New Indian network operator Reliance Jio shocked the industry by launching with a price plan of free unlimited national calls and 10 Gbytes of data for just $7.50/month. Their competitors dropped prices to match. But these prices aren’t unique to the country. We compare prices, consider the implications and some other relevant initiatives.

Pricing varies widely between countries

Data Fuel Monitor (DFMonitor) publishes two helpful charts showing (a) how much data you get for €35 and (b) what the average price of a Gigabyte is.

They note some surprising variations such as getting 12x more for your money in France than Germany. They suggest that where four operators compete rather than three, prices are substantially lower.

This has caused consternation for free pan-European data roaming, which the EU Commission had made a key policy initiative. They wanted to establish a level playing field across the continent. After recovering from a major U-turn earlier this month, it looks like we will have data roaming throughout Europe at home network prices from June 2017 as long as its only temporary visits. 

Pricing varies with usage

The chart below, from a report by Tefficient, shows the spread of pricing and average consumption across 27 countries where regulators report these numbers. It excludes many lower cost markets, but clearly illustrates that where prices are lower then unsurprisingly higher consumption follows. I suspect that users in Finland rarely search out Wi-Fi when away from home, and must consume a lot of video on their smartphones. 

Studies report that it is smartphones rather than tablets which consume the vast bulk of mobile data. I guess few tablets are used outside the home, and even then would mainly rely on Wi-Fi or being offline.

You can see the clear trend that where prices are lower, consumption is considerably higher. In countries such as Belgium, with high prices, there is widespread Wi-Fi available as part of residential Cable TV service. So while total data consumed may be less, a much higher proportion would be offloaded to Wi-Fi. Where it's free, consumption can grow until service quality becomes unusable. Reliance Jio network is already under heavy strain, although still delivering 3.5Mbps or more, limiting usage to 4GBytes per person per day for free until the end of the year. Interconnect capacity for voice and data has become a greater constraint. The true usage patterns and service quality won't become visible until next year when customers have to pay.

Video dominates but zero-rating may have benefits

DFMonitor also suggest that introducing zero rated video, as T-Mobile USA famously did with “Binge On”, allows higher prices for data allowances. €35 would buy you little more than 2 Gigabytes from them, compared with 50 Gbytes in France. T-Mobile’s total data throughput dropped when they introduced Binge-On, because it throttles video and other data speeds to lower but usable levels. After an initial drop, total network data consumption has recovered back up to where it was before it was launched again, so will require additional capacity.

With video being such a large constituent of total mobile data (forecast to exceed 75%), it is probably the most important to capacity manage. Unlike other forms of data traffic, it is limited by being able to watch only one video at a time at a predefined data rate – other data applications continue to grow in consumption and access data constantly in the background. It’s also allowed T-Mobile to reduce data rates while still claiming higher speeds for those willing to pay a premium or opt-out.

Voice has been discounted to zero, yet remains essential

Traditional voice calls may contribute less than 1% of total data sent over wireless networks, but they remain an essential service. Bundled pricing has desensitised consumers to think that all calls are free because there is no incremental charge per minute. Bundling makes it more difficult to attribute the amount of revenue directly due to voice – a range of anything from 5 to 35% could apply.

Wireless voice minutes continue to grow, up 17% year-on-year in the US. As with data, the perceived free cost when included in a bundle encourages wider use. There has also been a switch from wireline to wireless use, with over 25% of US homes without a wireline phone service.

In the longer term, voice may become just another App, as we described as a consequence of the latest iPhone iOS 10 release, where the Green Button can invoke a variety of voice and video connection services. But in the short to medium term, it remains the essential fallback and a legal requirement for emergency calls.

Mobile operators face a dilemma of investing further in voice, particularly for VoLTE, which is unlikely to capture additional revenue. Other benefits, such as opening up more 4G spectrum, are more likely to drive adoption.

The fourth operator shakes the tree

There have been several examples of challenger operators severely disrupting their national market, using innovative marketing and technology choices.

Free/Iliad did this in France. Softbank in Japan. Reliance Jio is doing so in India. Sprint USA may be a surprise winner or go bankrupt next year. Iliad now plans a similar move in Italy.

What these have in common is widespread use of lower cost small cells, making best use of their spectrum assets and finding cost savings in more innovative ways.

The operator’s dilemma

Data traffic worldwide continues to grow, albeit at a slightly lower pace but still around 70% annually (CAGR). 

Operators continue to strive to deliver more capacity, maintain adequate data speeds while justifying prices to fund it all. Where competitors can achieve that, they upset the status quo. Where they can't, perhaps because quality and performance are too low, they fail.

But when today's macrocell sites do reach capacity, as they surely must, new business models will be required. We'll have to find ways of installing urban small cells for less than the $20K or more I've seen oft-quoted in the US and Europe. And I’ve yet to see any operator making a big play for the Enterprise/Large Building segment, where so much of today’s mobile data is consumed. Perhaps it will be up to some new neutral host entrants to make this happen, in partnership with multiple network operators.