Broadband Pricing and Billing

Sujit Jha
Principal
Direct: 617 753 7230
Mobile: 302 722 0444
sjha@altvil.com
www.altvil.com

June 04, 2009

Today’s presentation

A
What are the elements of broadband pricing?

B
Why is the current model unsustainable?

C
What are recent changes in broadband pricing?

D
How does wireless broadband pricing compare with wireline
broadband pricing?
E
What are the pricing alternatives of consumer friendly pricing?

F
What are some case-studies of innovative pricing models found in
telecom and non-telecom industries?

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Telecom pricing degrees of freedom

Who is the What is their relationship What is included in the offer?

customer? with a provider?

Pricing architecture

Customer Customer
Services Usage
segment / type Data
profile Access/duration
New Voice
Video Units
Risk profile
Winback Applications Pricing
Demographics
Upgrade
Users Quality
Retention Speed
Lines/Users
QoS
Devices
Time-of-day

Current focus for broadband pricing

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Pricing taxonomy for a specific service
Most telecom pricing models can be defined within each cell in this taxonomy

Example: Video Game Arcade

Variable Rate
Rates vary by $40 for an unlimited premium game $20 premium card for 10 games, $15 Premium games $2 per game, Basic
quality tiers pass, $20 for basic games premium card for 20 games games $0.50 per game

Revenue

Revenue
Revenue

Usage Usage Usage

Quality

Current wireline Current wireless

Current VoD pricing
broadband pricing voice pricing

$30 for an unlimited game pass $10 per game card, good for up to $1 per game
10 games
Revenue
Revenue

Revenue
Flat Rate
Usage Usage Usage
Same price
irrespective of
quality Access/duration Units
The amount of usage does Usage Each incremental unit of
not alter the price for a usage adds to the total price
given duration for access

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Current broadband pricing
Cable and Telcos have similar pricing strategy when it comes to bundling and adopting
Hi-Low pricing

$160 $160

$140 $140

$120 $120

$100 $100

$80 $80
$149
$137
$60 $60

$40 $40
$60
$20 $20 $45

$0 $0
Unbundled BB Bundled triple-play Unbundled BB Bundled triple-play

$160 $160

$140 $140

$120 $120

$100 $100

$80 $80
$140 $140
$60 $60

$40 $40

$20 $48 $20 $45

$0 $0
Unbundled BB Bundled triple-play Unbundled BB Bundled triple-play

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Potential shift in business model
As the business model potentially starts shifting from three “pipes” to one “pipe”,
Operators are concerned about losing the voice and video revenue streams

Current operator business model Disadvantages for

consumers
• Inability to embed one
TV service in another
$
• Easy time-shifting and
Broadband place-shifting of service
$ and content
• Tied to individual service
Voice providers and their terms
$

Future operator business model

Advantages for consumers
One pipe Multifunction devices

TV • Services become features

of one another
• Consumers don’t pay
Broadband multiple times for same
$ or $$$?
service
Voice • More choice of individual
services

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Network investments by cable and telcos
Cable and Telcos have invested or will invest close to $80B to upgrade their wireline
network infrastructure to support multiple wireline services

Cable and Telco Network Investments Business case assumptions

(completed and expected by 2012, non-success based capex) to justify network investments

35% – 45%
Penetration depending on service
$50

$130 – $160
ARPU depending on provider
$40

$30
Capex ($B)

Operator alternatives to maintain sanctity of

$43 network investment business cases
$20 $38
Offer additional
network based services
$10
Raise price of unlimited broadband
to the ARPU assumption above
$0 Do not guarantee Voice and Video QoS
Cable MSOs Telco FTTx
Adopt alternative pricing models that feel
unlimited but are not unlimited

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Current usage based pricing approach
Most cable providers and AT&T have or are planning MB usage based pricing

Provider Usage caps Price of high-end

(planned, tried or implemented broadband

Base cap: 250GB/month $ 140 for 50/10Mbps “Extreme 50”

Overage charge: $15 for each 10GB 250GB usage cap

Base cap: 5GB/month $99 for 50/5Mbps broadband

Overage charge: $1/GB $150 for unlimited usage

$ 100 for 101/15Mbps “Ultra”

Unlimited
Unlimited usage

Base cap: 20GB/month $ 65 for 18/1.5Mbps “Max18”

Overage charge: $1/GB 150GB usage cap

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Consumer wireless plans
Current consumer wireless plans are usage based, wireless plans will likely influence
wireline broadband pricing in the future
Mobile Broadband Plans
Sprint/Clearwire Verizon Wireless AT&T T-Mobile

Basic Plan - $40/250MB, 10¢/MB - -

Advanced Plan $60/5GB, 5¢/MB $60/5GB, 5¢/MB $60/5GB, 5¢/MB $60/5GB, 20¢/MB

Unlimited Plan $80/4G Unlimited - - -

Verizon Wireless Consumer Voice and Data Plans

Basic Messaging Entertainment Smartphone Family Basic Family E-Mail

Standard Phone Standard Phone Standard Phone Smartphone/PDA Standard Phone(s) Standard Phone (s)
Anytime Minutes Anytime Minutes Anytime Minutes Anytime Minutes Anytime Minutes Anytime Minutes

450: $40 450: $60 450: $80 450: $100 700: $70 700: $120
900: $60 900: $80 900: $100 900: $120 1,400: $90 1,400: $140
1,350: $80 1,350: $100 1,350: $120 1,350: $130 3,000: $150 3,000: $200
Unlimited: $100 Unlimited: $120 Unlimited: $140 Unlimited: $150 Unlimited: $200 Unlimited: $250

Unlimited Messages Mobile Web Mobile Web Mobile Web

Unlimited Messages Unlimited Messages Unlimited Messages

No Included No Included
Subscription Features E-Mail E-Mail Subscription Features E-Mail

Mobile TV

1 Line 1 Line 1 Line 1 Line $10 per line, up to 5 $10 per line, up to 5
• Overage Rate: 40¢/min • Overage Rate: 40¢/min • Overage Rate: 40¢/min • Overage Rate: 40¢/min • Overage Rate: 40¢/min • Overage Rate: 40¢/min
• Messages: 20¢/txt • Data: $2/mb • Messages: 20¢/txt
• Data: $2/mb • Data: $2/mb
• Downloads (e.g. songs, videos, applications) a-la-carte depending on type (usually $2-10)

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Consumer issues with MB usage based pricing models
MB usage based pricing models will likely face adoption challenges

Consumer issue Description

Consumers cannot easily translate MB to their actual

Define MB uses. Service providers provide consumers a guide to
generally translate songs, web-page, email etc. to MB

Most consumers prefer to see a single and simple price

Single and simple price structure that includes all desired features and charges;
consumers don’t like the feel of “nickel-and-diming”

“Unlimitedness” at a Consumers have been trained to have unlimited

broadband. Reigning them in with heavy-handed usage
fair price based pricing plans removes the feeling of unlimitedness

Predictability of Consumers value predictability in their monthly bill. They

are likely willing to pay a premium for unlimited plans
monthly bill

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Potential consumer friendly pricing alternatives
There are few pricing alternatives that could be adopted to create a win-win situation for
both consumers and service providers

MB based pricing

1 2 3 4
QoS – the diamond Applications /
Time-of-the-day Time and speed
lane device bundled
• Consumers pay for
• Unlimited packs of
• Peak-hour (10AM • Guaranteed QoS broadband will applications
– 9PM) price at a specific price include 24hours including voice,
different from non- usage by speed video (incl. Hulu),
• Useful for real-time
peak hour (9PM – tiers music, games etc.
applications like
10AM) price
voice, video • Consumers can • Revenue sharing
• Similar to current stream and buy time-based between
wireless pricing network gaming and speed-based applications
usage tiers provider and
network providers

Fit with consumer needs

High Low

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Time-based Pricing: Retail Electricity
Price varies over time that account for varying generation and delivery costs

Plan Type Plan Details

Key Concept

• Summary: Rate varies over set time increments

(hour, week, season, etc.)

Rate
• Price Drivers: Variable supply costs; variable
Price Drivers: consumer demand
Cost Variability
Demand Variability
Time

Example: Retail Electricity

$0.20
What you buy: Electricity, in
kWh increments
How you pay: One of four
$0.15 rates, depending on time of
day and season
Rate per kWh

Price drivers: Price aligns with

utility’s generation costs
$0.10
Details:
• Goal is to limit generation
costs by reducing demand
$0.05 • Plan limits complexity by
Summer limiting variability to two
prices (on peak, off peak),
Winter
which vary depending on the
$0.00 season
12am 4am 8am 12pm 4pm 8pm 12am

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Time-based Pricing : iiNet Home Broadband
Consumers receive incentives (lower rates, more features, etc.) for purchasing more
quantities, at non-peak hours

Plan Type Plan Details

Key Concept

• Summary: Customers purchase allotments of

different types of quantities, with lower unit rates
with higher quantities

Rate
• Price Drivers: Lower rate with higher quantities
Price Drivers: purchased; units with higher demand (e.g. “on
Volume Discount peak”) have higher rate
Demand Variability
Quantity Purchased

Example: iiNet Home Broadband

80 $140 What you buy: Usage

On-Peak $130 allotments for distinct on-
Off-Peak $120 peak hours (noon - 2 am) and
Price
off-peak hours (2 am - noon)
Usage Allotment (GB)

60
$100 $100 How you pay: Per-GB rates

Plan Price ($AU)

are lower for larger plans,
$80 and during off-peak hours
40 $70
$60 $60 Incentives: Usage of content
$50
on iiNet Freezone does not
$40 $40
count against usage cap
20
$30 Details:
$20
• Connectivity speed (ADSL2+)
10

10
20

15
30

25
40

40
60

60
80

does not vary by offer

1
1

0 $0
home 1 home 2 home 3 home 4 home 5 home 6 home 7

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“Tandem Tiers” of Quality and Quantity: Do Broadband
Customers select package in which quality/quantity increase in tandem from low to high
tiers

Plan Type Plan Details

Key Concept

• Summary: Consumers purchase quantity of

usage and quality of service, which increase in

y
lit
ua
tandem (i.e., no “mix and match”); usage

Q
Rate

gh
allotments may or may not expire

Hi
Price Drivers: al ity
• Price Drivers: Marginal costs (multiple drivers); Qu
Cost Variability Low
Volume Discount
demand for differentiated/premium service

Usage

Example: Do Broadband (South Africa)

4 What you buy: Usage

allotments (GB) and
connectivity speeds (Mbps)
3 R554 / mo How you pay: Pay monthly fee
Usage Allotment (GB)

that varies by package

R258 Incentives: WiFi router with 2-

2 / mo year contract; free access to
Encyclopedia Britannica
R199 Details:
1 / mo
• Also ensure minimum
connectivity speeds for all
account levels: 256 Kbps for
0 the 384 Kbps package, and
0 1 2 3 4 5 640 Kbps for the 4 Mbps
package
Maxim um Dow nload Speed (Mbps)

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Applications/device bundled: Movie Theater
Consumers purchase tickets for a screening, regardless of duration or quality

Plan Type Plan Details

Key Concept

• Summary: Consumers “hire” a movie theater to

perform the “job” of providing entertainment and a
snack A

Rate
• Price Drivers: Ticket prices reflect an entry fee
Price Drivers: B
only and are independent of the length (or
Job-Based
quality) of a film
Demand Variability
Usage

Example: Movie Theater Pricing

What you buy: tickets that
grant entry to a screening of
a film;
How you pay: For the movie,
The Job:
pay a single fee regardless of
Provide an entertainment film length/quality; for the
experience – here, a feature- snack, upgrade size for a
length film small fee
Incentives: Bundle discounts
on concessions; discount for
off-peak screenings
The Job: (matinees)
Provide a tasty snack that lasts
Details:
a relatively long time, that can
be eaten without looking down, • Same pricing structure used
and that can be easily shared to determine overage
charges for other lower-tier
data plans

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About
Altman Vilandrie & Co
• Altman Vilandrie & Company (AV&Co.) is
a boutique management consulting
group that focuses exclusively on the
communications, media, and related
technology and investor sectors
• As a unique, pure play communications
and media strategy consulting group, we
assist operating companies and financial
groups in fast, high-impact, confident
decision making. We enable clients to
seize new opportunities, navigate
mounting challenges, improve business
performance, and increase investment
value within complex and converging
industries
• AV&Co. has deep expertise in advising
companies and their investors in both
growth and restructuring environments.
We work with clients to identify and
capitalize on new areas of opportunity, as
well as effectively manage and optimize
their businesses in challenging situations
Confidential – Do Not Reproduce
Sujit Jha
Principal
Direct: 617 753 7230
Mobile: 302 722 0444
sjha@altvil.com
www.altvil.com
• Sujit assists wireline and wireless operator
and investor clients in new product
strategy, development, lifecycle
management and merger integration
• Sujit is an expert in areas across the
communications spectrum including
merger integration, FTTx strategy and
planning, IPTV, wireless data and
advanced advertising. He has defined
some of the leading new product business
models in telecom and developed
actionable economic analysis in support of
these business models
June 04, 2009 16