Press release: Mobile operators can drive ARPU with bundles of mobile services but must beware of flat-rate pricing

20 July 2006 – The emerging approach of bundled pricing is a powerful technique for driving mobile voice usage and kick-starting much-needed new revenue from mobile data services, according to a new report, Pricing Mobile Services for Success: towards a bundled future.

Despite the advent of 3G networks, many operators are struggling to maintain voice ARPU and to grow data services beyond messaging. The report shows that bundled pricing can be a highly effective way to stimulate revenue growth. With bundled pricing, mobile operators offer a defined usage allocation of one or more services for a set fee.

“Affordable bundled pricing has been fundamental to mobile operators in the USA achieving average voice usage that is over five times higher than in Western Europe,” according to report co-author Dr Alastair Brydon. “Bundled pricing can be even more effective when extended to multiple voice and data services within a bundle.” The report shows that bundled pricing can increase the usage of existing services, such as text and picture messaging, and drive take-up of new services, such as music downloads and mobile TV. “Bundles can encourage users to adopt and use more data services than they would if the services were purchased individually,” says Brydon.

Beyond driving the take-up and usage of services, bundled pricing also has important strategic benefits for mobile operators. It can help them to strengthen their relationships with customers, to reduce churn and to avoid price competition. “By establishing ongoing communication with customers and offering incremental refinements to their service bundles, mobile operators can strengthen loyalty and may be able to migrate customers to higher-value bundles over time,” says report co-author Dr Mark Heath. “A particular benefit of bundled pricing is that it reduces the emphasis on the price of individual services, making it more difficult for customers to compare prices among competing operators.”

There is growing interest among mobile operators in flat-rate pricing, whereby subscribers are offered unlimited usage of one or more services for a fixed price. While flat-rate pricing has the benefit of simplicity, unlimited service usage can have serious implications and therefore must be handled with care. Furthermore, flat-rate pricing makes operators more susceptible to price competition and could make it difficult to generate additional revenue from increased usage of existing services or take-up of new data services.

Pricing Mobile Services for Success: towards a bundled future defines seven golden rules for mobile pricing, as a framework for maximising overall ARPU and profitability. It shows how bundled pricing can be applied to deliver major benefits for mobile operators in both the short and long term. The report also evaluates flat-rate pricing and shows where it should and should not be used.