Billing Beyond Bits & Bytes

© Peter Linder 2012 – All Rights Reserved      Canon 7D | 8-15mm/4 | ISO 100 | 1/250 s | F10
© Peter Linder 2012 – All Rights Reserved      Canon 7D | 8-15mm/4 | ISO 100 | 1/250 s | F10

Today’s most common broadband business model – fat pipe at a flat rate – was launched in 1996 when ADSL and cable came along. The model was re-used when mobile broadband was introduced in 2005. But should this classic business model be used in all networked industries? How do we deal with traffic volumes that can differ by thousands of times among applications that generate similar revenues?

In my daily life, I use three applications with widely differing price and traffic patterns:

  • A smartphone with a data limit , costing tens of dollars per month for 2GB of traffic
  • A Netflix subscription costing dollars per month and generating 30GB of traffic
  • A work environment (mobile, desktop and associated data services) costing hundreds of dollars for 10-50GB of traffic.

All three of these services can be provided with mobile access. It’s hard to see how dollar values spanning from tens of dollars per GB to only a few cents per GB can and should be supported using a single billing base, namely the number of bits and bytes that are transported. Since the value delivered is becoming more and more decoupled from the amounts of bits and bytes transported, and in many cases correlates negatively with traffic volumes, new business models are inevitable.
Imagine what would happen if a hamburger restaurant adopted a unit price per calorie of food. If this were applied to the standard menu, the prices would be very high for burgers and fries – and very low for salads. As a direct result, burger sales could be expected to fall sharply, and sales of salad would shoot up. It would be hard to run a sustainable restaurant business using this kind of business model.

We now have the potential to deliver exceptional added value on mobile broadband. Business-model innovation is essential if we are to capture this generated value. Otherwise, it will be difficult to continue funding the required investments for 3G/4G/Wi-Fi network infrastructure expansion and modernization.

My forecasts for the future of networked business models are:

  1. Business-model innovations will focus on  5 to 15 % of mobile broadband traffic that is most valuable
  2. The billing base for these services will be linked to new kinds of service-level agreements involving one or several new connectivity attributes such as latency, latency variation, availability, reliability, security, integrity and coverage
  3. The factor determining how platinum or gold services and users are defined will shift from “who uses the most network resources?” to “which services or users generate the most revenue or the best margins?
  4. Most business-model innovations will involve higher charges for service providers, to be bundled into the overall price per service.

Mobile networks are among the most advanced infrastructures in business today, and there’s no reason that the value captured in these networks should decline as the value added to adjacent industries increases substantially over time.

3 thoughts on “Billing Beyond Bits & Bytes”

  1. Agree on your vision! The remainaing question is: will the Netflix & Facebook guys be willing to share the value with the Network Providers, and if not, do the Network Providers have the means to force them to do so?

    1. Marc, thanks for sharing your thoughts. In think the values will be shared on the basis of value added rather than on basis perceived as taxation. And the high value low volume services could be a better target than high volume low value services. If there is no/low revenue streams associated with the service, it is perhaps not the best target for getting a share of it.

      1. Make sense, so I guess that Netflix which is very high volume -dozen of Gb/s per month for only 8 bucks-, or Facebook -with an ARPU of $1.20- are not the best targets. By the way, which content providers do you see better suited for this new business models besides online banking ? e-Health maybe? others?

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