Food for Thought about All You Can Eat

For a few weeks now, I’ve been pondering the question of all you can eat data charges, and trying to find out what’s in it for the networks. The logic behind my question is this. If someone who’s not on a data bundle downloads some content and browses around the mobile Internet a bit and maybe over the course of a month consumes 10MB of data which is charged at, say £2 per megabyte, that’s £20 in revenue for the network. If someone else on a £5 per month data bundle does exactly the same thing, that’s £5 for the network. So why would the networks want to offer all-you-can-eat data bundles? I naively assumed it must be about making your data bundle more attractive than the competition’s and therefore winning new customers.
In an hour-long telephone call just now, mBlox Chairman Andrew Bud put me right. It’s not about winning new customers at all. According to Bud, there are a couple of principal forces at work here. The first is the  fixation that some mobile network operators have with the PC Internet. Some, he says, are “bewitched” by it. On the PC Internet, ISPs saw broadband – all you can eat data by any other name - as the answer to their problems, so mobile operators are going down the same route. But as Bud explained in great detail, the mobile Internet is not the PC Internet. 
Secondly, they like the idea of the short-term revenue that will accrue from selling the data packages.
“Carriers have gone ex-growth” Bud told me. “The era of increasing revenues is over, so they are looking for ways to grow ARPU, and if they can add a £7 monthly charge to your bill, that’s 12-15% growth for them.”
As Bud explained, however, this is a 'live now, pay later' model, because once the customer is on the all you can eat data tariff – I get 1gig a month with 3 – it starts costing the network.
“I compare it to taking a high interest loan” says Bud. “The cash in the bank is very nice now, but boy am I going to pay for it in the future.”
The networks’ love affair with all you can eat data will continue, Bud believes, only as long as consumers are paying £5 or £7.50 a month and only consuming a few megabytes of data each month. Once we start going beyond this, downloading several videos a day and putting those fair usage limits under strain, he believes, the limits will come down, as the networks seek to protect themselves against being over-exposed.
“They will be sold as data packages, but they will actually be bundles, and the problem will be that no-one will understand what a 100MB bundle or a 200MB bundle is” says Bud.
Bud believes that the solution lies in a ‘Sender Pays’ business model, where the cost of a full-track music download, for example, includes the cost of the data charge to deliver the data to the handset, something Vodafone is already trialling.
In the mobile advertising world, advertisers would buy terabytes of data each year from networks, at a viable wholesale cost for both parties – so not a dollar per megabyte, but not a cent either – so that consumers could click on a link and see a brand ad on their mobile, without paying the data charge involved to do so. That would be paid by the advertiser.
“It’s not acceptable for anyone to have to pay a material amount of money to look at an ad” says Bud.
As the head of the world’s largest mobile transaction network, Bud is refreshingly candid about why he is so keen on Sender Pays.
“We are very transparent about this” he says. “Sender Pays involves a transaction, which will be executed probably through a mobile transaction network, and so we see this as an exciting addition to our business. There’s nothing innovative about this; it’s exactly how SMS works, and the SMS business model has been amply proven.”
There is a wider issue too, he says. With 3G penetration growing, making it more feasible for consumers to download large video files to the handset in seconds rather than minutes, so the issue of data charges is coming to the fore.
“As the largest mobile transaction network in the world, we have a responsibility to drive the things that will grow the global industry for mobile content and services” he says. “I believe a solution to the data problem is essential if this whole industry is to grow.”
Bud was one of the first people we interviewed when Mobile Marketing launched almost two years ago, and he talked a lot of sense then. I have to say, I think he’s making a lot of sense now, and it will certainly be interesting see where the networks are with all you can eat data bundles in two years time. In fact, I think I’ll go and download some content right now, before someone decides to turn the tap off.
In the meantime, we’ll have the full interview with Andrew Bud up on the site in the next week or so.

David Murphy
Editor

Comments

[Helen Keegan]

It's worth checking out the comments over at SMStextnews as well and you'll see that there are holes in Andrew's argument.

http://www.smstextnews.com/2007/07/why_andrew_bud_of_mblox_is_no_fan_of_unlimited_data_plans.html
or http://tinyurl.com/2e9qsb

[Scott Beaumont]

The other thing to bear in mind on this topic is that the actual cost per MB to the operator is in the region of €0.02-0.05 - if you can guarantee that someone is to spend £7.50 a month with you then they will really need to go some to put you in the red. The mass market is never going to do this. Really the only deterrent from an operator standpoint is nothing to do with mobile data at all but rather focused on trying to avoid Voice over IP cannibalisation of the voice business - which though commoditised is still a nice cash cow.