IP: RE: Suicidal GPRS pricing puts 3G at risk

[David Farber <dave () farber net>]

> Subject: RE: Suicidal GPRS pricing puts 3G at risk
> Date: Fri, 3 Aug 2001 15:36:49 +0100
> From: "Michael Kende" <Michael.Kende () analysys com>
> To: <farber () cis upenn edu>, <dave () farber net>
>
> Dave, one of my colleagues at Analysys, Andrew Wright, the Head of
> Analysys' Mobile Group,
> had the following response to the 3G pricing note:
>
> -----Original Message-----
> From: Andrew Wright
> Sent: Thursday, August 02, 2001 5:04 AM
> To: Michael Kende
> Subject: Re: Suicidal GPRS pricing puts 3G at risk
>
> GPRS pricing alone is not the concern. Trying to compete with fixed
> broadband given the economies of GPRS, however, is suicidal.  Mobile
> data services (be they 2.5G or 3G) are destined to be many times more
> expensive than fixed data services due to their underlying cost base.
> This is not surprising if one considers the amount and level of
> sophistication of the equipment required to deliver sufficient quantity
> of data over the air interface across a wide area. Any comparison of
> mobile data service prices with fixed is problematic (although not
> catastrophic) because fixed data service prices, on a per Mbyte basis,
> are falling rapidly as new technologies are deployed. There is an
> effective scale economy that the user benefits from when moving to
> broadband, which is not mirrored in mobile because the radio network has
> a greater variable cost component than a fixed network. (Note: fixed
> broadband costs are dominated by the fixed cost of the loop and the cost
> of the DSL equipment at both ends.)
>
> Taking usage patterns and realistic utilisation levels, etc. into
> account, fixed Web browsing costs in the region of 20 cents per useful
> Mbyte of browsing on dial up. This falls to 2 cents per Mbyte on ADSL,
> and is as low as 0.2 cents per Mbyte over an STM1/OC3 fibre in the
> corporate environment (based on typical European tariffs).
>
> In a typical mobile tariffing scheme, browsing over GSM data connections
> costs in the region of $5 per useful Mbyte, GPRS in the region of $2 per
> Mbyte, and we expect 3G to achieve 50 cents per Mbyte in due course (we
> believe that the cost base is only as low as the 8 cents per Mbyte
> quoted by Yankee when extremely high volumes are achieved, and only in
> urban environments).
>
> Thus, when users move to fixed broadband data, they reap the benefits of
> keener pricing and scale economies. These do not exist (at least to the
> same degree) in mobile networks, so it is not difficult to see why
> mobile data might cost 100 times more per Mbyte than ADSL data.
>
> In order to avoid price comparisons with fixed data services, mobile
> operators must focus on selling products that are desirable to mobile
> users. Current thought is that if a small amount of data volume is
> bundled with the right content or application, then the relatively high
> cost of the data will not seem important. For example, users can send
> mobile text messages (SMS) of up to 160 characters to each other for a
> few cents on GSM networks. When the accumulated cost of this is worked
> out it comes close to $1000 per Mbyte, but people see it as a reasonably
> priced service. Text messaging is an extreme example, and there are few
> (or no) other applications that can hide a cost of $1000 per Mbyte, but
> there are many that can survive, say at $1-2 per Mbyte, especially
> services that are delivered to a 2-inch square screen. It is a question
> of finding applications with a high "value to volume ratio" - the things
> that users both want to do and can afford to do while they are mobile.
> Large attachments (SirCam or otherwise) will generally have to wait for
> a fixed connection or an 802.11 access point.
>
>
> -----Original Message-----
> From: David Farber [mailto:dave () farber net]
> Sent: Tuesday, July 31, 2001 6:26 PM
> To: ip-sub-1 () majordomo pobox com
> Subject: IP: Suicidal GPRS pricing puts 3G at risk
>
>
>
> > http://www.theregister.co.uk/content/5/20709.html
> > Suicidal GPRS pricing puts 3G at risk
> > By Andrew Orlowski, TheRegister  Posted: 27/07/2001 at 15:19 GMT
> >
> > GPRS is a flop so far, and astronomical pricing models introduced for
> > such 2.5G services are putting the 3G adventure at risk. That's what
> > analysts Yankee Group conclude after a new study of the European GPRS
> > tariffs.
> >
> > Telcos pricing models vary widely, as the report, entitled "Mobile Data
> > Pricing: Will European Consumers Pay a Packet," shows in some detail.
> > But the costs using the first round of per-packet pricing can go as
> high
> > as $4,600 for a 100 MB of data a month from some carriers. Compared to
> > fixed rate data access or ADSL, that's a premium of 73 per cent at low
> > usage levels or 1000 per cent at 100Mb.
> >
> > The European average works out at $214 per 100Mb per month, which for
> > some folk is a day's worth of SirCam attachments.
> >
> > Yankee Group warns of "potentially dire consequences for future data
> > services" if flat-rate pricing isn't introduced.
> >
> > "We've always maintained data is the icing on the cake," author Farid
> > Yunus told us.
> >
> > His report warns that the viability of the 3G project is in doubt
> unless
> > tariffs are reduced, and recommends networks should consider GPRS as a
> > loss leader until consumer critical mass has been achieved.
> >
> > A couple of interesting statistics leap out of the report, too. Yunus
> > reckons the cost of transport is only 8 cents per MB, so GPRS and 3G
> can
> > be priced at less than $2.00 per MB (enough for seven average-sized
> > SirCam attachments) for the networks to see their investment recouped
> > and profit handsomely.
> >
> > Actually some of Vodaphone's business tariffs (40, 100 and Volume)
> > squeak in under this, so it's clearly possible. Yankee estimates that
> > $157 billion has been invested in 3G infrastructure in Europe. ®
> > --
> > Robert J. Berger
> > UltraDevices, Inc.
> > 257 Castro Street, Suite 223 Mt. View CA. 94041
> > Voice: 408-882-4755 Fax: 408-490-2868
> > Email: rberger () ultradevices com  http://www.ultradevices.com
>
>
>
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