Usage Based Pricing Strategies

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Download the presentation: http://www.cisco.com/web/about/ac79/docs/clmw/Usage-Based-Pricing-Strategies.pdf. As Internet traffic skyrockets and fixed broadband ARPU stagnates, usage-based pricing may provide service providers with a tool to manage traffic and spur new revenue. This presentation explores the pros and cons of several potential usage-based pricing offers service providers may want to consider.

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Usage Based Pricing Strategies

  1. 1. Moving Toward Usage-Based Pricing A Connected Life Market Watch Perspective Cisco Internet Business Solutions Group June 2012 More info: http://www.cisco.com/web/about/ac79/docs/clmw/Usage- Based-Pricing-Strategies.pdfCisco IBSG © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Public Internet Business Solutions Group 1
  2. 2. As Traffic Increases and ARPU Stagnates, SPs can Look to Usage Based Pricing Monthly Internet Consumption per U.S. User  Consumer use and (in GB) 47.3 Internet traffic are sky- 38.9 rocketing 33.4 27.6  Fixed broadband ARPU 15.9 22.1 12.2 has stagnated 4.2 6.2 8.7 2.8  Usage-based pricing 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 may provide SPs with Source: Cisco Visual Networking Index (VNI) Global Forecast, 2011 tool to manage traffic and spur new revenue North American Cable Broadband ARPU  However, SPs must $41.1 $41.4 $41.0 $41.0 $41.9 proceed carefully 2Q06 2Q07 2Q08 2Q09 2Q10 Base: Range between 8 and 13 companies reporting Source: Infonetics, Worldwide Service Provider Update, September 2010Cisco IBSG © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Public Internet Business Solutions Group 2
  3. 3. Proceed Carefully: Consumers and Regulators Are Wary Consumer Perception of  Public outcry has resulted in Usage-Based Pricing significant regulatory and market United States No actions: Strong Fair Opinion 16% 13% —2008: U.S. FCC orders Comcast to halt throttling Unfair —2009: Time Warner Cable revokes 71% its experimental usage caps Base: Broadband consumers —2011: Canadian Radio-television and Telecommunications Canada No Commission (CRTC) is re- Strong Opinion Fair 19% examining all usage-based 9% policies in response to consumer outrage sparked by January 2011 Unfair CRTC decision 72% Source: Cisco IBSG Connected Life Market Watch, 2011 Base: Broadband consumersCisco IBSG © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Public Internet Business Solutions Group 3
  4. 4. For Some Consumers, Usage-Based Pricing Could Curtail Traffic Explosion Consumers Curbing Internet Use Consumers Curbing Internet Video Use Percentage of respondents Percentage of respondents U.S. Canada 56% 32% 31% 46% 32% 31% United Canada Plan to keep current plan Yes, I watch my data limits and reduce usage to avoid additional charges States General Internet Use Online Video Use  When usage-based pricing is  About half of consumers will reduce introduced, one-third of customers their online video watching in will reduce their Internet usage response to usage-based pricing – Actual behavior maps closely to – In Canada, where online video is well- anticipated reaction established and where usage-based pricing is already implemented, consumers are likely to cut use Source: Cisco IBSG Connected Life Market Watch, 2011 Base: U.S. and Canada broadband consumersCisco IBSG © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Public Internet Business Solutions Group 4
  5. 5. For Others, Usage-Based Pricing Could Unlock Additional Spending  41% say they would pay more Revenue Uplift Potential for Usage-Based Pricing for unlimited broadband Percentage of respondents access if usage-based pricing Would Pay More is introduced in the United States 41%  However, only 10% are Actually Pay More actually spending more since 10% the introduction of usage- United States Canada based pricing in Canada Would Subscribe to Unlimited Online Video for a Higher Monthly Fee  Similar percentages of Percentage of respondents consumers in the United States (26%) and Canada 26% (22%) would pay more for 22% broadband in order to support their online video use United States Canada Source: Cisco IBSG Connected Life Market Watch, 2011Cisco IBSG © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Public Internet Business Solutions Group 5
  6. 6. Despite Wariness, With A Careful Approach Consumer Concerns Are Minimized 72% of Canadians See Usage-Based Pricing as Unfair, Yet.… CANADA Reactions to Usage-Based Broadband Pricing  58% of consumers never think about Never 70% think usage, and they about it don’t incur Percentage of Respondents 60% additional charges 50%  One-third 40% Reduce usage reduce their 30% use to avoid Pay additional fees additional fees 20% 10%  Only 10% pay additional fees 0% No, I never think Yes, I watch my data No, I do not modify Yes, I pre-pay for about it and it does limits to avoid my usage but I extra data usage on not affect my bill additional charges sometimes exceed top of my basic my limit service Source: Cisco IBSG Connected Life Market Watch, 2011 Base: Canada broadband consumersCisco IBSG © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Public Internet Business Solutions Group 6
  7. 7. Usage-Based Pricing Can Support Both SP and Consumer Objectives Broadband Consumer Segments by Usage Non-Users Low-Volume Average High-Volume BB Users Users Cap Abusers Consumer Concerns Impact to Lower Some No disruption for most users Some Preserve Consumer barriers consumers will Over time users self manage consumers will experience for to save money spend more whole and tiers and migrate up as needed adoption enable access for largest users Service Provider Concerns Impact to Gain new Initially some revenue increase due to highest tiers Revenue adopters Greatest impact over time as consumers self-migrate to higher tiers Source: Cisco IBSG, 2012Cisco IBSG © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Public Internet Business Solutions Group 7
  8. 8. Moving Toward a Usage Based-Pricing Strategy  As former options for ARPU growth diminish, operators can turn to usage-based pricing to reverse their ARPU stagnation  SPs can shift consumers’ perception of value toward usage, however, SPs must take careful steps in order to maximize consumer acceptance Source: Cisco IBSG, 2012Cisco IBSG © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Public Internet Business Solutions Group 8
  9. 9. More info: http://www.cisco.com/web/about/ac79/docs/clmw/Usage-Based-Pricing-Strategies.pdf

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