Many factors in the industry are now affecting policy and charging together. Operators are experiencing increasing pressure over their business models as they face decreasing revenues exacerbated by rising costs.
As a result, operators are increasingly turning to untested business models to generate new revenue. This creates two key challenges for them: how they manage the consumption of network resources – which is managed by policy - and how they charge for this consumption. Policy and charging as an integrated concept is increasingly important to network operators in the face of the threat from OTT providers.
It’s difficult to generalise developing markets in terms of policy control; while geographies obviously vary, so too do the needs among equivalent demographics. Emerging markets usually have a growing middle/upper class; a burgeoning gap between those that can afford luxury handsets and those that can’t. These groups have different needs and different ARPU.
Some years ago it was easier to generalise ‘developed’ markets around policy and charging. Operators were looking at ways to define thresholds for consumption and take action once it was reached, whether by charging more or otherwise. This in turn led to tiered usage, with the different tiers corresponding to the thresholds.
However, operators increasingly cannot generalise, and need to offer a wider variety of services. For example, some are now offering subscriptions to social networking services, with users able to gain unlimited access to Facebook or other sites for a nominal fee each month. There are similar offers with roaming – customers can purchase service passes, giving them extra roaming data.
These initiatives have proven very popular, demonstrating to operators that customers respond strongly to the ability to control their expenditure. However, as Chris Hoover of Openet concedes, offering customers a wide range of services still does not give operators a clear picture of what customers will respond to. Business models which work in certain areas will not work in others.
“It’s become hard to predict what’s going to matter”, he says. “This goes back to flexibility, and it applies doubly to developing markets – because they’re so heterogeneous, they have a much wider variety of potential for VAS than developed markets. There’s so much of an infrastructure deficit that you can offer e-banking, SMS-based market updates & notifications etc that wouldn’t have as much resonance in developed markets.”
There is certainly a richer variety of opportunity for operators in developing markets, but it is difficult to ascertain which services will be the most successful. In developed markets, most operators are now assuming that their subscribers either are or very soon will be smartphone users.
In emerging markets, for the medium term feature phones are probably going to be the key devices, based on cost structures. This can make it a more challenging technical canvas on which to offer services. With firms offering features as varied as roaming passes and social networking vouchers, it’s important to consider how users can access these services, and how they can be monitored.
This is relatively straightforward on a smartphone but becomes more complex on feature phones. Operators are reluctant to experiment too much in terms of technology solutions so solutions require inventive use of SMS. There is also the issue of ARPU in emerging markets, and whether layering additional VAS for a fee will have any market traction – there are issues of both affordability and relevance of service.
The demographics are therefore very fragmented; this means that churn is a major cause for concern for many operators. In many emerging markets subscribers will own more than one SIM, and swap them out as appropriate to get the best rates – this has prompted operators to create rich loyalty offerings, allowing customers to accrue loyalty points that can be spent at retail outlets. It’s therefore important for emerging market operators to have a flexible platform that allows them to define policies, and make offerings available quickly depending on changing market conditions.
Retaining customers involves understanding their habits, but it’s only recently that operators have had access to more in-depth information on how customers use their phones. Loyalty Management solutions allow operators to use customer information in appropriate ways to improve their end-user experience, according to Intersec’s CCO Gary Buchwald.
“If you segment the whole subscriber base into smart micro-segments, then rather than having to launch a mass campaign operators are able to focus only on a specific demographic – young people, higher-end customers, etc”, he says. “They can then identify in real time how their customers recharge their devices, allowing them to develop numerous marketing strategies to give their customers what they want.”
Real-time customer management offers a massive advantage over traditional CRM players, as they aren’t reliant on frozen information that is typically never less than a month old. Instead, operators are able to view what happened one day or even one hour ago on their network and react accordingly.
Policy provides control and flexibility to an operator’s offering. Rather than providing generic access based on authentication, it allows more nuanced access based on the time of the request, the device used, quality of service etc. Policy and charging together provide a granular, deep flexibility which allows operators to experiment. The trend is only really now gathering traction, with operators weighing up what it means to provide something other than basic access.
Most policy providers addressing emerging markets are focussed on providing specific types of policy at a very low cost; they’ve sold hard-coded packaged policies which operators buy at a very low price as their ARPU margins are so low to begin with. Operators have typically purchased end-to-end solutions with policy solutions thrown in as an afterthought; their functionality is typically limited.
While emerging markets typically have a heterogeneous audience and strong competition, limited infrastructure can create problems. This means that operators need to define the logic that controls services in a way that addresses multiple types of devices, while remaining flexible in case the business model needs revising. This assumes a certain type of infrastructure that may not be present.
Operators initially thought that defining usage thresholds would help manage network congestion. However, experience has demonstrated that this has no real effect. The issue is less to do with a small amount of people using the vast majority of the bandwidth, but rather a vast amount of people who are simultaneously accessing the network – even though individually they use a negligible amount of bandwidth. Aggregate demand is far more important than individual demand.
Many operators feel that LTE is going to be a panacea for congestion. However, this opinion certainly has detractors, with many observers believing that customers will find ways to use whatever bandwidth is made available to them.
Moreover, given the high cost of handsets, the number of smartphone subscribers in emerging markets is likely to continue to be small as compared to feature phones. This will mean that the use of policy control to address bandwidth limitations will continue to be lower than in developed countries for some time to come.