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| Paying for Enhanced Coverage |
| Written by David Chambers |
| Tuesday, 05 August 2008 20:00 |
|
In areas with mature cellular coverage, indoor coverage is widely available from most operators. Customers may think they are being ripped off if they are expected to pay for the deficiencies or under-investment in the macrocellular network from their operator, especially when other networks may offer good indoor coverage already. Sprint, the US CDMA operator, is relaunching its Airave femtocell product (almost) nationwide from 17 August 2008. As discussed in the 3G in the home blog, pricing options have been revised to a one off $99.99 for the box itself + $4.99 per month for "Enhanced Coverage". This is in addition to any existing fees per handset. These systems are fully compatible with existing, standard 2G CDMA phones, so there is no need to replace or upgrade the handsets. Handover is supported when leaving the femtocell (provided the outdoor signal is strong enough), but not when entering it. Other commentators have been asking whether additional monthly fees are appropriate in the early days of femtocells. Telephony Online suggests that asking customers who are already paying some $45/month for a further $15 just to be able to make calls when at home may be asking too much. Whilst not specifically discussing femtocells, Dean Bubley has been asking if the monthly charge schemes used by wireless operators are really the most suitable. He calls for "much greater flexibility ... than just using the current lazy catch-all monthly rating mechanisms". Given the complexity of many wireless phone bills, due to the wide range of tariff options and special cases, I would argue that simplicity, transparency and fairness are very important for consumers. Affordability has also been extremely important, enabling customers to have smart new phones where their monthly budget does not extend to one-off $300-$1000 purchases. Monthly recurring fees benefit operators and consumers for several reasons. They appear cheaper, especially to those on a tight budget, and thus achieve greater takeup. This is why we often see introductory headline monthly offers, with a higher price after a few months. 12-18 month contracts also justify the heavily subsidised handset costs. From a business perspective, operators can predict their future revenues more easily by calculating guaranteed contract rates. This helps value their business, improve their credit rating and allow them to raise finance for expansion. There has been a lot in the press recently about customers wanting to exit their cellphone contracts without suffering high penalties - so-called early termination fees (ETF). They argue that the handset and dealer subsidy should be appplied pro-rata during the contract lifetime, so that exiting shortly before the end of the contract would only suffer a proportionately small charge. Operators have to be very careful not to give justification for early termination, such as raising their prices signficantly. There are many discussions on how to avoid paying these Early Termination Fees (ETFs). Perhaps these should be called Handset Subsidy Repayments, because they repay the handset subsidy (and/or dealer subsidy) at the start of the contract. Roaming Hack suggests a method to avoid paying the ETF by roaming onto other associated local networks. This becomes unprofitable for the operator who then releases you from your contract penalty free. The comments on this blog suggest that this scheme (specific to Cingular) may not work, and it could be cheaper and more effective to pay the fee. Also, it's reported that nationally in the US, operators now only handle 1% of their call traffic through national roaming schemes. If operators seek to save national roaming fees by providing these 1% of users with femtocells, it's unlikely to make a substantial difference to their bottom line. The blog also has many comments from others on other techniques. One of the most common is to claim poor coverage, either in your current home or to a new address you are moving to. If Sprint can now offer a femtocell in these circumstances, it might well reduce churn from many dis-satisfied customers. We've argued that that poor coverage business case is strongest in North America, which has good wired broadband (through cable and DSL providers), but comparatively poor indoor coverage in the suburbs and more remote commuter belt. Geographically, North America tends to have a wider distribution of population outside the central metropolitan areas. Overall, coverage is poorer in the average home compared to Western Europe, which adopted a common mobile phone standard earlier. Unlike Europe, North American wireless users may not have so much choice and think that the improved quality of service is worth paying a small premium for. Competitively, Sprint will have to ensure that any disadvantages in its femtocell offer are not significant. Some commentators are concerned that the lack of high speed data support (it only offers voice, text and 2G data) may hinder takeup. If it really is focussed on indoor voice call coverage/service, then this wouldn't be an issue - Blackberrys and laptops can switch to indoor WiFi instead. The stronger competitor is the dual-mode cellular/wifi service, Hotspot@home from T-Mobile, which also supports handover when entering/leaving the home. This is still a very unusual case (perhaps less than 1% of calls are handled this way), but may cause high levels of dissatisfaction when the service is branded as "enhanced coverage". I think that operators will try a variety of different business models, charging plans and scenarios, experimenting to determine the most successful, and watching the rest of the market. The strong demand for better indoor coverage in North America may well result in success of this additional pricing plan, but I doubt if this would translate successfully to Europe.
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