Wednesday, September 7, 2016

Mobile Data Pricing Now is Unstable

source: Jackdaw Research
With the recent addition of “does not count against data cap” DirecTV viewing on AT&T iPhones policies, and with Sprint and T-Mobile US exempting streaming video from data usage caps, it is clear we are in an unstable period for mobile data pricing.

The issue, of course, is that mobile service providers are exempting the most data-intensive apps from usage calculations, and usage drives requirements for network investments.

The pricing anomalies are easy to illustrate. On a revenue-per-bit basis, narrowband apps such as messaging and voice produce the highest returns, video the lowest returns (even if entertainment video represents much more gross revenue).

Assume a fixed network ISP sells a triple-play package for a $100 a month retail price, where each component--voice, Internet access and entertainment video--is priced equally (an implied price of $33 for each component).

How much bandwidth is required to earn those $33 revenue components? Almost too little to measure in the case of voice; gigabytes for Internet content consumption and possibly scores of gigabytes for video.

So, by some estimates, where voice might earn 35 cents per megabyte, revenue per Internet app might generate a few cents per megabyte.

Video might generate fractions of a cent per minute of use (access fee compared to usage).

In addition to the fact that revenue per megabyte tends to drop over time, the bigger issue is that profit per megabyte, and revenue per megabyte, is inversely related to consumption of bandwidth, from an access provider standpoint.

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