AT&T, Easyjet and fixed rate pricing: Be careful what you wish for – you just might get it

wishing well easyjet fixed tiered pricing.jpg

Earlier this week, I was speaking to a telecoms exec who said that the biggest problem in the industry is lack of spectrum, the data tsunami etc etc etc .. (Same old story – seen mainly from the Operator perspective .. ). At which point, I interrupted him and asked him:. Did he not mean that it was LAST week’s biggest problem?

In other words, now that the industry has accepted tiered pricing last week with AT&T (and I don’t have any objections to it as long as it is transparent and specific applications are not banned) .. The data tsunami problem may be behind us ..

So, NOW, the onus is on the Operators to deliver .. Since the tiered pricing structures exist. (Or will soon exist) everywhere.

Ironically, this means that there will be MORE customer and regulatory pressures on Operators to be transparent and clear about their pricing

All networks have a very basic problem i.e. it is hard to price a network service since it does not follow a basic ‘cost plus’ model.

That simple reality is painfully apparent in another type if network.. Airlines ..

On a recent trip to Berlin, I realized that the airline easyjet charges 19 pounds for a single piece of checkin baggage (i.e.. the first bag we check in). This is very ridiculous and adhoc and there is no real justification for that price (The same idea applies to pricing tickets very expensively close to the time of departure i.e. the pricing is independent of the cost of the ticket and also to complex tariffs on mobile devices)

In fact, that’s why fixed rate pricing worked in the first place i.e. customers understood it (the option was pricing which customers never understood and that meant they never used the services)

Now that we have tiered pricing, we have the following effects:

a) Operators will see profits and returns from their network investments

b) But on the same token, they have now lost the excuse of the bandwidth hogs

c) This means, they need to be more responsible for their shortcomings(there is no one to blame)

d) Operators will need to be more transparent with their customer since there is an element of complexity

One effect of this scenario is: Operator may ACCEPT the ‘golden pipe model’(a money making pipe!).

In other words, they will see a steady income from the tiered pricing structure and not be motivated to compete on the services front (which they will leave to handset vendors and developers since carriage will be more profitable). They will EXTEND the network to domains where the network itself has an advantage since once the network investment is made, the incremental costs are zero. This means areas like Machine to Machine – Internet of things/ Smart Grids/Secure Cloud/Mobile healthcare/ Digital signage/ Smart cars etc will be a priority

Ultimately, this is good for the industry and also good for the Operator itself.

But now that tiered pricing is being accepted and it has implications as I indicate above, the Operators may well be reminded of that old adage: Be careful what you wish for – you just might get it :)

Image: A wishing well Source Stonehillgraphics

Comments

  1. Ofri Markus says:

    It’s hard not to make the comparison to land-line ISPs. Why can I have unlimited internet access at my house / office (in addition to being able to use multiple devices on a single connection) , while I have to pay per byte on my iPhone?
    It feels to me like the garden is actually being closed rather than opening up.