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Empirical Evaluation of Fair Use Flat Rate Strategies for Mobile Internet

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Abstract

The fair use flat rate is a promising tariff concept for the mobile telecommunication industry. Similar to classical flat rates it allows unlimited usage at a fixed monthly fee. Contrary to classical flat rates it limits the access speed once a certain usage threshold is exceeded. Due to the current global roll-out of the LTE (Long Term Evolution) technology and the related economic changes for telecommunication providers, the application of fair use flat rates needs a reassessment. We therefore propose a simulation model to evaluate different pricing strategies and their contribution margin impact. The key input element of the model is provided by so-called discrete choice experiments that allow the estimation of customer preferences.

Based on this customer information and the simulation results, the article provides the following recommendations. Classical flat rates do not allow profitable provisioning of mobile Internet access. Instead, operators should apply fair use flat rates with a lower usage threshold of 1 or 3 GB which leads to an improved contribution margin. Bandwidth and speed are secondary and do merely impact customer preferences. The main motivation for new mobile technologies such as LTE should therefore be to improve the cost structure of an operator rather than using it to skim an assumed higher willingness to pay of mobile subscribers.

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Notes

  1. See also http://www.3gpp.org/-Industry-White-Papers.

  2. In the model we abstract from data traffic which is caused by the use of a reduced speed (64 kbps).

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Acknowledgements

The authors thank Andreas Albers and Mike Radmacher for their helpful comments during the preparation of the manuscript. We also thank the three anonymous reviewers and the editor Udo Bub for the extremely constructive teamwork and suggestions. The data collection through a panel operator was financially supported by Detecon. Furthermore, parts of the work were produced during Christian Schlereth’s research stay at the Centre for the Study of Choice (CenSoc) at the University of Technology in Sydney (UTS). The authors thank Jordan Louviere for comments on methodology and the German research foundation for financial support for the stay in the form of a research grant (GZ: SCHL 1942/1-1).

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Authors and Affiliations

  1. Detecon Inc. (USA), 128 Spear Street, San Francisco, CA, 94105, USA

    Marcel Fritz

  2. Assistant Professor for Marketing and Electronic Services Faculty of Economics and Business Administration, Goethe University Frankfurt, Grueneburgplatz 1, 60323, Frankfurt, Germany

    Christian Schlereth

  3. T-Mobile Stiftungsprofessur für Mobile Business & Multilateral Security Faculty of Economics and Business Administration, Goethe University Frankfurt, Grueneburgplatz 1, 60323, Frankfurt, Germany

    Stefan Figge

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  1. Marcel Fritz
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  2. Christian Schlereth
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  3. Stefan Figge
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Correspondence to Christian Schlereth.

Additional information

Accepted after two revisions by Dr. Bub.

This article is also available in German in print and via http://www.wirtschaftsinformatik.de: Fritz M, Schlereth C, Figge S (2011) Empirische Evaluation von Fair-Use-Flatrate-Strategien für das mobile Internet. WIRTSCHAFTSINFORMATIK. doi: 10.1007/s11576-011-0284-0.

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Fritz, M., Schlereth, C. & Figge, S. Empirical Evaluation of Fair Use Flat Rate Strategies for Mobile Internet. Bus Inf Syst Eng 3, 269–277 (2011). https://doi.org/10.1007/s12599-011-0172-6

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