Technology | Media | Telecommunications

Tuesday, April 15, 2008

Flat-Rate Mobile Leads to Flat-Rate Margins

Mobile operators in the U.S. have begun offering their subscribers flat-rate, unlimited use service pricing plans. These are intended to reduce customer churn and attract new subscribers, and they frequently succeed.

But according to ABI Research, operators should beware of the risks such plans pose to their network and backhaul capacity.

"Flat rate plans will test the limits of 3G networks, raising new challenges for operators," says senior analyst Nadine Manjaro. "Operators need to pay close attention to the capacity limitations of their 3G networks and the true cost of all-you-can-eat data plans."

These challenges affect multiple parts of the networks. Increased usage of SMS can flood the network and impact its ability to deliver voice signaling, which may impact voice calls. Another concern is that unlimited plans may spur text message spamming. Instant Messaging and picture mail usage may also increase under flat rate plans.

Unlimited Internet access will have the biggest impact on the network, especially if users begin to visit sites such as YouTube to download videos. Continuous use of video applications, whether streaming, downloading or uploading pose the biggest challenge by significantly increasing network utilization and reducing per-subscriber data rates, or the number of subscribers able to access the network.

There are reports that two majors Korean operators (SKT and KTF) offering video calls and global roaming on WCDMA networks are experiencing degraded voice quality.

Backhaul is also affected. As operator's 3G backhaul requirement increases and they plan for network migration, higher capacity backhaul becomes essential. Operators have been evaluating alternative backhaul solutions for some time, but higher utilization of 3G networks will drive this requirement faster than 4G requirements.

"The cost of increasing backhaul capacity, handling more calls to service centers, and potential increases in customer churn can quickly erode any gains from flat-rate plans," Manjaro concludes.