Pricing Structure

Telstra’s managing director for innovation, Kate McKenzie, recently made some important statements about possible changes to pricing policy for data at Telstra. With the top one percent of users guzzling over 25% of data traffic, something is clearly wrong.

Such a system is inequitable, and surely must mean that the majority of customers cross-subsidising the power users. What is her solution? Smart pricing.

There are many examples of how “dumb” pricing often propagates through the supply chain. Take pay TV, for example. Foxtel offers a number of channel packages, always at a fixed cost per month for unlimited access. Is this customer-friendly? There is certainly a category of customers who rarely watch a particular channel, but might do so occasionally. In those instances, rather than subscribing to the channel, they may only want to watch a movie for two hours once in a few months. But Foxtel does not offer such a product. They don’t even offer something in between – say a lower monthly fee that offers limited access to a channel with a variable cost per hour watched – that would be suitable for low usage customers.

Why is this so? Two reasons: firstly, they probably don’t have the ability to charge or bill in this way. Secondly, it’s because they have simply passed through the pricing model from up the supply chain. The studios and content aggregators also want to keep things simple, so they price access “per subscriber, per month”. And so it goes all the way up the supply chain. What holds things back is (a) an inability to measure usage in a way that facilitates other forms of pricing and (b) a lack of desire to take any pricing risk or innovate in pricing. Instead, it’s just “back to back” all the way to Hollywood.

Now, in the content business, with high gross margins, this is less of an issue. There is enough there for everyone. In addition, high usage on the part of some categories of customer has no impact on other customers. Certainly, there are missed opportunities in the retail market, but obviously they don’t care enough about it to make serious changes to pricing.

Not so in the data business, where the carriers need to keep investing more and more in infrastructure as usage skyrockets, and where there are sophisticated traffic monitoring and shaping systems in place that don’t constrain smart metering and therefore pricing. Here is where a “user pays” regime as suggested can lead to greater equity in the market, and give infrastructure owners a better and more certain return on their investment.

Of course, pricing structure moves through the supply chain whether it’s “dumb” pricing or “smart” pricing. The implications for companies who sit between the infrastructure and the end-customer is that they must be ready to cope with all the things that come with smart pricing: drastic increases in the number of usage records, and the requirement to bill these up the supply chain.

As usual, a good billing system is essential.

If you would like any information on how Billing Bureau can help your business, please contact us now.