WiMAX networks are being rolled out now and LTE roll-outs will begin at the end of 2010. Network operators must do better at developing business models and operational thinking than with 3G. They need to manage bandwidth more efficiently, and develop a persuasive new pricing model that will not result in clogging up their networks. The second part will be harder.

Offering LTE as premiumpriced, unlimited services is not the answer. Services such as high-definition video would replicate the disconnect between revenue and traffic that exists today with 3G networks.

An alternative approach is to offer guaranteed quality of service (QoS) at a premium. This could generate additional revenue, but the difficulty is incorporating net neutrality and privacy regulation into any service that prioritizes one set of data packets over another.

There is also the question of whether mobile operators could guarantee a particular QoS for a group of customers. Ashvin Vellody, senior VP of research with the Yankee Group, says it’s tough but possible: “The disparate pieces of enabling technology exist to make that happen, but operators have too much information that is not integrated to help them make real-time decisions. It’s imperative this approach is given a fair shake with 4G.”

Some are sceptical about whether a tiered service would appeal to many users: “While there is always a group who is willing to pay top dollar for a premium service I would say in general that’s a very small and volatile group,” says Bohdan Zabawskyj, CTO of Toronto, Ontario-headquartered Redknee.

Zabawskyj prefers a pricing model where the cost of the transport is incorporated into the price paid by the end-user for content. The content provider is paid by the end-user, and passes on the payment for data usage to the communication service provider (CSP).

Profit sharing

The model could be applied to individual items such as films, or to an entire service as has been done by Amazon with its Kindle e-reader. Users pay for the content rather than network usage, while Amazon acts like a mobile virtual network operator, buying 3G data services from AT&T in the U.S., in what is assumed to be a profit-sharing agreement.

This works for AT&T because data usage by the Kindle is relatively small, certainly compared to an iPhone. The business model is flexible enough to allow the Kindle to roam on 3G networks outside the U.S., without the user incurring direct roaming fees. This situation could change rapidly, though, if Amazon is pressured into turning Kindle into a broader multimedia device in response to competition from Apple’s iPad, say.

Others argue users are realistic about pricing and open to offers. A survey, conducted among 3G European users during October 2009 (its findings can be applied to 4G too), found many users willing to accept some limits on their bandwidth usage in return for a manageable bill.

The survey, commissioned by Camiant, a U.S. vendor of policy control software, found users are prepared to cope with less bandwidth in the event of exceeding their monthly data allocation, provided they are charged less than at present for the additional, lower-speed bandwidth. Twice as many users preferred that option to the current model where users can rack up big bills by exceeding their monthly allowance.

“Essentially what this bandwidth limit does is control the applications that put pressure on the network. If no one ever used video then this would not be as nearly big a problem as it is right now,” says Randy Fuller, Camiant’s VP of business development.

Tiered pricing

The vendor is working on the early stages of an LTE deployment with an operator which plans to offer its highest bandwidth service at a premium price, pointing the way to tiered pricing in 4G. Additional fees for a burst of higher bandwidth might be attractive to those users on the slower speed service.

Technical fixes could offer some relief too. Mobile operators are attracted to femtocells because their backhaul costs are largely borne by the user’s fixed broadband line rather than them. The fact that femtocells also gives them the opportunity to offer new services tends to be overlooked.

However, U.S. research firm ABI halved its previous prediction for the number of femtocells that would be shipped during 2009, citing high retail prices and CSPs’ concerns about interference for lower than expected take-up.

The researcher is more optimistic about the future. It reckons 40 million femtocells will be deployed globally by 2014, a figure that is still down on its previous estimate, but only by about 10%. By 2014 though, ABI argues 4G networks will be much more prevalent and femtocells will be making an impact.

Femtocell coverage

Equipment suppliers are talking about various revenue- generating scenarios if femtocell coverage becomes ubiquitous with 4G. A daily newspaper could be delivered electronically to a user’s phone (or e-reader or tablet) when they enter a building with femtocell coverage. Or an operator could offer automatic syncing via femtocells of content such as podcasts, music or video between PC and handset, which saves a user time compared with connecting to a PC via the USB port.

Of course, operators will have to persuade users to pay for any of these ideas: “That’s the key question where operators are scratching their heads and trying to figure it out,” says Aditya Kaul, ABI’s practice director for mobile networks.

Operators also need to look closely at how they manage traffic on their 4G networks. “Once upon a time an operator managed a wireless network and had wireless expertise. Or they managed a fixed network and had fixed network expertise. Now these things are blurring together,” says Marie Murphy who is leading TM Forum’s Managing New Technologies Initiative.

LTE is an all-IP technology and the Forum’s new initiative aims to standardize interfaces that will allow end-to-end management of all-IP, converged networks more easily and cheaply.

New sources of revenue are essential too. One option is to offer WiMAX and LTE in a more targeted way to large enterprises. “We work in financial services and healthcare, which recognize the opportunity in mobile business enabled by wireless broadband,” says Peter Siggins, a mobile specialist with PA Consulting. Operators should start thinking carefully about the opportunities in vertical markets, he says.

In financial services, some mobile operators already partner with banking groups across a range of activities. SK Telecom, Telefónica and Vodafone are among those involved. Activities include delivering remittance payments or forming consortia to target the transport sector, for instance offering e-ticketing in mass transit systems. Vodafone also recently announced a new unit that will deliver mobile technology to the healthcare sector.

CSPs can join the consortia that are coming together to pursue such opportunities, but some will need to change their mentality to function well in vertical markets. Operators are accustomed to working as stand-alone entities with a straightforward customer ownership model. Vertical markets require them to act as part of wider groups, possibly with no direct control over customers.

The business model is new to operators too, involving forms of revenue sharing. “It’s basically a new capability they need to develop. These are the challenges they are facing,” says Siggins.

Richard Handford has written for publications such as Informa Telecoms and Media’s Mobile Handset Analysis, and is a contributor to The Economist’s Technology Quarterly. This article is printed with thanks to the TM Forum.