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Video As A Service – should mobile video traffic be charged separately?

Video is a key contributor to mobile data growth, yet right now, few operators are identifying video provision as a distinct service. Currently, a user who consumes a lot of video will need to have a plan with a high data allowance or an All-You-Can-Eat plan in order to avoid punishing overage charges. The problem with this model, from a subscriber perspective, is that the user still has difficulty in equating how many MBs or GBs a video consumes. That leads to this simple question: if mobile data traffic is so video-heavy, should mobile video traffic be charged separately from other mobile data traffic?

Today, most wireless carriers charge tiered or unlimited rates for data traffic.  As a mobile customer, you pay a monthly fee depending on the amount of data you use.
From the dwindling numbers of unlimited data plans available today (despite some recent notable exceptions), it is clear that operators were not seeing the benefit from this form of usage-based plans.  However both tiered and unlimited plans – usage-based pricing – have started to undermine the value of mobile data services as mobile data provision takes on a utility-like demeanor, leaving little room to develop differentiated or competitive plans.

A realistic option and one that might be more appealing to the subscriber and beneficial for the operator is to instead sell video as a service. So for example a user’s monthly data plan might have a fixed allowance for video included and when this allowance is consumed, the user could then be offered the ability to buy additional video access.  In this way the end user can decide whether they wish to avail of the service and also can clearly understand the value they are receiving. Effectively, they do not have to pay a premium, by default, to have a video allowance included in their plan. If they want to go beyond this limited allowance, they can opt to do so.

In the US, one regional wireless carrier is already making bold moves to charge for video separately. This is done by offering a basic, competitively-priced data plan which includes a limited allowance for video. This is effectively a “video taster”. Should a user wish to stream video beyond this allowance, they are given the option of choosing a dedicated video top-up which is time-limited, such as a daily, a weekly or a monthly video “pass”.  This carrier has noticed that when video is offered in this manner with separate pricing, a substantial number of people – around 20% in practice – do choose to upgrade their plan, meaning significant additional revenue for the carrier. Likewise, some people may decide that their streaming efforts, while out on the road, were not so critical after all, meaning less network congestion.

In order to provide this service, the carrier needs certain technologies at play in their network. Firstly, they need real-time detection of video.  This means being able to detect video content instead of just maintaining a URL list of well-known video sites.  Secondly they need the dynamic policy enforcement to engage users in real-time where a user is trying to stream a video yet is not authorized to do so.  In that instance, the user would need to be notified if they did not have any video allowance available and be presented with upsell options, which would be provisioned in real-time.

Another take on the video charging has been pioneered with UAE-based Du. Du, for example, may charge a fee per one half hour of a video stream.  If a user wishes to stream the same video at higher quality, he can pay Du more for the same half hour of video.  This is in-line with consumers’ expectations from the fixed-line world, where paying more for better connectivity is expected. The shift from usage-based plans has led executives at Du to urge other operators to charge for video data separately from other mobile data, to create a new paradigm.

For operators willing to undertake the challenge of billing for video-only usage, this represents another potential solution for monetizing mobile data.  And the logic makes sense.  If consumers expect fast connections and download speeds, is it not reasonable that they should pay more than those who are happy with a cheaper, slower service?

Mobile video is admittedly a “horizontal” service on the internet, meaning that it is a constant stream throughout the internet, so some re-aligning of expectations does need to happen to ensure success. But, as the single largest contributor to mobile data traffic, it does warrant special attention. Nonetheless this is just one example of a service that could be charged separately. So long as subscribers can perceive the value in a separate “vertical” or “horizontal” service, then it could be beneficial to carriers and their subscribers. Carriers can monetize data provision more successfully and subscribers can better understand and engage with their own pricing plans.

We are at the early stage of this type of application-based pricing. There will be some hiccups along the way, but the better monetization of mobile data and better subscriber engagement, being witnessed by a few innovative operators, means that it should be given serious consideration.