#1 – Forget about data packages, 5G will bring speed-based price plans to mobile
2020 will see the currently mostly limited 5G launches ramping up, thus bringing extensive additional capacity to mobile networks. This, in turn, will enable operators to gradually get rid of data buckets in their range of offered plans. As most 5G plans become limitless in data, we anticipate that providers in 2020 will begin to segment them based on speed tiers – similarly to the way it has always been on the fixed broadband side. For instance, consumers will be offered plans that offer 300 or 1000 Mbps, rather than the 10 GB/30 GB/Unlimited plans we are familiar with today. We believe that with this shift from data- to speed-based pricing, there is an opportunity for MNOs to increase ARPUs by skimming the higher willingness to pay of early adopters that want to experience the “full power” of 5G.
Mobile data usage keeps on growing. Some months after the introduction of 5G in South Korea this spring, we have seen that the average monthly usage per 5G SIM card there is now more than double that of its average 4G-only counterpart. This effect, however, is not so much caused by 5G per se, but rather by the fact that the Korean 5G plans came with significantly higher data allowances – often unlimited ones. 5G is bringing a substantial capacity boost to mobile networks and it is doing so with a significantly lower cost per bit when compared to 4G. This is what has enabled the South Korean MNOs to offer much more data to consumers – and recent analysis illustrates that ARPU levels in the country have increased between Q1 and Q2/2019.
This goes to show that the launch of 5G brings about potential to increase ARPU, and be it only short-term and in early-moving customer segments. And while the Korean operators have not (yet) themselves switched to speed-based pricing, we believe it to be a viable strategy for customer segmentation in an era in which unlimited will dominate once again. In the fixed arena, one can observe that there indeed is a higher willingness to pay for higher bandwidth with certain customer groups, despite the fact that there may not be a concrete use case that would actually necessitate having, e.g., a 1000 Mbps over a 250 Mbps connection.
And even on the mobile side, there are already several examples of operators that have launched 5G in combination with speed tiers. In Finland, operator Elisa is currently offering three of those as their 5G plans – 300, 600 and 1000 Mbps. While it should be added that Finnish operators have been offering unlimited, speed-based plans since before 5G, there has also been an observable effect on ARPU in the country more recently. Both Elisa and DNA (which has not launched 5G yet) have been able to move customers to higher speed tiers over time, thereby increasing ARPU. Beyond Finland, Swisscom and Vodafone Spain have also introduced speed tiers with their 5G plans.
Speed-based pricing is set to become the norm starting in 2020. Looking further into the future, this may be only the first step – the 5G era may very well see plans being built around other quality of service (QoS) parameters beyond speed, such as reliability or latency.