Finnish telecoms research house Omnitele shocked cellular operators at the recent World Mobile Congress by telling them that they could not continue to offer low priced mobile broadband for much longer. The company argues that at current service prices are not taking into the increase in network costs that mobile broadband leads to.
As far as we can see the only thing that triggered the huge recent dongle revolution to attack mobile broadband to laptops was the low priced data rates, but it is these that Omnitele says have to go.
The report argues that the average monthly usage of data packages is nearly 10 GB per month per subscriber across Europe. But this will drive up costs in network capacity to €1,000 per subscriber in the cost of additional network spending alone. It would take ten years to get that back, Omnitele argues, so prices must go up ‘ and not just by a few percent, but dramatically.
The company argues that operators have to begin blocking or slowing peak hour traffic for heavy users, go back to suppliers and demand lower costs, but it still means raising prices. This is the same economic cycle that played out in the fixed broadband market, and any operator that took this company’s advice would lose a big chunk of subscribers overnight. Operators like 3 UK were the first to offer flat rate low priced mobile broadband, and it was their pricing that forced the rest of the UK operators to cave in on price.
Omnitele points out that Vodafone has just said that over 60% of its UK post-paid additions were made up by data only contracts for each of the past three quarters, and this jumped to 85% in the last quarter. Raise prices and overnight the company would be in trouble on home soil.
Pal Zarandy, principle consultant of Omnitele argued to the MWC audience that staff at operators traditionally get paid bonuses on revenue gains not profitability pointing to a bonus culture not dissimilar to the banking community. In which case if they carry on that way the whole cellular network business will soon come crashing down.
We think that Omnitele is missing the point that some of the money to pay for all of these network upgrades needed for mobile broadband comes from simply keeping customers and reducing churn by offering them ‘cheap mobile broadband. Either way the chances of Vodafone and co suddenly raising prices on dongles and data packages is pie in the sky.