It can’t be easy these days being a Product Line Manager responsible for driving new mobile data revenues. While mobile data traffic volume continues to grow fantastically (Cisco mVNI forecasts 92% CAGR from 2010–2015), operators’ mobile data revenue growth has slowed markedly and has failed to compensate for the rapid decline in mobile voice revenues. According to research firm Nielsen, the average price per unit of data paid by users dropped 46% in the last year, resulting in the average US smartphone user now paying 8 cents per MB, down from 14 cents per MB one year earlier. And a recent Juniper Research report brings no comfort with its findings that mobile operators' costs are in danger of exceeding revenues within four years.


So given these trends, it may seem crazy to now examine how operators can grow revenues by not charging for mobile data usage, i.e., giving subscribers selective “toll-free” access to some mobile services and content. In this case, the operator zero-rates the bandwidth consumed – i.e., doesn’t count the usage against the subscriber's monthly quota – while implementing a “reverse charge back” to the OTT content provider for the cost of the data consumed. Zero rating is a very powerful mobile network capability that can help form the basis of new 2-sided business models with OTT content providers. And with the operator trend toward Tiered Pricing plans well underway in many markets, zero-rating can help both content providers and operators encourage usage of premium multimedia content in the face of fears of quota-concerned users, especially those subscribers who haven’t selected the top tier, large quota data plan.


That Ain’t Working (Yet)


The Toll-Free Mobile Broadband concept (sometimes called “sender-pays”) is easily understood by and attractive to mobile data subscribers, being similar to the 800 free phone model in telephony. Zero-rating the data usage eliminates any hesitation a user has in consuming a particular bandwidth-intensive mobile service. But operators currently are of a different mind – in a custom Cisco-commissioned Heavy Reading study, based on a global survey of 50 operators, the Toll Free Mobile Broadband/Sender Pays concept scored the largest percentage of “Don’t Know” scores at 31%. And 35% thought that they would only be able to monetize less than 10% of the subscriber base. This was the weakest of the use cases investigated in the survey response, with only 6% ranking it “5—Very Important”.


The report concluded that one possible reason for this weak score is likely to be unfamiliarity with the concept as it relates to mobile data. And it may simply be too early in the lifecycle of mobile data for this type of model to work. This use case also requires some educational efforts to gain the interest of content providers, advertisers, etc. – who naturally are not accustomed to paying for data charges! The report cited the emergence of tiered services as having a positive impact on the Sender Pays model, as users in the lower tiers may prove to be quota sensitive, thereby compelling content providers to show more interest in the approach to reach a wider target market. Additionally, the report concluded that operators are so focused on increasing data subscriptions that almost everything else is secondary, and business model “experiments” such as this are not a priority. Although one operator said it was offering a Toll Free Broadband service based on the “Kindle model”, i.e., offering an e-reader device based on arrangements with publishing houses who pay for the traffic upfront.


That’s the Way You Do It


The potential for operator revenues from zero rate-based partnerships with content providers includes streaming video services like Netflix, Hulu Plus, etc., massively multiplayer online (MMO) gaming service, mobile advertising, mobile cloud premium applications, and more. In any of these, the user could pay for the subscription service while any associated data traffic is zero-rated. For example, Verizon Wireless zero rates the data associated with its premium VCAST Video on Demand service.


Let’s look at a mobile display advertising example. An automobile brand working with its creative agency has built a rich media mobile site with high-resolution video, flash, and three-dimensional animations to showcase the launch of a new car model. Mobile data users are hesitant to click on the banner ad linking to this rich media site – do they really want to use up data quota to look at essentially an advertisement? To encourage consumption of the rich media site, the automobile company is willing to use some of its marketing funds to let users view it toll-free. So the company’s ad network partners with the mobile operator to pay for the zero-rated data usage when users click the banner ad through to the site.


Operators’ zero rate-based partnership opportunities also extend beyond OTT media content providers to large organizations in many industries including financial services, healthcare, ecommerce, etc. For example, a financial service company may have created a sophisticated mobile web site with rich media account planning tools, multimedia webinars, flash pieces, and other features to service its clients and prospects. To encourage consumption of these tools and better serve its customers, the company could offer these services toll-free, so that its clients are not consuming bandwidth from their usage quotas when accessing the services from a mobile device. The operator would bill back to the financial services company for any data usage. In any of these cases, some industry conventions would need to be established to visually signify to users that a rich media site can be accessed without incurring data charges.


Look at That

Many operators are investing in the intelligent mobile packet core and Policy and Charging Control solutions necessary to forge zero rate-based partnerships with content providers. Zero-rating is a powerful network capability that can contribute to operator revenue objectives and new B2B2C business models. And an operator can leverage its intelligent evolved packet core to combine zero-rating with other network capabilities like priority handling, QoS, and converged billing to bring even more added value to partnerships with content providers. Zero-rating is already being employed to support the Freemium use case we discussed in an earlier blog. For example, many operators are zero-rating the service, with the objective of introducing users to mobile data services and driving subscriptions. Of course, these Freemium services don’t have the Sender Pays aspect of the Toll-Free Mobile Broadband use case we are discussing here.


For more information, see the Mobile Internet Monetization Showcase for case studies, data sheets, and other information on a wide range of revenue-generating Use Cases that operators can offer.


Continue Reading: Monetization #8: Ramble On (but with Roaming Controls!)