Managing your megabytesHow fear of data charges is driving mobile users to WiFi

PwC research into smartphone user preferences

February 2012

www.pwc.co.uk/communications

IntroductionContents

Introduction Inside cover

Highlights 2

Consumer fear – ignorance of usage and costs 3

Consumer response – self-management of usage 4

Consumer behaviour – frequency and immediacy drive reliance 6

Consumer/network relationships – pain-points and opportunities 8

Conclusion: consumers in control 10

Research approach and methodology 12

Contacts and further reading 13

Mobile broadband faces growing competitive challengesAs mobile operators in various markets – the UK included – plan out their strategies for the use of 4G spectrum licences and look to control their network costs, their choices are being further complicated by the escalating competitive pressures facing mobile broadband services.

With the growing availability and usage of WiFi in homes, workplaces and public spaces, the challenges for mobile broadband networks have extended beyond the ‘data deluge’ triggered by exploding take-up of smartphones and tablets. Mobile operators are now facing the very real prospect of the connectivity market – and data traffic volumes – shifting away from mobile broadband and towards WiFi services provided by fixed-line and other specialist players.

At the same time, the expanding choice around how and where consumers access wireless broadband services – and how much they pay to do so – risks the balance of market power and consumer loyalty shifting away from mobile operators and towards their favourite wireless access devices. Of course this needs to be balanced with the potential upside for mobile operators that are striving to be cleverer in controlling network costs through different forms of access.

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Why we conducted this researchThis evolving behavioural scenario has major implications for the business models and strategies of all participants in the wireless broadband services market from mobile providers to fixed-line operators and from online application developers to media companies. It may have a particularly profound effect on infrastructure investments and pricing, at a time when 4G has progressed from a technological possibility to a commercial reality.

Having observed consumers’ ongoing behavioural changes through our constant industry and client involvement, we at PwC1 decided to undertake quantitative research among consumers in the UK. We chose to use the UK as a standard for mature mobile markets across the world. This paper summarises the main findings of our study and our analysis of the implications. As 4G looms and network cost pressures continue, we believe it makes compelling and required reading for all participants in the wireless broadband services market.

Different services – different forms of accessThe clearest manifestation of these shifting dynamics is the emergence of new types of consumer behaviour. Every time a smart device user accesses wireless services, they make a choice that trades-off issues of price, immediacy and utility to decide which form of connectivity to use.

This decision varies depending on the context and service being accessed. Some activities, such as voice calls – whether via IP or traditional voice networks – have high immediacy and frequency, which more than outweigh price considerations. Others, such as downloading TV content for viewing at a later date, are less immediate and more bandwidth-heavy – leading consumers to actively seek out cheaper alternatives to mobile broadband.

These behavioural trends are being supported and accelerated by the bundled data allowances that are part of many subscribers’ mobile packages. Many people aren’t sure what their data allowance is, or how much they’ll be charged for going over it. They only know that it might be expensive. So, rather than risking finding out how expensive, they seek out WiFi for non-immediate services and use that instead.

1 “PwC” refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom), which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

2 PwC

Highlights

Consumer fear

Most consumers have a bundled data allowance with their mobile provider and are aware of their limits. But they are ignorant about their own level of usage and the costs that are imposed for over-usage. In combination, these factors are creating a fear of going over the data limits through over-use.

Consumer response

This fear is causing consumers to self-manage their mobile data consumption, principally by limiting their usage via mobile broadband. The tactics they are using to do this include ‘offloading’ their traffic when possible to private WiFi networks that offer – in consumer eyes – a superior service. They are also offloading to a lesser extent to public WiFi.

Consumer behaviour

Consumers are getting used to setting up WiFi access on their devices and gain a sense of empowerment from their ability to manage their data usage across various different devices and connections. They don’t feel themselves to be restricted by the limitations imposed by any individual service provider.

Consumer/network relationships

Users’ reliance on mobile broadband access tends to be limited to those services requiring frequent and immediate access while they are out-and-about, such as email, web access, social media and apps. In contrast, they delay their usage of more data-heavy services such as media downloading to a point when time and location allow them to use WiFi.

We will now look into each of these findings and highlight some of the key implications of each for operators.

We also provide our recommendations for operators on how to develop their strengths into market share through delivering an experience that customers will value.

Our study reveals four key findings about consumers’ evolving useage of wireless broadband services. They are:

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Finding 1: Consumer fear Ignorance of usage and costs

Our research confirms that most mobile data consumers have a bundled data allowance and that the majority are also aware of what their data limits are (see Figure 1).

However, that’s where their knowledge ends. Only half of the consumers we interviewed know how much data they’re actually using on a monthly basis. And very few – less

How much data do you use per month on average?

16%

250MB or less

8%

250MB or less 12%

251-500MB16%

251-500MB16%

501MB-1GB 14%

1GB+ 23%

1GB+ 11%

No 11%

Don’tknow 13%

Don't know 48%

501MB-1GB 13%

Yes, 16%

No, 84%

Yes but Don’t know

Does your fee include a bundled allowance of free data?

16%

250MB or less

8%

250MB or less 12%

251-500MB16%

251-500MB16%

501MB-1GB 14%

1GB+ 23%

1GB+ 11%

No 11%

Don’tknow 13%

Don't know 48%

501MB-1GB 13%

Yes, 16%

No, 84%

Yes but Don’t know

Do you know the cost of going outside your allowance?

16%

250MB or less

8%

250MB or less 12%

251-500MB16%

251-500MB16%

501MB-1GB 14%

1GB+ 23%

1GB+ 11%

No 11%

Don’tknow 13%

Don't know 48%

501MB-1GB 13%

Yes, 16%

No, 84%

Yes but Don’t know

Figure 1: Ignorance of usage and costs creates fear of over-use

Implication: greater transparency on over-usage charges

Mobile users’ lack of understanding of the prices charged for exceeding their data limits is deterring them from using their handsets for accessing mobile broadband. This reluctance is often made worse by a lack of clarity from operators about what their charges are, with some charges being ‘discretionary’ or only levied for serial offenders.

There is a clear argument that mobile providers should be much more explicit and up-front about excess data charges and should even promote them as a competitive differentiator as well as explaining data usage in a way that consumers can understand.

Reducing the fear factor and communicating effectively with customers about their data usage can be a major source of differentiation.

than one in six – are aware of the costs-per-megabyte associated with exceeding their data limits. If streaming a minute of YouTube video consumes two megabytes, it is clear how quickly a customer can exceed their allowance if they’re not careful.

This deep lack of awareness about usage and costs is creating a fear of over-use and over-spend among consumers. And rather than making efforts to find out the price charged for over-usage and taking a rational decision on whether it’s worth paying, this fear of the unknown means consumers are simply looking to stay below their limits.

4 PwC

Finding 2: Consumer response Self-management of usage

Consumers’ fear of incurring data changes of an unknown size means few users actually exceed their data bundles on a regular basis (see Figure 2). As the chart shows, consumers believe they achieve this by self-managing their usage through a number of methods, of which the top three are:

Offloading mobile usage to WiFi networks • when possible;

Restricting their own usage of access • over mobile networks; and

Shifting usage to non-mobile devices.•

Interestingly, these usage management techniques are employed by all users, but are far more prevalent among consumers who do sometimes exceed their data limits. In contrast, over a third (34%) of the users who never exceed their bundle do not do anything to keep their usage down. This suggests they are simply people with an inherent (or current) behavioural tendency not to be heavy users of mobile broadband data services.

What do you do to try and keep within your bundled allowance?

52%

45%

9%

28%

29%

29%

38%

17%

34%

24%

15%

15%

Connect tofixed/WiFi

Restrict myaccess

Don't doanything

Monitor myusage

Use non-mobilewhenever

possible

Ony use on lowdata activities

Sometimes exceed bundle Never exceed bundle

Do you ever exceed this bundled allowance?

Every month 2% Most months

2%

Sometimes 17%

Never76%

Don’t know 4%

Figure 2: Off-loading to WiFi is consumers’ top technique for staying within their data allowance

2 Consumption Habits on Handheld Devices, Phil Stokes & Sharon Stotts, 2009

Asked to cite the various ways in which they access wireless broadband and rank them under six criteria, our survey participants rate fixed private WiFi as superior to mobile broadband in terms of security, speed and quality (see Figure 3). This echoes a previous study of young consumers in the UK conducted by PwC2, which found that 3G data connections are regarded as unreliable outside urban areas and that the ease of

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Implication: what’s 800MHz and 2.6GHz spectrum worth?

Following a recent delay, the UK government and Ofcom have pencilled in the second quarter of 2012 as the time when they will auction off the 800MHz and 2.6GHz band 4G radio spectrum.

In April 2000, the UK sold the original 3G mobile phone licences for a princely total of £22.5bn – equivalent at the time to 2.5% of GDP. Our findings suggest that the chances of similar bonanza this time around are increasingly remote. This will be further impacted by the increasing competitive challenges now facing mobile broadband services.

Consumers have alternatives to mobile broadband, are using them and – in the case of private WiFi – rate them as superior. Mobile operators should also assume that public WiFi providers will raise their game in terms of ease, coverage and security.

All these factors may have the effect that cleverer mobile operators will embrace WiFi and encourage or enable customer self-management to avoid spending too much on spectrum when cheaper WiFi is equally valuable for certain circumstances.

Figure 3: Rank the 3 main methods of connecting your main device to the internet, whether or not you currently use them.

2.60 2.58 2.58 2.49 2.39 2.33 2.32

2.23

1.932.08

2.242.11 2.13

2.29

1.17

1.491.34 1.27

1.50 1.541.39

Security Speed Quality Ease Data limits Cost Coverage

WiFi (private) mobile broadband WiFi (public)

Average ranking of mobile connections(1st=3pts, 2nd=2pts, 3rd=1pt)

connection to WiFi is a key determinant in device choice.

Somewhat surprisingly, consumers rate private WiFi as better than mobile broadband even in terms of coverage. This may appear counter-intuitive, but it does underline consumers’ emerging ‘horses for courses’ approach to wireless broadband access, where they pick and choose from among the different access methods and devices for different services. Consumers clearly feel that the private WiFi coverage available to them is sufficient to meet the specific purposes that they use it for.

Another interesting outcome is the relatively low rating that is consistently attributed to public WiFi, especially for security, ease of use and coverage. Consumers find public WiFi services difficult to access – and even when they do manage to log onto them, they are wary of their data being hacked. And other findings further underline consumers’ increasingly close attachment to private WiFi. Some 94% of our respondents say private WiFi either meets or exceeds their expectations, against only 83% who say the same about mobile broadband. Public WiFi again comes third, with only 72% saying they are satisfied with it.

6 PwC

Finding 3: Consumer behaviour Frequency and immediacy drive reliance

The degree to which consumers use and rely on mobile networks is driven by their specific requirements around the frequency and immediacy of the specific service being accessed at the time. As Figure 4 shows, mapping immediacy against frequency enables us to divide wireless broadband-based services into four types, ranging from those with both high immediacy and frequency (such as email and web browsing) at one extreme, to those that combine low immediacy and low frequency (such as streaming and uploading) at the other.

By mapping these characteristics against usage of mobile broadband and WiFi, we can create a spectrum reflecting consumers’ propensity to use one or other connectivity method to access them (see Figure 5).

Figure 4: Which activities do you currently use your main device for? How important is the ability to carry them out whenever wherever you want?

Imm

edia

cy

Frequency

Rating of online activities – frequency of usage versus immediacy

Less Frequent More Frequent

Less

Impo

rtan

tM

ore

Im

port

ant

Streaming

IP Audio/video calls

Web browsing

Email/IM

Connected apps

UploadingDownloading

Connected games

Social media

Size of bubble represents incidence activities done daily in a non-fixed location

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Usage of mobile broadband tends to be focused on activities that require constant availability irrespective of time and place. Examples include email, web-browsing, social media and mobile apps.

In contrast, activities that have less need for frequency and immediacy are more easily self-managed on WiFi away from mobile broadband, thereby conserving the consumer’s bundled data allowance and avoiding the risk of over-use charges. These tend to be the more data-heavy and quality-driven services, such as data uploads, downloads and streaming, IP calls and connected games.

These findings echo a recent study produced by Google3. This showed that while smartphones are fast becoming an ever-present tool in our daily lives, they remain a means-to-an-end and not intended to deliver media-rich experiences that are available – and often better suited to being accessed – via other means.

Implication: can the ‘data deluge’ be diverted?

Rather than regarding the services available via their mobile handsets as an amorphous and indivisible mass, consumers have mentally unbundled them into a number of different types. Having done this, they are now making specific choices over the type of access that is most appropriate and cost-effective for each activity. For some services, the required utility is best delivered through mobile broadband. But for others, WiFi is by far the preferred choice.

In recent years, rising adoption of smart devices has triggered a ‘data deluge’ on mobile operators’ mobile networks, putting capacity under strain and driving investment in new bandwidth. However, our findings on consumers’ behavioural changes raise the question of whether this surge can be diverted down a different channel, as consumers shift their less quality of service sensitive and more bandwidth-heavy services to WiFi and potential technologies such as WiGig in the longer term. This possibility brings huge implications for network investment going forward.

Figure 5: Which type of internet connection do you use for these activities? How important is the ability to carry them out whenever wherever you want?

3 “Advanced Global Mobile Trends” http://www.google.com/think/insights/studies?cn=ad_type&cv=mobile

+10% -10%

Imm

edia

cy

Frequency

% of use (at all) on cellualar more or less than private WiFi

Less Frequent More Frequent

Less

Impo

rtan

tM

ore

Im

port

ant

Downloading

Uploading

Streaming

Connected games

Web browsing

Email

Connected apps

Social media

Mobile broadband WiFi

Mobile broadband WiFi

Mobile broadband

+10% -10%

+10% -10%WiFi

Mobile broadband WiFi

IP Audio/video calls

+10% -10%

8 PwC

Finding 4: Consumer/network relationships Pain points and opportunities

We believe the findings from this study illustrate an important aspect of the behaviour of the much-heralded ‘digital consumer’. Thanks to the technology choices provided to them, today’s mobile users feel empowered to manage their wireless data usage in such a way as to get the optimal value for their time and money. And they are free to choose from a range of network/device options and combinations to achieve this.

Add to this their fear of over-stepping their data allowances and the drivers towards WiFi become even stronger. A recent study by the Office for National Statistics showed 4.9 million people connected through WiFi hotspots in the UK in 2011, up from 0.7 million in 20074.

Against this background, what should mobile operators do to maintain the value of their customer relationships? Our research confirms that consumers regard offloading to WiFi as the most acceptable network management strategy for operators to introduce, particularly if it is offered free of charge (see Figure 6). This ready acceptance reflects the fact that many consumers are already doing this themselves. At the other extreme, variable charging for time of use is the least acceptable of the five options we asked about. But at least consumers are familiar with this type of model from their legacy fixed voice bills, so they know it works.

Figure 6: How would you feel if your mobile net-work operator introduced changes to your current data service?

4 “Internet Access - Households and Individuals, 2011” – http://www.ons.gov.uk/ons/dcp171778_227158.pdf

4.04

3.21

2.84

2.47

2.44

Offload to WiFifor free

Offload to WiFifor a fee

Tiered pricing/dataallowances

Variable connectionspeeds

Variable charges for time of use

Relative ranking of consumer acceptance

(1st=5pts, 2nd=4pts, 3rd=3pts, 4th=2pts, 5th=1pt)

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Implication: a new basis for wireless data service offerings

Our study confirms that consumers do not want to have their data access limited by service providers, or to have changes to how and where they can access data services forced upon them. Going forward, the move towards self-management will mean that consumers’ choices will be determined not only by service requirements, but a desire to limit or even reduce spend.

These factors are likely to reshape the market around three principles:

Mobile usage will be increasingly • focused on activities with high frequency and immediacy, where access is required irrespective of location and time.

Private WiFi at home, work or college • will be the default choice when time and location will allow.

Public WiFi will be used selectively • when offered in a convenient location, with simple and cost-effective access through a trusted provider.

Figure 7: How would you feel if your mobile network operator introduced this change to your current data service?

Offload to WiFi for free

Variable charges for time of use

30%27% 27%

20% 19%

11%8%

4%

Nothing Switch contract & provider

Change times of day used

Reduce use of data

Switch contract with current

provider

Increase use of WiFi

Increase use of non-mobile

devices

Increase use of data

Nothing Switch contract & provider

Change times of day used

Reduce use of data

Switch contract with current

provider

Increase use of WiFi

Increase use of non-mobile

devices

Increase use of data

44%

25%22%

7% 6%6%8%

5%

A further question is whether consumers would change their behaviour – or even to vote with their feet and move to other providers – if their operators were to change the basis of data charging. The answer depends on what the new basis is.

As Figure 7 shows, the introduction of network offloading to WiFi would see most consumers either do nothing, or make increased use of WiFi and/or data services. Only 7% would switch provider in these circumstances. Conversely, 27% of our respondents say they would change provider if their operator introduced variable time-based charging.

10 PwC

Conclusion: Consumers in control

As the new landscape of consumers’ wireless broadband usage takes shape, it is increasingly clear that recent expectations of ongoing exponential increases in 3G and then 4G traffic may have been too simplistic. Mobile systems by their nature have finite resources and are far more sophisticated than necessary for simple stationary traffic while fixed networks are typically optimised to deal with higher volume traffic demands. Customers should only need to access cellular networks where there is high immediacy, poor WiFi performance, or no alternative wireless access. The bulk of mobile data that customers will want to consume will actually not be on-the-go, will be more time of day (and potentially delay) tolerant and will therefore be suited to WiFi access.

Consumers have growing control over how, when, for what price and with whom they use their mobile devices. This shift in control is driving rising sophistication in their usage choices and consumption behaviours. Users are weighing up and trading off considerations of price and immediacy to identify the optimum utility and value from each combination of device, access method and service.

For mobile carriers, this change offers both challenges and opportunities. On the one hand, they risk losing traffic or market share to fixed and specialist providers offering WiFi services. On the other, those operators that can understand and anticipate how consumers will respond to new connectivity, data access and charging models stand to gain a clear competitive edge and make optimum use of expensive network resources. In this highly competitive market place, a strategy responsive to consumers will provide clear competitive advantage.

Operators with strength in cellular mobile will face the challenge of retaining mobile broadband customers that could be tempted away with alternative Wi-Fi offers from fixed players and will need to meet this threat by focusing on specific themes.

Converged operators with fixed and mobile infrastructure capability are in a unique position – being able to draw on both the depth of fixed access infrastructure for backhaul and the strength of their mobile customer relationship. These operators have the ability to provide customers with an integrated access agnostic mobile broadband service where the operator has control over the complete customer domestic experience. Clearly these operators will also face many of the challenges previously discussed but the most crucial challenge will be their ability to translate their unique starting position into market share through effective customer experience and network performance insight and management.

On the threshold of 4G, the world of consumer wireless broadband is changing fast. The question is, will operators be able to change quickly enough to keep up with and keep hold of their customers?

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Recommendations Questions to ask yourself

1. Focus on customer service performance as well as network performance

Can you measure services not only from the network perspective, but also in a way that accurately reflects what is happening in customers’ handsets, tablets, dongles, •or other mobile devices?

Do you understand the utility that your customer gets from your service in different settings and how much they are prepared to pay? And how much adverse •performance affects their view of value?

2. Customer perception needs to be access agnostic

Do your customers perceive that they are getting wireless access without consideration for the underlying access mechanism? •

Is it possible that a carrier can deploy both Wi-Fi and LTE technology once it acquires a small cell site and brings backhaul capacity to a location? Have you analysed •the shifting economics between the different access specific bearer services? Could carrier Wi-Fi and carrier picocells be deployed as complementary technologies?

3. Manage the scarce resources available and prioritise valuable services and customers

Policy management can play a fundamental role by allowing application of operator defined rules for resource allocation and network usage to serve different types of •customer needs. Are you using policy platforms to develop new charging models and service tiers across access platforms, so as to move away from the inflexible flat-rate mobile data models that currently prevail?

4. Easy to understand tariffs with clear communications on usage

Are you making it simple for customers to understand the cost of consuming data and letting them manage their services in the most efficient way for the expanding •variety of apps that they are using?

Do your Billing and CRM platforms support this capability today and, if not, what is your plan to build this capability?•

For operators with strong fixed capability

Recommendations Questions to ask yourself

1. Ease of access and security Are you focused on making both public and private Wi-Fi access safe and easy to get on to – particularly public access?•

2. Use extensive penetration of Wi-Fi in the home

Do you understand the usage patterns of your fixed customers and seek out ways to support their Wi-Fi broadband experience beyond the home, office or campus? •

Are you building effective off-net relationships to ensure higher revenue density areas are covered?•

How are you reducing the likelihood that the customer has to switch over to cellular?•

3. Build on the distinction between cellular systems and Wi-Fi

Cellular access can be far more sophisticated than necessary for simple stationary traffic which makes up the significant proportion of the data traffic that customers use. •

Are you sure the Wi-Fi solutions offered help to re-enforce this difference in the eyes of the consumer in terms of customer experience and pricing?•

Are you offering pricing plans that draw a clear distinction between what MNOs can offer over cellular and what fixed operators can offer due to their fixed access •infrastructure scale advantage?

4. Balance retail and wholesale strategies to optimise value

Do you understand how best to derive value from both the retail and wholesale markets? For instance is your objective to:•

Be the wholesale provider of choice to all operators through coverage, bandwidth, QoS and operational efficiency? Or•

Take market share away from mobile operators in the retail broadband market by providing an excellent customer experience? Or•

Be a combination of both?•

Our recommendations: Can you meet your customers’ expectations?For operators with strong mobile capability

12 PwC

Research approach and methodology

Our survey, conducted during one week in August 2011, consisted of 15-minute online interviews with a random sample of 627 mobile mobile data users across the UK. All respondents are owners of a mobile device connected via mobile network – including smartphones, tablets, notebooks and netbooks – and all are responsible for paying the connectivity bill.

The charts below provide breakdowns of the survey sample by mobile service provider, contract type, average monthly spend and gender.

Mobile service provider

O2 27%

Orange 19%

Vodafone17%

3/Three12%

T-Mobile 11%

Virgin Mobile 10%

Other6%

Average monthly spend

<£9.99, 9%

27%

£20-£29.99,

28%

£30-£39.99,24%

£40+, 10%DK, 2%

£10-£19.99,

Type of contract

Contract 77%

Pre-Pay23%

Gender

Male87%

Female13%

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Contacts & further reading

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

© 2012 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom), which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity

HB-2011-10-07-1341-CG.

David Russell UK Communications Industry Leader david.russell@uk.pwc.com +44 (0) 20 780 40555

Patrick Glasheen Director, Telecoms, Media and Technology Consulting patrick.p.glasheen@uk.pwc.com + 44 (0) 20 721 32930

www.pwc.co.uk/communications