Dynamic Pricing Manages Mobile Traffic and Margin

Neil Lilley, Director of Marketing, Service Assurance Solutions, Telcordia

Mobile operators around the world face traffic congestion issues in their networks.  However, these areas of peak usage are typically concentrated in a limited number of cell sites and at certain hours of the day (or days of the week).  Whether it’s commercial districts during business hours, commuting corridors during rush hour, or sporting venues at game time, these congested cells lead to performance issues, customer complaints, and lost revenue.

Service providers may waste assurance resources trying to diagnose and prevent problems that are fundamentally related to capacity, not troubles.  Worse yet, they may be tempted to solve the problem by continuing to invest significant capital in a few cells.  These capital costs can be quite large, but if the cell is only congested for a limited number of hours per week, then the investment may not be productive.

Capitalize on capacity

And yet, excess unused capacity lies all around the network.  A congested cluster of cells may be adjacent to some much more lightly used cells.  Cells that experience peak usage during rush hour may be lightly used at midday or late evening.  If only customers would cooperate and shift some of their usage to times and places with excess capacity.  Naturally, this can be accomplished by providing incentives in the form of discounts for usage that takes advantage of excess capacity.

Some people will pay full price to be in the front row of the theatre or to be seated at mid-field at the stadium, while others will gladly give up convenience or prime location if it means paying a lower price.  Likewise, some customers will not think twice about continuing to pay full price to use their mobile phones whenever and wherever they wish, but other customers would be pleased to shift their usage for a discount.

Both types of customers win.  Flexible customers receive a discount on their usage, and demanding customers will enjoy a better service experience as some traffic leaves congested cells.  And service providers also win as support costs decline and churn is reduced.

Manage the margin

The key here is to understand usage.  Both historical and near-real-time data is required to understand where usage is heavy or light, and to project how long that condition can be expected to persist.  By appropriately setting discounts, service providers can achieve the desired shift in traffic.

However, a feedback loop is desirable so that the actual effect of the discounts can be matched to the predicted effect.  By analyzing actual call data records or similar transaction records, service providers can determine if the discounts are driving changed usage behavior, and it that shift is having an overall positive effect on revenue and margin.  Adjustments to future discounts can then be made to drive more or less traffic out of congested cells.

Where to win

Dynamic pricing can be very effective under the right conditions, but it is not for every market.  In particular, markets that are dominated by fixed-price “all-you-can-eat” plans offer little or no potential for dynamic pricing (although as these markets become congested with data usage, it may be possible to use dynamic pricing techniques to shift some data usage to off peak times and places).

On the other hand, many developing markets are characterized by usage-based pricing.  Despite relatively low rates, many customers in these markets are ultra-price sensitive and would respond well to discounts.  In fact, in some emerging markets, some potential customers are still priced out of the mobile market.  By offering discounts, service providers can turn non-customers into customers, increasing overall usage and revenue.

In general, high volume, low margins markets that are experiencing many congested cells or a bandwidth squeeze can benefit from dynamic pricing.

Excellence in execution

Shifting traffic by offering discounts may seem intuitively obvious.  However, like many technology initiatives, success depends on having a reliable and streamlined way to implement the concept.  Identifying usage patterns, calculating intelligent discounts, communicating them to customers in real time, and appropriately rating the resulting usage could become a complex IT problem.  Fortunately, best-in-class service management platforms and sophisticated service delivery systems can combined to deliver most or all of this functionality.

Leading service management systems have the near-real-time surveillance capabilities to understand usage levels;  if they also maintain appropriate historical data, it is then possible to forecast future usage by cell and hour, thus enabling the calculation of productive discounts.

Integration with the cell broadcast center providers for real-time communication with customers.  And integration with a service delivery platform ensures that the offered discounts are applied to the customers account (whether pre-paid or post-paid).

Realize a win-win

By offering tailored discounts to price-sensitive customers, service providers can effectively add capacity to their networks, without actually adding any capital.  Everyone wins since the customer experience is improved, support costs reduced, usage increased, and new customers brought on board.

If you would like to learn more about our new Dynamic Pricing solution or would like to see it live at Management World Nice please contact Neil Lilley, Marketing Director, Service Assurance Solutions, Telcordia, at nlilley@telcordia.com.