According to Warren Buffett, arguably the world’s most respected and well-known investor, evidence of a company holding pricing power is the single most important factor in evaluating the value of a business. This sentiment is open to debate, but the importance of pricing power for telecoms operators cannot and should not be understated.
The application of yield-management concepts to mobile voice pricing served to build mobile voice into a US$650 billion market and one of the world’s most lucrative and widely-used services. But the lessons learned from 25 years of value-based pricing in the voice market were arguably ignored with the introduction of unlimited pricing for mobile data services.
Pricing in the mobile sector has been on a rapid downward spiral in majority of markets, both for traditional voice and messaging services and also increasingly in the hugely important and growing market for mobile data services. And yet this intense, competition-driven pressure on data pricing appears to run counter to studies that reveal a major consumer surplus between the value that customers place on Internet access and the price they actually pay.
This report analyzes strategies that operators can adopt to try and reverse this trend and move away from today’s unit-centric environment towards pricing based on value. The first steps have been made by a large number of operators in transitioning from unlimited data pricing, but the introduction of tiered pricing is, in our view, simply the first step of many towards a more sustainable and profitable future pricing world.