Dynamic Pricing Not for Telcos?
Right now, I’d pay for better than 'best effort' wouldn't you?
Today, as the world lives in a virus-inspired lockdown and working from home has become the norm, we are fast beginning to understand exactly what ‘best effort broadband’ means in terms of connectivity, latency and jitter. What I wouldn’t give right now for the option to pay for a premium connection with a guaranteed service level service.
And yet, despite all the advances in network technology, the actual business of telecoms has been slow to move with the times, with its reluctance to embrace dynamic service pricing as a prime example.
Dynamic pricing is common practice across many industries. Using it, businesses set flexible tariffs based on current market activity. Prices change based on algorithms that consider competitor pricing, availability, demand and other factors that can be monitored because of the connected world CSPs have enabled. Dynamic pricing is used in a host of industries such as hospitality, travel, entertainment, and energy – but, ironically, not in the telecoms world that makes it possible.
For consumers, call, text and data bundles or flat rate tariff options are the norm, and there’s a limited choice of best effort broadband packages, with no real allowance for different patterns of usage, and no guarantee of service delivery. No real flexibility today and very little sign of change tomorrow.
It’s a similar story in the business market where high speed, high capacity leased lines attract a fixed fee that doesn’t change with usage. While that gives certainty on cost and guaranteed availability – it lacks any flexibility and limits the potential target market. A business might only need that full capacity once a day for a network-wide back-up carried out overnight - but the fixed pricing model doesn’t reflect that usage, just a 100 per cent charge all day, every day.
For some reason, telcos have been slow to explore the dynamic pricing model. As a result, they risk conceding business opportunity to over-the- top (OTT) companies who use the power and ubiquity of the internet to offer differentiated connectivity.
AWS, for example, offers dynamic pricing for server level usage where businesses can bid for unused capacity against a spot rate that changes as demand fluctuates. Telcos are currently a long way from being able to offer this level of pricing flexibility. To get there, a few things need to change.
- Mindset change. In the days before always-on connectivity, fixed line operators offered peak and off-peak calling charges. Although that concept has fallen out of favour, it retains some merit. i.e paying a bit more for better connectivity when needed like when making a group video call or conversing with a doctor via online app.
- The network itself needs to change. Service providers are restricted by the way networks are traditionally built and configured. Operators need to increase their investment in flexible infrastructure, including greater use of SDN and NFV architectures.
- The systems need to change. In the 2019 Telecoms.com survey, 70 per cent of respondents believed BSS systems needed to undergo major changes to enable customized network services.
It could be that 5G is the last realistic opportunity for telcos to change their business model; to stop being a supplier of raw bandwidth, and start being a supplier of dynamic, assured and differentiated connectivity services. But they need to move quickly. AWS has a new service called Wavelength aimed at delivering ultra-low latency applications to mobile devices and end-users in a 5G-like service offering.
This is truly absurd. To deliver Wavelength, AWS has to overlay network-edge computing on top of an existing telco network, something the operator is in a much better position to deliver directly.
Of course, all this requires investment, but it is within a telco’s capability to start working towards this now using a combination of soft and hard network slicing to deliver a much more flexible infrastructure – a true, stand-alone 5G network providing different levels of guaranteed service availability, at different tariffs, to different customers all at the same time.
Telcos need to understand that they have overlooked the full potential of dynamic pricing in both the business and the consumer market. They need to recognise that customers will pay a reasonable premium to get on-demand, assured, differentiated connectivity whether it is for cloud gaming and entertainment or for out of hours remote server back-up.
To do all this, telcos need to invest in a service-oriented infrastructure. The 5G radio is already being upgraded, they now also need to invest in a dynamic and sliceable transport network so that they can bring their outdated business model up to date in a dynamic business world.