MOBILE DATA MONETISATION IN EMERGING ASIA-PACIFIC: PRICING AND BUNDLING STRATEGIES

Transcription

1 analysysmason.com RESEARCH STRATEGY REPORT MOBILE DATA MONETISATION IN EMERGING ASIA-PACIFIC: PRICING AND BUNDLING STRATEGIES KEREM ARSAL, HARSH UPADHYAY and HEENU NIHALANI

2 About this report This report analyses how operators in emerging markets can monetise mobile data more effectively in the context of intense price-based competition. It identifies and discusses best practices for data monetisation relating to pricing models, over-the-top (OTT) bundling and app-based pricing, as well as device bundling. More specifically, we examine operator positioning and pricing relative to network quality and prepaid tariff complexity. We also analyse the retention effects of OTT bundling, assess best practices in app-based pricing and discuss innovative ways to bundle devices for prepaid markets. This report provides guidance to mobile operators, primarily in emerging Asia Pacific (EMAP), but has insights that operators in other emerging markets will find relevant for their regions. It is based on several sources: Analysys Mason s internal research, regional data and forecasts, including its primary research in the region (including data from our Connected Consumer Survey and related reports). Secondary research on operator mobile data tariffs, app-based pricing and device bundling approaches Interviews of stakeholders in emerging Asia Pacific, mainly within mobile operators. KEY QUESTIONS ANSWERED IN THIS REPORT How can operators adjust their mobile data pricing in relation to the quality of their mobile data network? How can tariff simplification, particularly on prepaid plans, help operators in their efforts to monetise data? Which OTT partnership strategies are available to operators for mobile data monetisation? What are the retention outcomes of OTT bundling and how can operators achieve profitability through app-based pricing? What role should operators play in smartphone and device bundling? How can operators address high-prepaid, low-income markets with device bundles, while also managing risk? Which programmes can help them increase their presence as smartphone channels? WHO SHOULD READ THIS REPORT Operators in emerging Asia Pacific, as well as those in other emerging markets with price pressures on mobile data prices. Strategy directors and managers that want to understand the challenges of mobile data monetisation in this region and the options available to them. Product managers and pricing teams that are handling OTT bundling and are involved designing app-based pricing. Operators device teams that wish to gain insights into how they can address prepaid-heavy markets with various bundling options, while managing the financial risks of default. 2

3 CONTENTS EXECUTIVE SUMMARY PRICING FOR NETWORK QUALITY AND RETENTION OTT BUNDLING AND APP-BASED PRICING DEVICE BUNDLING IN PREPAID MARKETS APPENDIX ABOUT THE AUTHORS AND ANALYSYS MASON 3

4 Operators in emerging Asia Pacific can monetise mobile data more effectively by adjusting their pricing and bundling tactics Operators in emerging Asia Pacific that want to improve mobile data monetisation need to focus on network quality, OTT partnerships and device bundling. Operators in emerging Asia Pacific are struggling to monetise mobile data, despite growing adoption of smartphones and increased usage of data services. Competitive pressures in prepaid-heavy markets have pulled unit prices down. In addition, the launch of 4G services in many markets has not generated the expected increases in ARPU. In this report, we aim to assist operators with improving their mobile data monetisation, while acknowledging their challenges. We propose three main areas of focus for regional operators: Pricing for network quality and retention: Operators should adjust their mobile data pricing in relation to the quality of their 4G network. They should also consider tariff simplification, particularly in the context of prepaid plans. App-based pricing and OTT bundling: OTT bundling can improve customer retention. If priced according to actual usage, it can also be used to profitably monetise mobile data. Device bundling with prepaid plans: Partnerships with retailers, a focus on low-cost devices and reverse subsidies can help operators to bundle devices with prepaid plans, at little risk. Figure 1: Three areas that operators must focus on to improve mobile data monetisation in emerging Asia Pacific Pricing for 4G quality and retention Positioning operators as premium mobile data providers, or generous in terms of data allowances Simplifying tariff structures; consider bringing data, voice and SMS together in a single prepaid plan. OTT bundling and app-based pricing Positive retention effects of OTT bundling App-based data plans can be profitable if priced according to actual usage. Device bundling for prepaid plans Better management of default risk Operators become more attractive as sales channels. Source: Analysys Mason 4

5 It is difficult to monetise mobile data traffic in emerging Asia Pacific, due to downward pressure on unit prices and intense competition Operators have been unable to turn increased smartphone adoption into retail revenue growth, or to compete with very low unit prices. Competitive pressures from challengers and new entrants in the region, as well as the prepaid-dominant nature of these markets, have contributed to substantial declines in mobile data prices. The markets in emerging Asia Pacific are home to some of the lowest nominal per GB prices (see Figure 2, which analyses mobile data pricing, proxied on postpaid allowances). Operators are restricted in their ability and reluctant to cut unit prices further. Operators have also been unable to turn increased smartphone adoption into an acceleration in retail revenue growth. In fact, higher smartphone penetration has been associated with lower mobile retail revenue growth rates between 2012 and Operators in China, Malaysia and Thailand have struggled to increase their revenue (see figure 3), while those in the other markets may follow the same trajectory as their smartphone penetration increases. Figure 2: Nominal price per GB (USD) in large postpaid data allowances in select markets, July 2016 EMAP region Other regions Figure 3: Smartphone penetration (2015) and mobile revenue growth ( CAGR) As a result, regional operators need to find ways to monetise mobile data traffic beyond price competition, while also addressing the challenges in their markets. The goal of this report is to identify some of the options available to them, namely, (a) pricing in line with 4G network quality, and reducing churn, (b) OTT bundling and app-based pricing, and (c) device bundling. 5

6 We emphasise three key areas in which operators in emerging Asia Pacific can improve their mobile data traffic monetisation In order to monetise mobile data traffic under price pressures, we have identified three areas of focus for operators. Pricing adjustments to reflect the quality of the network and to improve customer retention: Operators with superior 4G networks should strive to charge higher prices for connectivity, especially in markets in the early phases of adoption. Operators without such advantages should consider offering more-generous data allowances. Operators should also consider simplifying their plans (particularly prepaid), and work towards incorporating mobile data more closely within voice and SMS tariff structures. OTT bundling and app-based pricing, with an emphasis on usage-based pricing: OTT bundling and app-based pricing is very common in the region and operators benefit from improved customer satisfaction when consumers use these apps. Appbased pricing may initially appear to operators as another method for discounting mobile data, but they can effectively monetise the traffic on these apps if their pricing is based on actual average usage. Device bundling, with an emphasis on addressing the prepaid segment: Open markets and retailers dominate smartphone sales in much of the region. Operators can turn device purchases in the prepaid segment to their advantage if their bundles are designed to help consumers with initial costs, spreading the financial risk of default in low-income segments. Figure 4: Main monetisation problems and related solutions in emerging Asia Pacific Main problems Solutions Pricing according to the quality of the network, and for improving retention Positioning by network quality Tariff simplification, particularly for prepaid plans How should mobile data pricing reflect the relative (dis)advantages in mobile data network quality? How can operators simplify their complex tariff structures? OTT bundling and app-based pricing OTT bundling for customer retention App-based pricing for profitability Does OTT bundling matter for customer satisfaction and for attaining a premium positioning? Can app-based pricing be profitable? If so, under what conditions? Device bundling for prepaid segments Bundling tactics for risk management Bundling for more channel presence How can the financial risk of default be managed for prepaid device bundling? How can operators appeal more strongly to consumers as smartphone sales channels? Clear positioning of operators as either premium mobile data providers or generous in terms of data allowances. Gradual switch to data-led pricing; abandoning the separation of mobile data and voice/sms plans. Assessment of churn, Net Promoter Score (NPS) and other retention effects of OTT comms and media Usage-based pricing with detailed knowledge of the user base s consumption behaviour and distribution Consideration of reverse subsidies, partnerships with retailers and ownbranded devices Implementation of trade-in, refurbishment and upgrade programmes. Source: Analysys Mason 6

7 Recommendations 1 Regional operators should aim to reflect any obvious network superiority in the introduction of higher connectivity prices; they should also consider reducing tariff complexity, particularly in prepaid plans. Operators in EMAP should position their tariffs more clearly in line with their network quality when this quality is perceived to have clear (dis)advantages over competitors networks. This is particularly relevant for operators in markets where 4G networks and services are still relatively new. Operators should also consider simplifying tariffs by focusing on a few pricing models, and incorporate mobile data more closely with voice and SMS in prepaid plans. 2 App-based pricing can be profitable if the prices are set according to actual usage. Operators do not need to view app-based pricing as yet another discount on mobile data; instead, it can be viewed as an opportunity to improve customer retention and profitability. Those operators that price their dedicated data allowances for specific apps carefully (that is, with average usage in mind) will realise that effective mobile data unit prices can sometimes be higher in such bundles than they are in app-neutral plans. 3 Operators need to use device bundling schemes suited for their prepaid-heavy markets in order to manage the risk of default. Bundling strategies such as reverse subsidies, retailer partnerships and the use of own-branded devices can help operators to accommodate the needs of large prepaid segments, while also allowing them to share, reduce or eliminate the risk associated with default. In addition, operators can improve their visibility as smartphone sales channels if they attract consumers to programmes for upgrades, trade-ins or refurbishment. 7

8 CONTENTS EXECUTIVE SUMMARY PRICING FOR NETWORK QUALITY AND RETENTION OTT BUNDLING AND APP-BASED PRICING DEVICE BUNDLING IN PREPAID MARKETS APPENDIX ABOUT THE AUTHORS AND ANALYSYS MASON 33

9 About the authors Kerem Arsal (Senior Analyst) is a key contributor to Analysys Mason's Mobile Services research programme, which helps operators to understand, and monetise to maximum efficiency, the interplay between voice, messaging and data services. His work involves in-depth coverage of issues such as customer retention, mobile data pricing, MVNO strategies, and the impact of regulation and roaming. Previously, Kerem was a research manager at Pyramid Research, where he was responsible for setting the thematic research agenda across multiple tracks and regions. He also headed numerous projects around operator strategies, as well as commercialisation of, and demand assessment for, new products in the consumer and enterprise segments. Harsh Upadhyay (Analyst) contributes to Analysys Mason s Asia Pacific research programme, and is based in our Singapore office. His research focuses on market tracking, competitive assessment, data forecasting, next-generation services and consumer behaviour analysis in the Asia Pacific telecoms market. He also supports consulting projects and presents at industry events. Harsh s experience in the TMT industry is diverse, and he has a detailed understanding of the telecoms market in the region. He has previously worked with Frost & Sullivan and IDC as an analyst and consultant, and his clients include leading ICT firms and government bodies. Harsh holds a Master s and Bachelor s degree in Business Management from India. Heenu Nihalani (Research Analyst) is a member of Analysys Mason's Consumer Services research team in London, contributing to the Mobile Services, Mobile Devices, Future Comms and Media, and Digital Economy Strategies research programmes. Prior to joining Analysys Mason, she worked as a financial knowledge broker in London, and as a journalist and copywriter in Hong Kong. Heenu holds an MSc in financial analysis from the Hong Kong University of Science and Technology, and a Bachelor's degree in philosophy, politics and economics from the University of Warwick. 34

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