chain. The pan-Asian carrier, Singtel, for example, has an established mobile advertising operation, offering geo-localization services, including marketing promotions.

Japanese mobile operator Softbank also has strong ambitions. Last year, it invested US$200m in InMobi, the world’s largest independent mobile advertising network. In 1Q 2012, the India-based advertising network expanded into new markets, boosting its Australian operations and opening offices in Spain, Norway and Thailand.

In the UK, operators are forming horizontal partnerships to exhibit their authority. In March, reports surfaced of plans by mobile operators Everything Everywhere, O2 UK and Vodafone to create a mobile advertising network as part of existing mobile payments.

Services promoted by the joint venture would include: push SMS advertising; coupons and vouchers included as part of a mobile wallet; and display advertising provided across both joint venture assets and third party assets. A combined reach of 37 million mobile users will be attractive to advertisers — yet the initiative remains under review from the European Commission as part of a broader inquiry.

US operator AT&T is also pursuing various initiatives after rebranding its advertising operations last year. In January, its AdWorks unit partnered with internet audience measurement firm comScore to drive multi-screen customer research. Given its service capabilities across TV, internet and mobile services, the US carrier believes it is strongly positioned to explore cross-platform usage to help advertisers optimize their media buying.⁶

Challenges despite confidence in mobile advertising

Although mobile accounts for a growing proportion of media consumption, its share of advertising spend is far smaller. The ecosystem to support mobile marketing propositions is still forming, while new initiatives in mobile payments mean that advertising is no longer seen as a stand-alone offering and emerging value chains will have to adapt to a more holistic industry approach.

On the end-user side, mobile phones are becoming an integral part of shopping, yet point-of-sale payments capability and integration with marketing offers is lagging. In addition, consumer trust issues are a sticking point: recent research published by Nielsen shows that end users’ trust levels in the mobile channel are lower than for other media.

Figure 3. Trust in advertising among US online consumers

For marketers, the increased reach and location-sensitivity of the mobile channel means that it will grow as a proportion of overall ad spend. However, the highly personalized nature of mobile means that trust issues will take time to resolve.

<< Previous | Next >>

¹"GSA, “GSA confirms over 300 operators are investing in LTE,” 14 March 2012.

²"Video speed trap lurks in new iPad,” The Wall Street Journal, 22 March 2012.

⁴"Gartner Says Worldwide Mobile Advertising Revenue Forecast To Reach $3.3 Billion In 2011,” Gartner, 16 June 2011.

⁵"Fighting Smart: Using Value-Added Services To Create Lasting Customer Loyalty,” Amdocs, 10 August 2011 (Survey based on interviews with 120 operators in Asia-Pacific).

⁶"AT&T Adworks Hunts Down Multiscreen Viewers,” Multichannel.com, 9 January 2012.