Sharing is Daring

With the launch of Swedish mobile operator Telia’s new family data plan, the Swedish incumbent claims to be the first of its kind in Europe.

The underlying importance of this is not whether Telia is the first to launch a shared data plan in Europe but more so whether this represents a movement toward innovative data pricing in the mobile industry?

To properly evaluate this movement, let’s look into a few key areas:

  1. Shared data plans in the US
  2. Stopping Europe’s mobile revenue slide
  3. Telia’s game-plan

Telia seems to be following a proven model by US operators

It has long been known that declining voice revenues and price wars on data have caused operators many problems. Certain operators such as Swisscom and O2 have implemented speed-based pricing and tiered data plans, but in general data pricing innovation is still relatively unheard of in Europe.

In the US – AT&T, Verizon, and others have successfully deployed family data plans for some time now. As of July 2012, AT&T saw 88% of their wireless subscribers on family or business data plans. US operators have seen a 25% rise in ARPU, while operators in Europe have suffered a 15% decline since 2007. So it is possible that Telia’s new family data plan could represent the start of a movement in increased revenues through innovative data pricing.

Being the first to launch a shared data plan provides Telia with an opportunity to increase revenues per user and reduce net churn by increasing customer loyalty. Telia can improve customer convenience by; sharing data, combining voice and text, making it easier and more affordable to add devices, and making it more advantageous to have all devices on the same carrier.

Europe’s Revenue Slide

A recent study from Arthur D. Little and Exane BNP stated that LTE services need to generate monthly data ARPUs of at least €17 (an increase of €7) by 2016 to stop the decline of mobile revenues for operators in Europe. Without examining what “LTE services” and “data ARPU” include, the study highlights that operators’ financial stability must come from an increase in data services related revenue.

I believe the problem boils down to a supply-demand issue. There is no shortage of capacity in operators’ networks, meaning that their primary concern is acquiring new customers and/or paid usage to fill this capacity. So the idea that operators can charge more for LTE/4G services than 3G services is no longer a realistic possibility. Between the 2nd and 4th quarters of 2012 LTE tariffs fell 30% on a per gigabyte basis. The reality of the European telecom industry is that access technology is not a revenue differentiator. So rather than relying on LTE, operators need to focus on other initiatives to boost ARPU.

European operators must take a more active and daring approach since old business models haven’t and will not stop the bleeding. Similar to American operators, European telcos may need to follow suit by implementing; family plans, data sharing, speed tiering, and other creative ways to combat the revenue slide.

Telia’s Game Plan

Telia claims that their new pricing scheme is not designed to provide them with significant revenue enhancement but rather will allow them to maintain their current revenue flow. This does not sound very bold and even comes across as somewhat passive. But whatever their reasoning, let’s have a look at what a typical Family Data Plan deal compared to the same group of people billed individually would look like:

As an experiment let’s examine a “medium sized family” as a typical scenario, assuming:

  • 3 smartphones
  • 1 tablet
  • 10GB of data consumption.

Under Telia Mobil Dela, this would cost around 1,250 sek/month. If each item were billed individually, it would cost between 1,415 and 1,865 sek/month depending on contract length, phone payments, and other items.

Based on the above data, one could conclude that Telia assumes that very few, if any, families will switch their three Telia subscriptions to a single family plan. The more likely scenario is that most families have subscriptions from more than one operator and Telia hopes to acquire new users by “cross-selling” to existing customers. Initial incremental revenue from such new users would obviously be lower than if they joined as an ordinary subscriber. However, Telia’s business case is likely built on ‘less from more’ than ‘more from less’. How fast the competitors will follow suit remains to be seen, but if we see families starting to sign up by the masses I bet other operators will be out with their family plans in a heartbeat.

So, to what extent and how quickly Telia’s new data plan will change their revenue stream remains to be seen. However, the longer term benefits in customer loyalty and acquisition seem to be obvious.

In either case, Telia has generated some curiosity and perhaps awakened some other operators. Hopefully this move has inspired other players in the industry to take a more active approach when it comes to creative pricing for data and billing customers for what they actually consume and enjoy.

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