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I like this approach of being able to have multiple devices on the network but paying a single fee.

Pricing Models Need To Change

Tuesday, June 12, 2007

When Sprint speaks about its WiMAX network, it refers to a number of different things: a 4G platform for Internet access, ultra-mobile devices we will all carry for access to the Internet just like we have on our desktop and the fact that WiMAX won't compete with its full mobility CDMA2000 1xEV-DO voice and high-speed data network.

I disagree with all of this. I think the uptake for Sprint's WiMAX network will be slow and painful, that it will be a long time before coverage is sufficient to make the network attractive for most customers and that once customers sign up for WiMAX service they will find that the user experience is not much different from that of EV-DO or UMTS/HSDPA. I have said as much in other Commentaries and in my blog, TELL IT LIKE IT IS™. However, I do agree with Sprint's stated pricing model of charging a customer or family by the person and not by the device.

Sprint envisions us using a variety of devices on its network. We might have a game console, a consumer device of some type, an ultra-mobile computer and perhaps other specific-function devices. We would go to the Internet or walk into a store, buy a new device and go to a Website and register the device, without having to pay an additional fee to connect it or use it. The theory seems to follow Intel's belief that many consumer devices will incorporate WiMAX capabilities and we will use different devices at different times during our day.

I like this approach of being able to have multiple devices on the network but paying a single fee. Today, I have several devices on one network―a BlackBerry, a standard phone and an EV-DO Rev A card―each of which I pay for. I do have a family plan, so I only pay about $10 per additional device, but the costs still mount up quickly. It would be nice to have a single account with unlimited voice and data services regardless of which device I might want to use at any particular time. (Yes, I know that if I was on a GSM network I could remove the battery from my phone, remove the SIM card and insert it into a different device, but this is a hassel and most people I know don't bother doing it.)

There are, of course, issues with this concept. The first is how a network knows I am the one using the device. Would I buy a new device, activate it and then give it to a friend who could not or did not want to pay for service? Would I become a data hog using multiple devices? Sprint must have thought this through and although I have not heard how it intends to control such potential problems, I am confident there is a way, perhaps by limiting the number of devices I use on the network at any one time.

Today's billing systems are not set up for this type of billing. The family plan with a common pool of minutes comes close to this model, but it is designed for family members to share minutes and only pay about $10 per month per phone once the subscriber pays the normal monthly charges. I suspect that billing systems could be modified to permit multiple ESNs for the same customer and track them on a single bill.

Network operators'  first thought might be that this would lower their ARPU, and it might―but I think it also might be a way to encourage more customers to use some of the 3G data services that are not being as widely adopted as many would like. Such a pricing plan would encourage us to buy a second device for a specific use―for example, a PDA with navigation software for use in my car, or a dash-mounted navigation system I only use while in my car for turn-by-turn directions and real-time traffic reporting―while my small, sleek phone remained in my pocket for voice calls and perhaps SMS.

One thing that prompted these thoughts was Intel's statement that there will be many consumer devices with WiMAX embedded in them. Intel believes many of these will be special-purpose devices that are in addition to phones and existing services. I have to concur with this, but I am not at all sure companies that build products for consumers will choose WiMAX over other options. Suppose for a moment that you were building consumer products and wanted to add value to them with connectivity. Suppose you listened to Intel, Sprint and Clearwire and believed WiMAX was the right choice.

But being a smart business person and understanding your customers, you might look around before committing to a single technology. Enter a chip company that offers you a chipset that supports multiple technologies, all mainstream and available around the world. Say, a chip that supports GSM/GPRS/UMTS/CDMA/EV-DO Rev A, Wi-Fi and perhaps Bluetooth and/or wireless USB 2.0. It might be available at a premium over the WiMAX chip, but as a consumer products vendor, you could build in a single chipset and have your consumer device activated for any network around the world (with the exception of Japan, for now). When it is purchased by the ultimate customer, it would be ready to be activated for use on the preferred network with the proper technology.

This, of course, takes us back to the idea of per-person or per-family pricing. If you believe the trend, and I do, the next wave of devices we will be using will be secondary wireless devices and some will be occasional-use devices. There are examples of this today. If I buy a notebook with embedded EV-DO Rev A, on at least one of the networks, I don't have to sign a contract for service for a year or more but can opt to use the wireless capabilities only when I am traveling, paying for use on a 24-hour basis.

What types of devices are we talking about? One I mentioned is a navigation system for a car, dash-mounted or a PDA, or even built into the car, a mobile TV that fits into our pocket, a game console to play interactive games while away from the computer, a music player that can download music as we go, or send our music to a friend to listen to, and perhaps even some smart Internet devices for social networking. How about command and control of my devices at home while I am away, a video or still camera so I can post my pictures when I take them and virtually any other device where having it connected, even once in a while, might make sense.

The point is that I believe we will continue to be a mobile society and, for the most part, carry a single device for our voice and data usage. However, there is a tremendous growth opportunity for wireless embedded in other, occasional-use devices and the industry should find a way to enable as many of them as possible and make it easy for customers to add them to their accounts without having to pay recurring charges for devices they use on a less-than-daily basis.

If the existing wireless network operators are concerned about Sprint or other network providers' forays into WiMAX, and they believe occasional-use consumer products will be the most popular, then they need to find a way to usurp the market for such devices and services.

I am sure chipset vendors are already making the rounds of consumer companies, I know I would be if I were Qualcomm, TI or some of the others, and I would be enlisting the assistance of the existing networks to come up with solutions that will make it attractive for these consumer companies to build my chipsets into their devices.

The business model has to change in order to meet the competition head-on. There is a threat from WiMAX, new AWS network operators including cable companies and perhaps some Internet companies that have their eyes on the 700-MHz spectrum. Incumbent players can practice business as usual or they can pre-empt those preparing to challenge them before new networks are deployed or devices formalized.

ARPU means Average Revenue Per User, and it doesn't need to change. Providing users with more ways to access services and a wider variety of devices could help drive ARPU up, or at least lessen its decline. There are those who believe the holy grail of wireless is to build a single device that does everything, and for some that might be right. But I think for a majority of the wireless community, more devices enabled with wireless capabilities, even for occasional use, is the model of the future.

Andrew M. Seybold

COMMENTS: This is an archived post. Commenting is no longer available.

Chris Coles - 06/13/2007 03:43:08

I totally agree with your analysis with one reservation taken from my own experience in dealing with major telecos; they do like anyone else to make use of THEIR networks and for the family to have access to many different devices for different uses, the network operators will have to accept a change in attitude on their side of the marketplace. I see the long term winners to be those that accept change and start to allow many different uses for the minutes they sell. But to achieve that aiming point, they in turn will have to accept they cannot have their cake and eat it.