Viewpoint

Evolving pricing of mobile tariff plans
Be dynamic or lose

The telecom industry is standing at a crossroads, with increasing users, rapid technology shifts, usage shifts to content
services, exponential growth in data usage, and ever-increasing competition. Global trends for mobile services show that
average revenue per user (ARPU) is declining, whereas data consumption per SIM is increasing. For operators to be futurecommercial winners, they must provide a higher quality of service and offer larger data packs bundled with added features
to increase the price elasticity of demand. They must then use their increased elasticity to drive higher demand for data bylowering the price per gigabyte (GB). In parallel, they must leverage technological advances to reduce their cost-per-GB-toserve data, which will ultimately result in sustained or higher profits.

More usage but lower average spend
Global mobile data consumption per smartphone increased ata CAGR of 60 percent to reach 5.6 GB per month in 2018, from
2.2 GB per month in 2016. However, ARPU decreased at aCAGR of 2 percent to hit €9.4 per month in 2018, compared with
€9.7 per month in 20161. The pressure on ARPU (and margins) isdue to stiff competition, OTT substitution and commoditizationof traditional voice & SMS services, and importantly, inability ofoperators to monetize the increase in data consumption. It isimperative for operators to understand the underlying drivers ofmargins per subscriber, and then leverage them to dynamically
price mobile tariff plans, to stave off the threat of ARPU ormargin decline. The figure below illustrates these drivers, andthis paper delves deeper into the single-most important driver,data ARPU. The key learning is that operators must focus
on forward-looking, competition- and cost-driven pricing
and they must play on cost elasticity of serving data being
steeper than price elasticity.

Increase data ARPU despite lower price per GB
We are witnessing four global trends with regard to the “data”
component in mobile tariff plans:a. Bigger data allowances.
b. Lower price and revenues per GB.
c. Better quality of service.
d. More features offered with data plans.

Operator margin drivers
Margin per subscriber
Cost to serve dataper user

Average revenue per user (ARPU)
Data ARPU ($)
Effective
price per GB

Other ARPU ($)
Services

Quality

Quantity

Data usage
Quality

Extra features

VoiceFlexibility ofcontracts

Data allowance

Network speed

Access torelevant apps

SMS

Customerinteraction

Network latency

Other value
added services

Network reliability

Source: Arthur D. Little analysis

1Arthur D. Little – Global mobile plans benchmark report, 6th edition

Cost-to-serve
data per GB

Simple tariffstructure

Data usage

Viewpoint

a. Bigger data allowancesc. Better quality of service

Our analysis of a sample of operators (from 18 European
countries) shows that the percentage of operators offering atleast one unlimited plan has increased rapidly over the years.
Operators have also been consistently increasing their averagedata allowances across tariff plans.

Tech advancements have resulted in operators being able tooffer higher data speeds and improved network latency andreliability. More than 10 countries now have average mobile
download speeds greater than 50 Mbps. With the advent of 5G,
further significant improvements to QoS are expected.

Percentage of operators with at least one unlimited plan

Average mobile download speed (Mbps) – Apr 2019
South Korea

48%

77

Norway28%
12%201520172019

78

Italy
Netherlands

FrancePolandGermany

Spain

GreeceSweden29
191193494446

6 595 4136 6532015

221771288151172017

2019

b. Lower price per GB
In parallel, operators across markets are reducing average
price per GB drastically. (See the below results from a sample.)

8.0

Average price per GB evolution (€)
2017 (5-10 GB)

France Germany

Spain

2.1

3.9
3.1
2.0
1.3

3.4
3.3

Italy NetherlandsRussia

2.0
1.6

1.30.90.8
1.0
0.6

2.9
2.7

2.1

0.7
0.6

4.0
2.6
3.0
3.6
1.8

2.9
2.4
1.8
1.2
2.5
1.8
0.8
0.5

2018 (>10 GB)

3.3

5.5

6.3

2018 (5-10 GB)

Austria

62
62
59
53

Croatia53

Switzerland

53

Source: Ookla Speedtest Global Index - Data for the Index comes from thehundreds of millions of tests taken by real people using Speedtest every monthnn

Carrying over unused data to the next month.

nn

Data sharing – flexibility of sharing data among family orfriends.

nnPublic Wi-Fi allowance.

nnOffers with digital propositions and OTT/content:

Source: Global Data, Arthur D. Little analysis

2017 (>10 GB)

Australia
Netherlands

Operators continue to add features such as:

29

27
1663

d. More features offered with data plans

4336

Ireland

64

Qatar

Singapore

Average data allowance excluding unlimited plans (GB)Belgium

CanadaUnited Arab Emirates

Source: Global Data, Arthur D. Little analysis

Austria68

United United
Kingdom States

Source: Arthur D. Little – Global Mobile Plans Benchmark Report, 6th edition–– Subscription of OTT services and zero-rating has become
main-stream, with the majority of operators offering suchservices in their premium plans. The idea is to encouragecustomers to switch to premium plans and project
superior product value. One or multiple services from thebelow are typically offered:2
1. Entertainment Apps – VOD, live TV streaming,gaming, music streaming , e.g. Netflix, Amazon
Prime, Spotify, Apple Music.
2. Connectivity Apps – Social media, messenger apps,
video calling and VOIP services, e.g., Facebook,Twitter, Instagram, WhatsApp.
3. Others, such as e-books, maps, and traffic apps.
3

Looking at recent trends, operators launching 5G are pricing
5G data plans at similar prices as their 4G plans (e.g., Italy,Austria, Finland), or even at discounts to 4G (e.g., South Korea),
to promote data consumption. For example - TIM Italy has
introduced two new 5G plans, with data allowances of 50 and100 GB, at prices per GB of €0.6 and €0.5 – this is in line withthe price per GB it currently charges for its 4G plans. In thismanner, the company is motivating consumers to use moredata.

2Offer from T Mobile US – T Mobile created immense valuefor travelers by offering unlimited data roaming at selectdestinations.
Offer from 3 UK – Video & music data pass – A video/
music data pass covers zero-rated data on a wide selectionof video and music apps. In some instances, limitedduration subscriptions to these services are also included.

Evolving pricing of mobile tariff plans4Viewpoint

Price elasticity demand curves illustration
PED curve with better QoS and added features
PED with relatively lower QoS and fewer added features%Price per GB

The above four trends have led to rapid growth in data usageacross markets; 11 operators around the globe report greaterthan 10 GB of data consumption per SIM from January toSeptember 2018. Ten operators more than doubled their data
usage consumption in 2018 compared with 20172. Nearly
half of all operators were able to convert this increase in data
consumption into an ARPU increase by steering the price per
GB decline systematically.

Demand increase on relatively
elastic PED curve

Average data consumption per SIM (GB/month)
2.9
7.3

North East Asia
South East Asia and Oceania
Latin America
India
Central and Eastern Europe
Western Europe
Northe America

201815.0

2024

Demand for data

21.0

3.8

Source: Arthur D. Little analysis

19.0

3.4
6.8
4.7

18.0

Case study – Elisa

15.0

6.1

19.0

8.6

32.0
50.0

Source: Ericsson Mobility Report November 2018

Usage per SIM is expected to continue to increase with new,data-intensive use cases driven by 5G. Based on a global 5G
survey3, consumers are expected to show a steep increase
in data consumption due to enhanced video entertainment,
including real-time interactive and immersive video, gaming,and AR-/VR-based experiences. In South Korea, customers who
used 8 GB per month on 4G, and have now moved to 5G, areusing 26 GB per month4. Operators must thus prepare for thewidespread adoption of unlimited data plans, in which they will
not be able to monetize based on data volume tiers. They will
have to differentiate their products through quality of service byidentifying individual usage patterns and charging a premiumfor speed, reliability or latency for effective monetization. For
example, gamers would be happy to pay a premium for latency,and professionals would pay extra for reliability.
Operators can increase the price elasticity of demand (PED)
by offering better QoS and creating more value through added
features in their tariff plans. Operators achieve higher elasticity
by moving the market from the relatively inelastic gray curveto the more elastic green curve. As demonstrated in the next
figure, this helps operators achieve higher increases in data
demand as reactions to price decreases. In parallel, operators
can decrease the price in a calculated way: if the factor ofincrease in data demanded is higher than the factor by which
the price per GB is reduced – this will result in an increment inARPU.

Reduce cost to serve with technology advancements
As the shift towards LTE-A and 5G happens, cost-to-serve data
drastically reduces. Operators that continue to reduce cost-toserve data will achieve a cost-elasticity curve that is steeper
than the price elasticity-of-demand curve.
234Elisa is a model example of how to translate larger data
packages at lower costs into increased ARPU. Elisa
executed mobile-centric “unlimited everything” strategies
and developed its OTT offerings in parallel to fuel data
consumption. For example, the company introduced Elisa
Mobile Video, its unlimited-time and -traffic, self-operated
OTT platform. Based on self-made content (Elisa Viihde) andcooperation with content providers, Elisa integrated HBO,
SF Kids and live sports broadcasts. In parallel with fuelingdata growth, the company rapidly decreased price per GB in
its plans while recording 7 percent annual growth in ARPU
from 2016 to 2018.

The figure below shows how operators can leverage steeper
cost-elasticity curve to increase margins per GB. Companiesshould operate at a low-price, low-cost “3-4” position, which
essentially means they should price their plans so the priceper GB is around position “3” and reduce their cost-to-serve
data so the cost per GB is at position “4”. One might argue
that operating at a high-price, low-cost “1-4” position seems6
a better strategy, wherein the operator decreases its costs toposition “4” but keeps charging its customers a high price per
GB in line with position “1”. However, this strategy is not viable
in a competitive market; as customers will discover lower prices
and the operator with a “1-4” strategy will lose market share.
Operator offered price per GB vs cost-to-serve data
Risk averse range
Cost-to-serve data

Middle East and Africa

Demand increase on relatively
inelastic PED curve

Forward looking range

1
Current margins

3

2

Higher future margins
4

Price of data

Cost to serve dataInnovation through new technologies
Source: Arthur D. Little analysis

Tefficient March 2019 – All operators climbed the tree
Ericsson ConsumerLab
Tefficient July 2019 – Prepping for 5G
Evolving pricing of mobile tariff plans

3Viewpoint

Operators that move swiftly to a “3-4” strategy will be able tocapture market share from their competitors that are still in the‘risk-averse’ range. This is what happened in the Indian market,
where Jio was able to snatch 100 million subscribers fromincumbents such as Airtel and Vodafone in 90 days by offering amuch lower GB price-point (versus competition), supported bya lower cost-to-serve data, which was made possible due to amodern efficient network.

Contacts
Austria

Middle EastBelgium

The Netherlands

China

NorwayCzech Republic

Russian FederationInsight for executives

FranceSingapore

Operators can still reduce unitary prices without destroying
value, by carefully playing with the drivers listed above insteadof reactively dropping prices in response to competitive moves.

Germanytaga.karim@adlittle.com
pankert.gregory@adlittle.com
harada.yusuke@adlittle.com
brabec.dean@adlittle.com

Dynamic, forward-looking price alignment with costs –Operators shouldn’t solely focus on competition and price plans
through a reactive mechanism. They must also look internally,aligning their pricing with evolving cost-to-serve data. Operatorsmust set up dynamic cost accounting that can measure andforesee developments for cost of production, and then translatethem into pricing and dynamic KPIs for the organization.
Extra features as part of the core strategy – Operators shouldmake added features, such as OTT/content (including AR/VRexperiences, cloud gaming), lower latency and higher reliability,
a core part of their strategies. This would increase consumer
data demand, support a lower price per gigabyte, and enhancemobile revenues.
Reduce cost to serve data – Operators must focus theirefforts to deliver the degression curve of cost-of-GB production
by leveraging advancements in spectral efficiency and traffic
capacity, e.g. LTE-Advanced is 3x more spectrally efficent thanLTE. This will help them stay ahead of competition by enablingthem to deliver data at lower prices, without hurting theirmargins.

duvaud-schelnast.julien@adlittle.
com
opitz.michael@adlittle.com

India

srinivasan.srini@adlittle.com

Italy

agresti.giancarlo@adlittle.com

Japanakayama.shinichi@adlittle.com

Korea

hwang.hoonjin@adlittle.com

Latin America

casahuga.guillem@adlittle.com

koch.sander@adlittle.com
eikelenboom.martijn@adlittle.com
thurmann-moe.lars@adlittle.com
ovanesov.alexander@adlittle.com
izydorczyk.tomasz@adlittle.com

Spainportal.jesus@adlittle.com

Swedenlasku.agron@adlittle.com

Switzerland
opitz.michael@adlittle.com

Turkeybaban.coskun@adlittle.com

UKjohnson.nicholas@adlittle.com

USA

mcdevitt.sean@adlittle.com

Authors
Vincenzo Basile, Guillem Casahuga, Martin Lippautz,
Paritosh Mukhija, Aashbir Bhatia
The authors would also like to thank Federico Ciccone for his
valuable inputs and contributions

Arthur D. Little
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