tiered pricing

EU telecom spending: Cost-cutting & pricing tiers on the table

The ITU has released information on the EU telecom markets that shows many of the largest countries are lagging smaller ones in their telecom infrastructure, and other reports show that there was more cost-cutting (meaning pushing back of projects) in March. Our information shows that EU telecoms are planning an off-cycle planning exercise in the May timeframe to decide which of the 2009 projects to continue to push back and which to now approve for spending.

This will be a critical step in the telecom recovery, and at the same time is likely to set the strategic framework for the 2009/2010 spending cycles. We believe that the program will not reflect additional monetization strategies at the service layer since operators tell us that vendors have still not provided convincing support for new strategies, and thus will be more likely to cut costs.

A third of all Tier 1 operators are now actively planning for pricing tiers and caps, and all who have mobile assets, are planning further shifts to mobile. Metro infrastructure is more likely to be funded than “core” networks.

Time to improve operations or cap services

There are more and more signs, in the mergers and acquisitions space in particular, that vendors are finally getting smart on the network and operations management problem. Operators need to raise top-line revenues, lower costs, or both.

Since supporting the top line has proved elusive or impossible to the network vendors, that means they will either have to improve operations or see their customers cut capex. The fact that AT&T and Time Warner Cable are already looking at tiered pricing and caps is a strong signal that the time for a decision is near.

Once providers take the PR hit by introducing pricing tiers/caps they will not go back even if revenues or operations costs can be improved later. We estimate there is likely only about nine more months to fix the monetization problem before operator solutions like reducing traffic through caps will take hold.

The question now is whether the equipment vendors will step up and play a role or cede it to OSS specialists; the Tektronix acquisition of a mobile data customer experience management firm suggests that many think equipment vendors will miss the OSS opportunity as they are missing the service-layer opportunity.

Tiered pricing: When cost cutting and new services fall flat

Both AT&T and TWC have now picked small areas to test their pricing tier plans and offered early looks at the pricing. Tiered pricing and usage caps are the inevitable consequence of traffic growth that explodes without revenues following suit.

Network operators have for almost three years tried to enlist vendor support in cutting costs and creating new services, but neither of the efforts have generated any momentum. The consequences are now off the horizon and in the neighborhood, so to speak. We believe that unless there are major changes, operators will be shifting capex to wireless and imposing usage/pricing constraints on Internet usage.

There will be a great shout at this, of course, but there is no alternative other than being sensible with operations and revenue growth. At this point, it will be difficult for vendors to put anything useful into place in time to change operator plans. An aggressive program might influence the fall planning cycle, but it would have to begin almost immediately.