Future predictions for the telecom space around pricing models and technology

Working here at Dell OEM Solutions provides me with the opportunity to participate in many different industry verticals, from industrial manufacturing to life science and everything in between. I like touching all these verticals but one that holds a special interest for me is telecom as I spent the early part of my career working for a local exchange carrier. I find it especially interesting that although telecom technology keeps advancing, the legal and regulatory matters just seem to keep repeating themselves. Almost from its inception, AT&T has been battling the courts and regulators. From early patent infringements to its breakup in the 1980s to its latest fight to merge with T-Mobile, AT&T has surely kept a fair share of lawmakers and lawyers busy.

As I read about this case, however, it makes me think that the US government is looking purely at the short term implications of this merger and not what would be best long term. Short term, sure we all want to keep our wireless bills as cheap as possible but long term the techie in me would like to see US based carriers build out their 4G/LTE networks much faster. In order for this to occur, someone is going to have to foot the bill. Today we consumers enjoy good, flat rate pricing for both our voice and data use for wireless and wired services. Not to be the bearer of bad news, but I believe if we are to stay competitive in the global telecom space, the days of flat rate pricing will be going the way of analog phones. Service providers have been hinting for years that they want to move to metered data service, i.e. “pay for what you eat”.

The flat rate model is a great pricing model for new, emerging businesses. It draws in customers with a risk free plan. However, long term it is not a good business model for a very capital intense businesses like telecom. Let’s look at another service provider that recently made some pretty drastic changes to their business model, Netflix. While the brick and mortar video rental shops were charging per movie Netflix opened a new market using the web and mail. The flat rate pricing they offered attracted many users and although they had their struggles they in my opinion dominated the video rental battle.

What Netflix realized is that the flat rate model is great for building a market and winning new customers however it’s not a good long term business model when profitability and customer loyalty are taken into account. Much to the chagrin of their customers Netflix changed their pricing model in order to offer the content they will need to stay competitive against cable and other web based streaming services.

So back to this AT&T merger. I don’t believe that 4G/LTE is a case of a ‘technology looking for a market’. The market has been validated and it goes beyond just having internet access on a phone. Consumers want to stream movies, watch sporting events, play interactive games and video chat wherever they are. We see it here at Dell and are working to provide the mobile devices that will enable consumers to do all of these things, from 4G enabled laptops to tablets and smartphones. If the US is to remain as one of the technical leaders in the world, especially in the mobile area, we are going to have to figure out a way to pay for the build out of the 4G/LTE network.

I expect to see several changes in the telco space including more corporate partnerings, (i.e.“mergers”) and changes to the pricing models. If these things don’t occur then the 3GPP’s name for the next gen network, LTE –Long Term Evolution, will be a self-fulfilling prophecy.

What do you think about the potential impact? I welcome your input on the comment section below.

About the Author: Steve Gutierrez