U.S. mobile operators are encouragng customers to upgrade to "unlimited usage" plans that produce higher recurrring revenue. Whether that is fully rational or not is questionable.
Flat rate pricing for unlimited usage might well be cited as the key change of business model from the voice era, where most usage was metered, creating incentives for customers not to "waste" resources. Other utility industries also use incentives--such as differential or dynamic pricing--to create incentives for customers to reduce "peak" hour usage.
That was a staple of the voice industry in the past, and arguably should be part of the pricing mechanism for home broadband and internet access as well. The point is that flat rate pricing coupled with unlimited usage creates disincentives for consumers to regulate their usage.
Though it is clear why consumers prefer unlimited usage, it also is clear why mobile operators do not actually offer it. After some amount of unthrottled usage, customers face restrictions on access speed. In other words, unlimited access to networks that provide unsatisfactory experience is what "unlimited" access actually means.
Access to the best networks (5G, for example), is not actually "unlimited."
So conventional wisdom and reality often are at odds, which is why it is good to quantify.
But it also is important to know when "average" is misleading. Reported results from a recent NBC News poll, for example, suggest about half of students would consider living with a roommate who voted for the opposing presidential candidate in 2020.
That might suggest an equally-divided set of responses. But Axios, looking deeper at the results, finds a sharp difference in responses, when sorting the data at a more-granular level.
The point is that “average” (“mean” response) often is misleading. We find this all the time in internet behavior, as “average” conceals as much as it reveals. "Average" mobile data consumption is one thing; actual usage in different markets is quite something else.
“Average” data consumption on U.S. fixed networks also varies significantly. Customers buying access at 1 Gbps consume an order of magnitude more data than customers buying service at less than 50 Mbps, for example.
In the mobile business, North American customers typically buy “unlimited usage” plans, which of course have the effect of increasing consumption. The saving grace--for mobile operators--is that “unlimited” plans generally impose usage caps, after which data speeds are throttled, so the plans are not actually “unlimited” in terms of access quality.
And, as the adage goes, “yesterday’s power user is today’s ‘average’ user.”
Power users who consume more than 1 TByte per month are growing, as a percentage of total users, while lower-usage tiers are shrinking, according to OpenVault.
In 2017, 2TB power users only represented .12 percent of subscribers. In 2021 the percentage had risen to 2.74 percent.
Over the same period, subscribers who consume 100 GB or less fell from nearly half of all subscribers (49.7 percent) to just 26 percent.
Consumption will climb further as video applications assume more importance with higher-definition video formats and eventually immersive virtual reality apps.
So home broadband is a race between increasing consumption and decreasing cost to supply.
The saving grace is that access bandwidth increases at about the same rate as Moore’s Law suggests: about a doubling of capability every 18 months.
The point is that retail cost per bit keeps dropping. Some of that price decline is a result of network upgrades. In other words, wholesale price is dropping.
Some of the reported decline is offset by other “below the top line” charges. And some of the gross revenue is increased as consumers upgrade to higher-priced plans.
That means some of the consumption increase is offset by performance enhancements of the access network.
But capital intensity tends also to increase over time, meaning other tweaks to the business model are necessary.
Pricing and packaging strategies might have to change in ways that encourage customers not to “waste” bandwidth. Consumers prefer flat-rate pricing, in large part because that provides predictable recurring charges.
But flat rate pricing and unlimited usage encourages behavior that boosts consumption, as there are no incentives to manage usage. That is why most mobile “unlimited” plans are not actually “unlimited.” At some point, access is throttled down to 2G or 3G speeds. That, in turn, discourages mobile network usage, as experience suffers, and encourages offloading access to the fixed network.
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