Flat-rate Pricing for International Mobile Data Roaming

Heikki Hämmäinen, Hannu Verkasalo, K.R. Renjish KumarEuroCPR2009

SevillaMarch 31, 2009

Status of Data Roaming

• Regulation approved by EU on March 2009– For wholesale tariffs only

– Volume-based wholesale price cap of max 0.50EUR/MB

• Commercial launches of flat-rate data roaming exist– Bridge Alliance (11 Asian operators) launched a monthly(?) flat-rate of 30USD a

month for 15MB and 60USD for40MB

– April 2008 Conexus Mobile Alliance (7 Asian mobile operators) launched a daily flat-rate varying in the range of 10-22USD (also unlimited volumes!)

– July 2007 Vodafone launched a Euro flat-rate service for business travelers with laptops, 12EUR per day, max 50MB (and a wholesale price of 0.50EUR/MB)

– May 2008 Orange launched a daily Euro flat-rate of 12-15EUR per day, max 50MB.

• Commercial experimentation focused on business users

Research Hypothesis

• Market-based mechanisms will not produce flat-rate data roaming

regulatory intervention is needed

• Volume-based price cap will not trigger the Internet machinery

some kind of flat-rate-based price cap is needed

• How about a regulated daily flat-rate?

Flat-rate Preference in Internet Access

• Mitomo et al. (2007) demonstrated the existence of flat-rate preference among Japanese mobile users

• Observations from the Finnish market– Rapid growth of fixed Internet (ADSL) started at launch of flat-rate (1999)

– Rapid growth of mobile Internet started at launch of flat-rate (2007)

– Laptops generate 98% of mobile cellular data traffic (via USB stick modems)

– Flat-rate has not spoiled the profitability of operators-rate

• Rapid growth of Internet roaming will start at launch of flat-rate?

0,050,01

Usage-based

0,59

0,07

Block-priced / Flat-rate

-89%

-89%

0,0

1,0

0,5

Average MB /user / day

Data roaming prices are detrimental?

Home

Roaming

Domestic data pricing plan from operator

Impact of Roaming Context on Usage?

+256%

+191%

+31%4,2

1,2

8,0

2,82,11,6

ClockCameraMaps

5,8

1,0

3,6

1,2

3,53,6

20,0

25,0

30,0

Messaging

Average minutes/ user / day

-67%

Roaming

Home

-83%

18,1

15,3

Browsing Games

+18%

-3%

0,0

10,0

15,0

Music

5,0

Application usage

AVERAGED OVER ALL DAYS

Dataset: 578 panelists and 425 261 application sessions at home, 117 panelists and 8 266 application sessions abroad, Finnish smartphone study 2007

1,7

1,0

Inbound

2,1

1,3

Outbound

-40%

-37%

0,0

1,0

2,0

Average calls/ user / day

Voice call usage

8,0

4,4

6,7

Inbound

3,2

4,0

Outbound

Home

Roaming+53%

+27%

0,0

2,0

4,0

6,0

Average messages/ user / day

SMS usage

0,20

0,15

0,07

Inbound

0,07

0,14

Outbound

+58%

+89%

0,00

0,05 0,05

0,10

Average messages/ user / day

MMS usage

AVERAGED OVER ALL DAYS

Dataset: 254 panelists and 58 751 calls at home, 30 panelists and 624 calls abroad, Finnish smartphone study 2007

Dataset: 577 panelists and 116 789 SMSs at home, 105 panelists and 2 850 SMSs abroad, Finnish smartphone study 2007

Dataset: 311 panelists and 1 839 MMSs at home, 11 panelists and 56 MMSs abroad, Finnish smartphone study 2007

Obstacles of Flat-rate Data Roaming

• Roaming industry structure: operators depend on each other no first mover advantage regulator needed

• Threat of Internet: concern of the loss of voice revenues operators’ ”no hurry” strategy

• Radio access bottleneck: spectrum shortage and poor radio operators’ ”business users first” strategy

• GRX transport bottleneck: complex architecture higher transit prices than in the Internet backbone

• Traffic segmentation: difficult to discriminate laptop vs handset operators cannot price handset traffic reasonably

But, no hard obstacles exist!

European Solution: Daily Flat-rate Proposal

• Pricing structure is (here) more important than price level– Regulation of wholesale tariffs is not sufficient

• Daily flat-rate for data roaming looks promising

• Wholesale IOT price cap– Initially 5 EUR per day for basic data rate (up to 384kbs in 3G)

– Relative to the tariff basket of European domestic mobile flat-rates

– Quota-based traffic restriction, initially at 100MB per day

• Retail price cap– Twice the wholesale price, i.e. initially 10 EUR per day

– To secure fast deployment of flat-rate to consumers

Why should operators like daily flat-rates?

• Simplicity (already tested on the market)

• Roaming traffic increase revenue increase

• High profitability compared to domestic data traffic• E.g. average domestic monthly flat-rate / 30 = 0.35EUR (in Finland)

• Price cap easily covers the roaming costs of home and visited operator

• Balance between home and visited operator

• Manageability of bottleneck resources• Traffic quota allows prioritization of the radio resource usage

• Market-based management of higher bitrates (initially above 384kbs)

• Simple book-keeping between home and visited operator

• Anyway, roaming traffic << domestic traffic !

Conclusion

• Europe is badly fragmented to roaming areas

• Internet roaming can become the issue that terminated the European success in the global mobile market

• Unless, the Commission uses its power wisely to drive the Internet innovation machinery through– mobile flat-rates in Europe (roaming and domestic)

– roaming flat-rates outside Europe

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System Dynamic Model

EU non-dataroaming tariffs

EU-external volume-based roaming tariffs

Data roaming profit

Internet VoIP

Flat-ratepreference

Domestic monthlyflat-rate data tariffs

EU data roaming cost

Data roamingtraffic

Data roaming days

EU data roamingrevenue

Capacity investments

Service quality

Domesticsubscribers