Pricing strategies for an incumbent operator: Mobile Services The views expressed in this paper are those of the author and do not necessarily reflect.

Pricing strategies for an Pricing strategies for an incumbent operator:incumbent operator:

Mobile ServicesMobile Services

The views expressed in this paper are those of the author and do not necessarily reflect the opinions of the ITU or its Membership. Dr Kelly can be contacted by e-mail at [email protected]

Saburo Tanaka, ITU

Pricing strategies for mobile

Pricing mobile services:Pricing mobile services:AgendaAgenda

• A Mobile Revolution Worldwide and in the sub-region

• Pricing Mobile Options Price comparisons and trends Price trends Average Revenue Per User (ARPU)

• Fixed-Mobile Interconnect

• A Mobile Future

A Mobile RevolutionA Mobile Revolution

Source: ITU World Telecommunication Indicators Database.

0

200

400

600

800

1'000

1'200

1'400

1993 1995 1997 1999 2001 2003

Mobile Users

Fixed Lines

Fixed Lines vs. Mobile Users, worldwide, Million

Mobile subscribers Mobile subscribers per 100 inhabitants per 100 inhabitants

Year-end 1999Year-end 1999Sub-regionSub-region

Source: ITU World Telecommunication Indicators Database.

11.09

4.21

3.42

3.00

1.42

1.06

0.81

0.33

0.16

Malaysia

Thailand

China

Philippines

Sri Lanka

Indonesia

Cambodia

Viet Nam

Lao P.D.R.

Mobile subscribers Mobile subscribers as % of total as % of total

telephone telephone subscribers subscribers Year-end 1999Year-end 1999

Sub-regionSub-region

Source: ITU World Telecommunication Indicators Database.

76.3%

42.4%

35.3%

32.9%

28.5%

26.8%

24.8%

19.7%

9.4%

Cambodia

Philippines

Malaysia

Thailand

China

Indonesia

Sri Lanka

Lao P.D.R.

Viet Nam

Pricing strategies for mobile

The secret of mobile successWhy is mobile currently growing ten times faster

(~55% p.a.) worldwide than fixed lines networks (~5.5% p.a.)?

Why is the average mobile user much younger than the average fixed-line user?

Why do users make calls using a mobilephone even when a fixed-line telephone is available and cheaper?

What is the secret of the success of mobile?

Price Options

Plan name Monthlycharge for

single phone

Standard talktime included(per month)

Peak timecall charges(per minute)

Off-peakcall charges(per minute)

Chat 60 £17.63 60 off-peakminutes

40p 5p

Talk 30 £17.50 30 minutes 30p 5p

Talk 120 £25.00 120 minutes 24p 5p

Talk 400 £58.75 400 minutes 22p 5p

Talk 1300 £176.25 1’300 minutes 17p 5p

Talk 3700 £470.00 3’700 minutes 15p 5p

Talk 7500 £940.00 7’500 minutes 15p 5p

Everyday 50 50p/day 50 minutes/day 40p 1p

A selection of price optionsA selection of price optionsFrom Orange (UK)From Orange (UK)

Source: http://www.uk.orange.net/kit/index.html.

Pricing MobilePricing Mobile

Note: Price basket based on monthly subscription plus 50 mins peak and 50 mins off-peak use.Source: ITU World Telecommunication Indicators Database.

$37.00

$27.71

$21.02

$19.55

$19.34

$17.80

$16.26

$10.87

$9.74

Cambodia

Viet Nam

Malaysia

Lao P.D.R.

Thailand

Sri Lanka

Philippines

China

IndonesiaPrice of 100 minutes per

month mobile usage, in US$

Declining prices for mobile access, global average, in US$, 1992-98

547

410

231180

1992 1994 1996 1998

Connection charge, US$

CAGR, 1992-98 = -16.9% p.a. 547

410

231180

1992 1994 1996 1998

Connection charge, US$

CAGR, 1992-98 = -16.9% p.a. 44.9

38.134.2

31.3

1992 1994 1996 1998

Monthly subscription, US$

CAGR, 1992-98 = -5.8% p.a. 44.9

38.134.2

31.3

1992 1994 1996 1998

Monthly subscription, US$

CAGR, 1992-98 = -5.8% p.a.

Note: CAGR = Compound Annual Growth rate.Source: ITU “World Telecommunication Development Report 1999: Mobile cellular”

Average revenue per user (ARPU)Bell Mobility (Canada)

0

20

40

60

80

100

120

90 91 92 93 94 95 96 97 98

Rev

enu

e/co

st p

er s

ub

scri

ber

p

er m

on

th (

US

$)

0

200

400

600

800

1'000

1'200

1'400

1'600

Su

bsc

rib

ers

('00

0s)

Revenue per sub/month

Cost per sub/month

Subscribers

Source: ITU “World Telecommunication Development Report 1999: Mobile cellular”

14%

22%

24%

40%

53%

36%

8%

3%

Customers

Average revenueper user (ARPU)

Exp

end

itu

re p

er m

on

th

40 per cent of low-spending customers

generate 3% ofrevenue

14 per cent of high-spending customers

generate 53% ofrevenue

Cultivate the high-spendersCultivate the high-spenders

Source: Price Waterhouse Coopers, based on Canadian data.

Mobile ARPU converging with Fixed-line ARPU, Japan (Yen ‘000s p.a.)

0

50

100

150

200

250

300

1990 1991 1992 1993 1994 1995 1996 1997

Mobile ARPU

Fixed-line ARPU

Source: ITU “World Telecommunication Development Report 1999: Mobile cellular”

Pricing mobile and fixed:Monthly subscription charges (US$)

0

5

10

15

20

25

MalaysiaIndonesia

CambodiaThailand

HK SarSri Lanka

Residential fixed-line

Digital cellular3.0

2.4 1.1 5.0 1.7

5.0

Ratio: Cellular/fixed

0.0

0.2

0.4

0.6

0.8

1.0

HK SarSri Lanka

CambodiaMalaysia

ThailandIndonesia

Residential fixed-line

Digital cellular

18.2

6.7

10.03.0 7.5

Ratio:Cellular/fixed

0

n.a.

Pricing mobile and fixed:Pricing mobile and fixed:Price of 3 minute local calls (US$)Price of 3 minute local calls (US$)

Pricing strategies for mobile

Fixed-Mobile InterconnectionInterconnect prices are a major determinant of

retail pricesEvidence of “market failure”

Interconnect prices are variable but generally very high In Calling Party-Pays environments, caller may not be aware of

the charge they will be paying Calling party does not have a choice of operator to terminate the

call

Fixed-to-mobile and mobile-to-fixed highly asymmetric

By 2005, 75% of all calls worldwide will involve a mobile

Pricing strategies for mobile

Calling opportunities worldwide

89.7%

5.0%5.0% 0.3%

199352.7%

19.9%

19.9%

7.5%

1998

23.4%

25.0%25.0%

26.7%

2003

Fixed-to-fixed

Fixed-to-mobile

Mobile-to-fixed

Mobile-to-mobile

Source: ITU Fixed-Mobile Interconnect website: http://www.itu.int/interconnect

Fixed-to-mobile interconnect rate

Mobile-to-fixed interconnect rate LOCAL

Mobile-to-fixed interconnect rate SINGLE

TRANSIT

Mobile-to-fixed interconnect rate DOUBLE

TRANSIT

Austria 0.23 0.017 0.017 0.022

Belgium 0.18 0.008 0.014 0.018

Denmark 0.17 0.008 0.011 0.016

Finland 0.21 0.013 0.013 0.024

France 0.20 0.006 0.012 0.018

Germany 0.24 0.008 0.017 0.021

Greece n.a. 0.018 0.018 0.025

Italy 0.23 0.009 0.015 0.021

Ireland n.a. 0.010 0.015 0.021

Luxembourg n.a. 0.015 0.015 0.015

Netherlands 0.18 0.009 0.013 0.016

Portugal n.a. 0.009 0.015 0.024

Spain 0.20 0.009 0.015 0.028

Sw eden 0.22 0.008 0.011 0.015

UK 0.16 0.005 0.007 0.016

Sw itzerland 0.30 n.a n.a 0.020

Norw ay 0.156 n.a n.a 0.018

Average 0.21 0.010 0.014 0.020

Interconnection Rates in selected European countries under CPP (in US $ / minute)

0.30

0.24

0.23

0.23

0.22

0.21

0.20

0.20

0.18

0.18

0.17

0.16

0.156

Sw itzerland

Germany

Italy

Austria

Sw eden

Finland

France

Spain

Belgium

Netherlands

Denmark

UK

Norw ay

European fixed-to-mobile interconnect charges, (US$/min)

0 5 10 15 20 25 30

Mobile-to-f ixed LOCAL

Mobile-to-f ixed SINGLE

TRANSIT

Mobile-to-f ixed DOUBLE

TRANSIT

Fixed-to-mobile

Low est

Best-practice(20%) guideline

Highest

EU, range of interconnect rates, (US cents per min.)

Interconnection Rates in Selected European Countries

Calling Party Pays (CPP). In US $ per minute.

0.105

0.005

0.020

0.056

0.010

0.020

0.009

0.008

0.008

0.007

0.0012

0.000

0.000

0.008

0.000

0.0096

CPP

RPP

USA

Sri Lanka

Singapore

HK SAR

Canada

China

Mobile-to-fixedinterconnect rate

Fixed-to-mobileinterconnect rate

RPP countries

Average

0.293

0.208

0.205

0.078

0.070

0.20

0.047

0.034

0.017

0.293

0.052

0.051

0.042

0.050

0.026

0.047

0.034

0.017

Antigua

Botswana

Philippines

Dom. Rep.

Cambodia

Mexico

Guatemala

Malaysia

Costa Rica

Mobile-to-fixedinterconnect rate

Fixed-to-mobileinterconnect rate

CPP countries

Interconnection rates in selected non-European countries

Calling Party Pays (CPP) vs. Receiving Party Pays (RPP). In US$ per minute.

A mobile futureA mobile future

Source: 1990-1998 data from ITU World Telecommunication Indicators Database. 1999-2010 ITU projections.

Mobile has overtaken fixed-lines in Cambodia, Finland, Italy, Korea

Mobile subscribers to overtake fixed-line worldwide before 2005?

Mobile revenue to overtake fixed-line after 2004?

Fastest growth in developing countries

Actual and projected subscriber growth, fixed-lines and mobile, millions, 1990-2010

0

500

1'000

1'500

2'000

1990 2000 2010

Fixed

Mobile

The race for 3rd Generation mobiles: IMT-2000

0

32

64

9.6

128

144

384

2,000 1G 2G 3G

VoiceVoice

Text MessagingText Messaging

Video StreamingVideo Streaming

StillStillImagingImaging

Audio StreamingAudio Streaming

Dat

a T

ran

smis

sio

n S

pee

d -

kb

it/s

ElectronicNewspaper

RemoteMedicalService(Medicalimage)

Video Conference(High quality)

Telephone (Voice)

Voice Mail

E-MailFax

ElectronicPublishing

Video on Demand:Sports, News Weather

Karaoke

Video Conference(Lower quality)

JPEG Still Photos

Mobile Radio

Video Surveillance,Video Mail, Travel

Image

AudioVoice-driven Web PagesStreaming Audio

DataWeather, Traffic, News,Sports, Stock updates

Mobile TV

E-Commerce

TimeSource: Adapted from Motorola.

For more information ...For more information ...Publication launch:

10 October 1999 (TELECOM ‘99)

Available on paper and online (PDF format)

World Telecom Indicators Database available online

Website:

http://www.itu.int/ti

Other reports launched at TELECOM ‘99Other reports launched at TELECOM ‘99 Direction of Traffic 1999: Trading Telecom Minutes Trends in Telecom Reform 1999: Convergence Internet for Development (updated with latest data)