Welcome to The New Era

As Sam Pitroda, advisor to the Prime Minister on Public Information Infrastructure and Innovation, aptly calls the second phase of telecom revolution, as ‘wireless broadband', can Indian operators continue to innovate on pricing, much the same way they did it for voice.

We have seen of late various data pricing plans from the operators. Typical data plans are illustrated below: The Pricing Models While most of the US and European operators started with flat rate pricing Giga Byte (GB) (marginal revenue) of usage compared to cost of upgrading their network (marginal cost) and hence switched over to variable pricing plans.

In a typical variable pricing plan, there is a fixed fee per month for a fixed GB capacity post which for every GB consumed the user is levied a variable fee. In the above figure, Models 3 and 4 represent this. As an extreme case, the purely variable fee, that does not have the fixed fee component as indicated in Model-2.Unlike in v o i c e scheme (Model-1 in the above chart) and then switched to variable pricing plan, Indian operators partly due legacy in voice, started off with variable pricing plans. In a flat rate plan, there is a fixed rate per month user pays for all her data usage.

When the 3G and 4G services were new and applications still evolving, the US and European operators with abundant capacity (ie ‘spectrum') in their networks offered flat rate pricing plan to improve adoption.

However, as applications and data services evolved and data demand increased, the operators found themselves earning much less average revenue perwhere the usage is more or less homogenous

amongst users (the average call holding time still continues to be 2-3 minutes), the usage pattern varies widely amongst the users. There are a large percentage of ‘light users' who use data connectivity mainly for checking emails, and occasional browsing.

Then, there is a small percentage, but very important set of ‘heavy users' who consume GBs of BitTorrent streams and YouTube movie downloads. While a pure flat rate pricing scheme is suited well for heavy users (who don't pay extra Rupee though downloading GBs of data), a purely variable pricing model suits only the light users (as can be seen in the steep graph). The middle ground is what most of the carriers play on with both fixed and variable portions of pricing models. The operators can levy a high fixed fee and low per GB fee as indicated in Model 3 or levy a smaller fixed fee and higher per GB fee as in Model 4. While Model 3 is more to the likings of heavy users, Model 4 suits light users better. We have seen indications of the above pricing plans offered by Airtel, Idea amongst others using their "pay as you go" plans for pre-paid users and variations of Models 3 and 4 targeted at post-paid users.

However, these plans are very confusing and over whelming for the users. For example, most of the Indian operators' plans are as cryptic as follows: "`599 per month for 3GB; above 3GB, at the rate of 0.5 paise/ 10 Kilo Bytes (KB)". Does a normal user know what constitutes a "10 KB"? Instead, the operators would do well to indicate via an app, their usage patterns and expenses so that the viewers will be able to have a better control over their spending, much like in case of pre-paid where the user is informed of the call charges and balance amount immediately upon call completion.

The Simplest Form of Pricing What is more? The "Smart Data Plans" go further. The simplest form of pricing as we have witnessed some years ago in voice is "Time Dependent Pricing" (TDP) where the night time usage was charged half the price of day time usage. This is also sometimes referred to as "congestion charges" as the day time usage is premium priced due to possible network congestion compared to night time where typically demand is lesser.

Incidentally, BSNL was one of the pioneers of TDP, not only for voice calls but also for wire-line DSL broadband data usage. TDP shifts the usage from day time to night time thus minimizing network bottlenecks and congestion at the same time using network capacity optimally. The same can be applied for data pricing as well. However, TDP can be much more innovative for data. Since users use different applications with varying degrees of tolerance to delay (e.g. Email is less delay tolerant compared to software update that can be postponed to a later time), the users can be given a choice to shift part of their traffic to another time of the day and even provided with a reward (in the form of more GB of usage, or cash back coupons) for doing so.

It is possible that the users can be charged based on where they consume data (i.e. Location Dependent Pricing). For example, the centre of the city and dense urban areas areas, are where demand is more than available network capacity, leading to congestion. In these locations, the price per GB ideally should be more compared to locations where there is excess capacity compared to demand (eg in suburban areas). Hence as the user moves, the price paid by the user also varies.

All the above can be done, provided there are intelligent applications that can reside on the smartphone that constantly monitor the data pipe provided by the operators; uses algorithms to optimize the price plans for the users; receives digital coupons and instant pricing schemes over the network to fine tune the algorithmic options; and above all, help the operators maintain a healthy balance between fleecing customers and maintaining the required Quality of Service.

Welcome to the new era of ‘Smart Data Pricing'.