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How to solve the crisis in telecoms pricing

Telecoms Pricing Broken

When it comes to pricing mobile services, telcos are in a spot of bother, as revenue streams are not keeping pace with customer preferences. How are services being priced now, and what can providers do to remedy this?

Mobile pricing was once simple, based on the minutes spent making calls, with a premium added for international calls and roaming. Then, higher bandwidth data services made possible by 3G and 4G opened up the range of use cases, all charged based on data used: messaging, VoIP, email, video and so on.

Now 5G has its foot in the door, promising a whole raft of additional services – but pricing has yet to catch up and many service providers are just sleepwalking into ever bigger data bundles.

Despite all the advancements made in mobile data services, most pricing models are still stuck in the past, and the industry has collectively buried its head in the sand as it becomes increasingly out of touch with its disruptive competitors.

Telcos continue to treat their service prices like utilities, predicated on a flat rate for the volume of data consumed, while most digital industries are moving the other way towards more value-based pricing models for their products and services – take for example how WhatsApp Business is implementing conversation-based pricing.

Sticking with the old way of pricing hasn’t paid off, with the increase in mobile data use not being reflected in revenues; despite global traffic increasing by 35% in Q4 2020 versus the previous year, revenues in that same period increased by only 0.6%.

Streaming platforms, like Amazon Prime, don’t charge you per minute watched; their value lies in the content included in the main Prime subscription, but they also offer differentiated pricing, upselling premium movies and series for purchase or rent.

How many customers actually know (or care?) how many videos they’d have to stream, or pictures they’d have to upload to Instagram to use up 1GB of data? How much idle scrolling through Twitter does it take to eat up a whole megabyte? To the customer, the technical side of sending and receiving this data is irrelevant – its real value lies in its hedonic value to the user.

Some mobile providers are being more innovative with their pricing, applying zero-rating to data-intensive services, such as social media and streaming, in defiance of net neutrality. In the UK, Virgin Mobile offers all pay-monthly customers zero-rated messaging via Facebook Messenger, Twitter and WhatsApp, excluding voice and video calls.

Taking things one step further, Vodafone’s youth-oriented subsidiary brand VOXI boasts its Endless Social Media plan, giving customers zero-rated data on most major social platforms, including Facebook, Instagram, Pinterest, Snapchat, Twitter and WhatsApp (excluding streaming and video calls).

These plans have a low marginal cost, with social media apps only using an average of 1.5-2.5MB of data per minute, but a much higher perceived value to users.

On top of this, VOXI offers value-added extras through its Endless Video and Endless Music plans that extend this zero-rating to the likes of Netflix, YouTube, TikTok, Spotify and Apple Music.

This abstraction of data consumption is compounded by the fact that, as data use increases, bills for mobile services are nonetheless dropping for UK consumers, according to Ofcom’s latest Pricing Trends report.
However, as some services become cheaper, others are becoming more expensive, with several big industry names, such as EE, Vodafone and Three having raised their prices in recent months.

Those 80% of customers who are going all in and buying bundled services are saving up to 28% on their services rather than when bought separately, while those struggling to afford services typically end up paying more for worse service; customers earning less than £10,000 a year are spending an average of around 10% of their income on mobile services.

Looking at the broader telecoms landscape, providers both big and small, ranging from BT and Virgin to VOXI and Hyperoptic, have all introduced low-cost tariffs, however take-up has also been low thus far, with only 40,000 eligible UK households having signed up.

Though other countries, particularly developing nations, tend to have smaller data bundles / plans, in the UK, the race towards offering increasingly high mobile data allowances has left a lack of sub-1GB data plans, meaning these tend to be relatively expensive, while the price of budget plans with no bundled texts or data has actually risen in recent years.

[Source: Ofcom]

There are now relatively few strictly prepaid tariffs on the UK market, and this crop is shrinking fast, as Virgin Mobile recently announced that its Pay as You Go service will be phased out by January 2022. Virgin Mobile actually stopped offering the service to new customers in August 2019, resulting in its prepay customer base plummeting by 75% as of March 2021.

Providers are instead offering “hybrid” prepaid bundles, offering free calls and data when users top up their credit. Although these hybrid tariffs have opened up prepaid customers to more services, they may still end up paying more.

Herein lies the irony of pay-as-you-go compared with postpaid; often, the least data-intensive or least able to pay customers are the ones who end up paying the most per unit consumed - the boots theory of poverty.
“Telecoms firms need to do more,” Ofcom has declared, continuing: “If the telecoms industry does not take sufficient action to address our concerns, we think there would be a strong case for exploring whether mandatory social tariffs would be necessary to fill the gaps in support.”

Looking at the wider issue of telecoms pricing, Ofcom carried out a separate investigation into personalised pricing, but consumer reactions branded the idea “unfair,” citing a lack transparency as to how these personalised prices would be calculated, and the lack of a benchmark as to whether what they would receive is actually a good deal or not.

Despite the trend towards offering greater and greater data allowances, there are still other means through which telecom operators can stand out, including quality of service, and making a wide range of services and value-added extras available at differentiated yet fair prices. For example, high-definition streaming, VR and AR, car connectivity, telehealth – these all have unique value to consumers, while smart city services and industrial IoT hold an equal or greater value for businesses and enterprises as key drivers of their own services and revenue streams.

But telcos will be holding themselves back if their pricing models aren’t as cutting edge as the services they facilitate.

Consumers are willing to pay more for advanced services, if they see the value in doing so; 1GB of video streaming can (and should) be charged differently than 1GB of IoT sensor data transfers.

But who pays for the data consumed in these use cases? Most consumers won’t have a contract with their telco for, say, the data their 5G-connected car uses. Will the car company pay the telco for that, and then bundle it its own value-added subscription services to the consumer?

Telcos must rethink what emerging 5G services will mean for their pricing, who they are charging, and how to position hyperconnected appliances and real-time immersive communications with traditional voice and text price plans.

5G is the industry’s golden opportunity to reverse those falling revenues and finally get its pricing right.

Overhaul your pricing structures and unleash new revenue streams with Cerillion’s Enterprise Product Catalogue and Convergent Charging System (CCS), offering fully transparent, real-time charging and balance management. Contact us now to find out more.

About the author

Adam Hughes


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