Almost half of international mobile executives (48 per cent) believe that mobile operators will focus on developing new pricing models over the next three years, with 55 per cent agreeing that tiered pricing is the way forward in mature markets and 47 per cent arguing flat-rate, ‘all-you-can-eat’ data plans are damaging their ability to increase revenue, according to a survey commissioned by international law firm, Freshfields Bruckhaus Deringer.
The Freshfields Mobile Challenges Survey was conducted in June among 391 representatives from the mobile industry from 55 countries. The participants included software providers, mobile services providers, mobile network equipment providers, integrated fixed-wireless telecommunications operators, mobile network operators, value-added services providers and content providers.
The survey identified the cost of funding next-generation networks, cited by 44 per cent of respondents, and ensuring adequate backbone capacity for future traffic loads (37 per cent) as critical challenges, while more than 60 per cent of respondents to the survey believe pricing mechanisms will solve or mitigate the strain on the networks caused by data-hungry devices such as internet-connected smartphones.
The move towards usage-based pricing models is predicated on an aggregate increase in data traffic. In mature markets, 37 per cent anticipate application downloads will be a main revenue source in three years’ time, exceeding voice (36 per cent) and video downloads (32 per cent). The picture on pricing differs in developing markets however, where 78 per cent of mobile operators agree that basic voice and data pricing plans are more commercially viable.
“Mobile providers are remodelling their pricing strategies to sweat their assets whilst tentatively looking at new product offerings,” notes Natasha Good, co-head of Freshfields’ mobile group. “The telecoms community is tackling a twin challenge: maximising revenue from existing services to protect profit margins, and managing the increasing strain on the networks. Usage-based pricing is a logical solution. It will ease current capacity issues by capping demand, contain capital expenditure requirements and potentially increase revenue.”
Good adds that pricing models tied to data consumption may be welcomed by regulators, who are increasingly scrutinising how internet traffic is managed. “By squeezing demand for bandwidth through pricing, mobile operators are less likely to opt for traffic management tools such as choking the pipeline for users, perceived by some regulators to violate so-called net neutrality objectives,” she says.
With half of all international mobile executives highlighting slow economic growth as one of the greatest risks facing their businesses, and another 28 per cent citing higher-than-expected capital outlays on new networks, the industry continues to pursue cost-cutting measures. 
31 per cent of respondents agree that network sharing with other operators is the single-most effective way for mobile operators to achieve cost efficiencies. Accelerated deployment of next-generation networks to realise their efficiencies, favoured by 19 per cent of executives, is also high on the agenda.
In spite of this cost-consciousness, the need to maintain competitive advantage is driving innovation, with 35 per cent of mobile executives agreeing that expanding the variety of content and services available to users is a critical challenge facing mobile operators over the next three years. Almost 80 per cent of mobile operators agree they will be better positioned to compete by opening their platforms to independent application developers, while 45 per cent believe they should open their own app stores.
The survey also found that regulatory uncertainty and fears over data privacy are stalling mobile operators’ efforts to expand their service offering. 47 per cent say data privacy concerns are hindering their ability to offer third-party applications to customers. Loss of customer data through hacking (43 per cent), absence of security software on handsets (34 per cent) and downloading viruses (34 per cent), are cited as the other main security risks.
“Recent concerns regarding the encryption of Blackberry services show an inherent conflict between the public interest in law enforcement authorities’ intercept measures, and the legitimate end-user interest in the security and protection of content,” says Good. “Competent authorities have a tricky balancing act to perform, especially when services are offered from jurisdictions in other parts of the world and will need to seek practical solutions, such as co-operation models.”
But it is data, and specifically, the pricing of data, that will pose the biggest challenge to the industry, Good believes. She concludes: “With pricing positioned firmly at the heart of the solution to the mobile industry’s challenges, questions remain over whether consumers will be easily weaned off flat-rate data tariffs, and how long mobile operators can stave off the need for investment in new technologies and infrastructure to maintain quality levels for a new breed of data-hungry consumer.”
