All-You-Can-Eat Billing is  Less Filling

Posted: 08/2002

All-You-Can-Eat Billing is 
Less Filling

By Julian Thomas

THESE
DAYS SERVICE PRICING is limited to what most service providers know and
understand: flat-rate pricing. It makes it easy on the process side. Sign up a
customer, then bill monthly, regardless of activity level. It makes for what
could be a long-running revenue stream. However, it neglects a potentially
larger market. This potential market is made up of customers unwilling to pay
for a bundle or an all-you-can-eat type service but willing to pay for a service
when and while it is used.

In short, clinging to a flat-rate
model leaves service providers with limited abilities to differentiate offerings
to better target multiple market segments and reap commensurately larger
revenue.

Yes, some services are regulated.
Yes, some services beg for flat-rate pricing. Yes, flat-rate models are
supposedly easier for customers to understand. But, we need to build onto the
basics to ensure long-term success. Flat-rate simple service offerings either
start out as commodity services or quickly become them. How does one compete in
a commodity world? Price, price, price. What does that do? Reduces revenue and
margin. This is not a happy equation.

In contrast, value-based pricing
allows for customized service offerings that will appeal to a larger overall
addressable market.

Today’s e-mail-oriented world
expects instant gratification. Offering on-demand services allows customers to
drive the network, satisfying their expectations, while also providing a sense
of value. "I am only paying for what I use."

This concept may not seem to be
different from traditional voice services. Per-minute, time-of-day and by-region
charges long have been the norm. However, today voice providers are focusing
increasingly on flat-rate service bundles. AT&T Corp., for example, recently
introduced a new program giving residential customers unlimited domestic calling
to other AT&T customers for $19.95 per month. In addition, most broadband
data providers are offering basic Internet connectivity for a monthly fee; some
even offer best-effort DSL services for $50 per month.

The same can be said for enhanced
services. In the broadband world, a step up in bandwidth or provisioning
synchronous connectivity most often is a flat-rate, all-you-can-eat service. In
the voice arena, most enhanced services, such as call waiting and voice mail,
are offered as flat-rate, unlimited usage services.

Today’s wireless carriers are
champions of flat-rate bundles with offers for "400 minutes with free long
distance for $39.95 per month" and "text messaging service $2.99 for
100 messages per month." These have proven effective in selling to the
consumer segment. Enhanced wireless services still follow the traditional usage
model, but unfortunately this approach is changing.

This need not persist. Many
customers who wouldn’t necessarily subscribe to a higher level of service might
choose it if they had the option of selecting a temporary upgrade. Some examples
of this include upgrading bandwidth services or upgrading performance tied to a
pay-per-view event. The event could be entertainment or business-related. One
international carrier, for instance, provides basic connectivity and its
customers have the option of selecting an ISP, which then provides access to the
Internet, and potentially e-mail on a per-use basis. Under this scenario, a
customer could use one ISP for an hour then switch to another for the rest of
the day. This is an unconventional approach, but it illustrates the flexibility
and potential for service offerings using value-based pricing approach.

Similarly, small businesses owners
who might not consider paying for a full-time Centrex-type set of services could
be interested in temporary usage of a Centrex-type service if they could turn it
on when they needed it, turn it off when they didn’t and only see the charges
for their usage.

Moreover, in Europe, prepaid mobile
service has experienced a dramatic rise in share compared to subscription-based
services proving customers enjoy having the freedom to use and pay for only what
they want.

Advanced pricing models are key to
flexibility in service. Why is its practice not more widespread? Granted, there
are some limitations in existing infrastructure. Hardware needs to be able to
collect and track the calls, data and service delivery. The back-office system
software, especially the billing portion, must be able to work with all of that
data so the services can be billed and generate revenue.

Hurdles presented by infrastructure
can be overcome. That is the easy part. Overcoming fear of the unknown, that is
the hard part.

What about revenue cannibalization?
What about take rates? Are my projections correct? Is the business case valid?
Will this decision cost me my job? Is the investment estimate close or is it
underestimated? These are all provider marketing and management concerns.

When at last the service is
approved, deployed, tested, tweaked and ready for rollout, more questions
present themselves. What about distribution? How do we work with the channel?
How will the channel take it? How do we compensate them? Selling the service and
concept to the channel is no different than selling to management. And there is
no reason why compensation should be any more difficult in a value-priced model
than a flat-rate one. Tracking usage for recurring channel compensation models
is no different than customer billing tracking activities. In fact, the channel
may find these additional service offerings more attractive from a
customer-interest perspective and from a self-interest perspective.

Risk-taking is not trendy. However,
for risk-takers, there is potential for a huge payoff. Being first to market can
mean significant advantage in share and profit. Be the first, take the risk and
watch the others follow!

Julian Thomas is director of
product management for net.com, a global provider of service creation platforms.