TeliaSonera's New Business Model: Value-based Pricing

 
During its Q2 earning call, TeliaSonera described a new business model for mobile broadband services which they call "Value-based Pricing".

"Of course, we would like doing some sort of value-based pricing where if you buy a movie, video-on-demand, you would actually have traffic for that movie included in the price of the movie. That would be the reasonable part of it. The same with music .. So some sort of value-based pricing, I believe, would be the next step."

See "TeliaSonera Q2 2010 Earnings Call Transcript" by Seeking Alpha - here.

TeliaSonera presented some information on mobile broadband usage (see chart), from which we can understand why this is needed. They already have high consumption (1.5GB/month) and they expect to see 8 times higher traffic on 2014.

TeliaSonera has 17.5M mobile subscribers of which 6.2M are pre-paid. Biggest countries are Sweden (33%) and Finland (18%), other countries are Norway, Denmark, Lithuania, Latvia, Estonia and Spain (here). In addition, they have 24M mobile subscribers in the "EuroAsia" region (almost all pre-paid).

It seems that TeliaSonera goal (see quotes below) is to be a "single point of billing" that will charge for a combination of content, volume and QoS. They address real-time applications, such as video and music, where QoS counts while stating that the content itself will be offered by Over-the-Top (OTT) providers and believe that customers will pay the extra value (see an alternative suggestion from Amazon - here).

Håkan Dahlström, President, Mobility Services, said:

"The technology and the new technology will continue to deliver that cost benefit and the possibility to increase the traffic in the network twice every year. We see no reason that we shouldn’t be able to keep the cost-to-sales relationship and the CapEx-to-sales relationship under the coming year due to this. But the most positive thing with this is that our customers, they have the willingness to pay for this. They are really so positive when it comes to the experience of mobile broadband and mobile data. It’s very much about the speed and the usage, and they see enormous amount of services that they would like to use. Very few of them will be developed by us. It would be a partner that we’ll find it on the Internet. But on the other hand, it is up to us to make sure that the quality and experience is there. Due to that, this mobile data explosion has to be well managed, and I think that we are in a good way to do that."

Lars Nyberg, President and CEO said:

".. If you imagine that you are the customers and your demand for bandwidth is basically unlimited and we have a technology that can double the bandwidth every 18 months, it’s very important for the operators that we have a tool so we can regulate how much traffic you are going to put on an effort, because the moment you put on more traffic, then the network at that point in time can handle. That’s when you get the disaster they had in Manhattan AT&T when you couldn’t make voice calls anymore. And that tool to control how much traffic is going to be allowed on the network in this quarter, for instance, that tool is called price. And it’s very logical, in my opinion, that if you use more capacity, higher speeds, you pay more than somebody who use less. That’s by long-term for this industry, flat fee doesn’t work. It’s also interesting, it’s not fairly actually because if you look at our customer base, it’s something like 5% to 7% of our customers are the real heavy users. They generate a big chunk of the traffic. And if we have flat fee revenues of 95% are actually subsidizing the 5%. So fundamentally, I’m convinced that the industry will have to have a pricing model where you actually pay for how much you use."