Mysteries of the Wireless Pricing Puzzle

As wireless providers search for the right mix of services to spawn a boom in mobile commerce, experts say they also must develop a data pricing strategy that clicks with customers.

According to Yankee Group research director Adam Zawel, the practice of charging based on bytes or kilobytes of data transmitted to a mobile device baffles many users.

"The vast majority of wireless consumers don't know what a bit or byte is, so they are probably not going to be excited about paying for them," Zawel told the E-Commerce Times.

Too Many Plans

In addition to the knowledge factor, consumers often cannot determine the true cost of data services when pricing plans are phrased in terms of kilobytes or megabytes, Giga Information Group research director Brownlee Thomas told the E-Commerce Times.

"The carriers right now make it very difficult for average consumers to know up front what they will be paying when the bill arrives," Thomas said.

Consumers are also confused by pricing plans that vary wildly from carrier to carrier and between various network technologies, she added.

Mounting Bills

While prices vary based on regions and special promotions, a recent check showed that Cingular Wireless, for example, charges US$7 per month for 1 MB of data and 10 cents per text message, with a $9 plan that includes 100 messages. For data receipt over 1 MB, the cost is an additional 3 cents per kilobyte -- which Thomas noted amounts to $30 per megabyte.

In actual usage terms, Thomas said, monthly bills could mount quickly for an average user -- 10 MB is enough for about 180 Web pages or 1,700 e-mails. Also, the costs cited apply only to data. Voice calls are charged separately, and there are additional fees for roaming.

Thomas said today's pricing plans are affordable for many enterprises, but consumers will likely remain resistant until prices are reduced and streamlined. She noted that a reasonable monthly rate at which consumers probably would use data services is in the range of $40 to $50 -- about what users pay, for example, for e-mail service on a BlackBerry device.

Strategy Search

For the foreseeable future, Zawel said, wireless companies will offer a variety of pricing models for data services. Carriers probably will want to link pricing to network usage as long as network capacity is constrained, but flat-rate plans will be attractive for their simplicity.

Per-kilobyte pricing will likely find more traction in the enterprise than in the consumer services arena, he noted.

"Over the next few years, we will see at least three pricing models: per minute, per byte and per transaction," Zawel said.

Before mobile commerce can take off in the United States to the extent that it has progressed in Asia and Europe, wireless providers must clear a number of hurdles, according to experts.

One such hurdle is that carriers must clearly distinguish free content -- services bundled with a flat-rate fee -- from premium content that they hope to provide on a per-transaction basis, Zawel said.

'Cold Shoulder'

In a recent research brief, Forrester analyst Charles Golvin noted that the marketing and pricing problems facing U.S. wireless providers are embodied in AT&T's (NYSE: T) mid-April launch of its mMode wireless data service.

Golvin predicted that mMode in its current form "will meet with a cold shoulder" because of several problems, including undifferentiated services -- limited primarily to messaging, search, calendar and games -- and "nebulous pricing."

"MMode forces customers to learn the meaning of a kilobyte because it charges customers based on the number of bytes downloaded -- including any advertising content," Golvin said, noting that AT&T charges an additional 25 percent premium on data roaming.

"The pay-per-byte model runs counter to U.S. consumers' Internet experience of unlimited usage at a flat rate," Golvin added. "Early mMode adopters will use the service sparingly until they understand the relationship between usage and cost."

Experts pointed to a number of other reasons why consumers have not flocked to m-commerce, including privacy and security concerns, a lack of compelling applications, and device navigation designs that are not well suited for buying products and services.

Tide Still Expected

While pricing formulas are in flux and current adoption of m-commerce is sluggish, experts noted that an eventually huge market for data services is not in doubt. The Yankee Group has predicted there will be close to 100 million mobile data users in the United States alone by 2006.

The research firm also has projected that by the same year, 50 million wireless phone users in the United States will use their mobile devices to authorize payments for premium content and physical goods.

In an April research report, Zawel said that mobile payments will become "a real opportunity" once next-generation networks are launched and devices with multimedia wireless access are available to consumers.

Giga's Thomas noted that once pricing issues are ironed out, carriers will still have to convince users to trade in their older devices for newer ones enabled for optimum use of m-commerce services.

"If you don't have something that gives me an irresistible experience, I'm not going to use it," she said.