What are operators doing with their excess of capacity?
I just read the Wall Street Journal’s article related to network capacity excess and I found a good subject to write a post as we have a nice credential and story to tell.
The article (that also links with my previous post discussing about data MVNOs) explains how Sprint is looking to bring in some extra money by renting out the use of its excess capacity to consumer electronics makers (such as Garmin, SanDisk and Eastman Kodak) and allowing for the wireless delivery of information to consumer electronics devices other than phones. Sprint would charge based on how much data is transmitted by the consumer electronics companies to the devices in the same way the already do to provide the wireless downloads for Amazon’s Kindle device.
The case is interesting as it shows a simple, clear and business oriented solution to address the excess of network capacity that operators have across markets. But it is not the only solution: there are marketing & pricing strategies that some operators are implementing across different markets to use this excess as an opportunity to drive (and increase) traffic through applying discounts on top of the customers’ base tariffs depending on where the capacity excess and the clients are.
This is called dynamic tariffing and it offers the operator the ability to charge varying prices at different times, in different places and to different subscribers.
Objectives? Considering that this capacity excess is sunk on a daily basis, this marketing strategy can be useful if the operator wants to maximize revenues, stimulate traffic, reduce churn, increase loyalty and, of course, improve network performance.
We had the opportunity to define a value proposition for SIM-only segments in a mobile operator in Africa where we suggested this approach and the results where stunning.
The service was initially designed for bellow the line users, (because of communication issues) and it was sold as an add-on that required to text a message to subscribe the service. Once activated, the customers were informed in real time of the ruling discounts via cell broadcast on their handsets. These discounts were always relative to the subscribers’ predefined base tariff. The clients were always notified of the exact tariff during call setup.
We targeted cost conscious subscribers and subscribers that were able to change usage patterns to different times and potentially locations in order to benefit from all discounts. Our Dynamic tariff was expected to impact and benefit largely low to medium value prepaid customers who never had any idea of what capacity excess had the network cell in which they were allocated, but that accepted this discount with an incredible excitement, increasing their loyalty and stickiness to the operator.
The value proposition of Dynamic Tariff was passed to the operator as well as the customer, yet it put our client in a competitive advantage over its in-country competitors. If we have to resume the main benefits for the operator, I would say:
- Higher Product Differentiation and Innovation: Gave subscribers more attractive calling prices, at convenient times while simultaneously using spare capacity in the network.
- More Revenues from Existing Subscribers: By giving customers more value for money, they called more; By them calling more, they encourage being called more (Interconnect); By calling more, they recharge their SIMs more.
- Reducing, Retarding Revenue Erosion: All competitive networks suffer churn off their networks and receive subscribers churning from other networks – low prepaid loyalty. If an operator can at least maintain churn from other networks and retard churn off the network a large payoff results.
- Increasing New Subscriber Revenue: Dynamic tariffing resulted in dormant subscribers becoming active – more regular calling resulting in small revenue per sub but many subs, hence reasonable revenues.
As said before the case was an incredible success. After months of rolling the offer out, it’s still outperforming. I do strongly encourage all telecom-marketing executives to analyze the fit of such a service within their customer base and network capacity excess. Going back to my initial reflection, I think this was another simple, clear and business oriented solution to address the excess of network capacity in a specific operator.
We will see more cases like this in the future. Feel free to contact me for additional insights.
Best regards, CVA