Not All Devices are Created Equal

As an analyst who spends countless hours talking to different parties within the mobile broadband world, the desire to see new classes of devices connected to mobile networks is frequently discussed.

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These devices are a central part to many business plans.   What I don't hear as much, is how operators plan to charge for those devices.   This deafening silence is especially notable with mobile operators talking about LTE.   If operators want to add new classes of devices to their network, the first thing they need to do is figure out how much consumers value the device.

Phones play a very central role in most people's lives.   People like to talk, and do it often.   People take cell phones with them in their everyday travels.   Consumers place a value on cell phones such that they are willing to pay a monthly fee to use the device.   This value though does not translate to all devices.   Locking a user into a service fee for a device, which does not hold the same level of value that a cell phone does will be tough.   When service providers look at how to value a device several factors should be considered:

- How often does somebody take it with them when they leave their house, or place of business?
- How often do they use the device?
- How do they use the device, and can another device class substitute for it? Such as using a camera phone in place of a digital camera.
- Why does the device need to be wireless connected?

After measuring the device value, operators need to look at new ways of pricing connectivity for those devices.   Some of those ways are:

- Pre-paid consumption based pricing, where for $X a user could purchase the right to transmit X bytes of data over a fixed period of time.
- Bundling of devices together, where for a single price a user could have the right to connect multiple devices under a single service plan.
- Transaction based pricing where you only pay per session or for a specific activity.   Such as charging a per-rate fee to download a song or movie to a personal media player over a wireless network.  
- Work through third party vendors like Sprint and the Amazon Kindle.   The cost of connecting is built into the cost of the e-book download.

Another challenge that needs to be addressed, and can be a real bottleneck, is device cost.   The cost of embedding a device needs to come down.   Removing traditional cellular service fees requires the end-user to take on the full device cost.   The cost of an embedded device, versus the same device minus the radio, needs to be minimal.   Wi-Fi has done a great job in that area.   WiMAX shows promise.   Recently Dell announced WiMAX embedded laptops.   The cost of the embedded radio only added $60 to the price, and did not require a service agreement.   This is a move in the right direction.   Clearwire's recent announcement with Cisco should lead to similar advancements with devices.

Successfully bringing connectivity to new device classes will take time and a change from the traditional mobile operator handset model.   Operators that can do this will be able to drive new revenue streams across their networks.
 

Daryl Schoolar is a Senior Analyst within the Mobile Internet group at In-Stat.   At In-Stat he contributes to the "Wireless Broadband Evolution" research tract.  He focuses primarily on WiMAX, LTE, 3G and Wi-Fi. 

In his coverage, Daryl primarily focuses on mobile broadband at the infrastructure and carrier level.  His work within those areas includes sizing of markets, carrier strategies, and market drivers.




 

Tuesday, May 26, 2009 in Applications  | Permalink |  Comments (2)