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Is 3 flat rate? Up to a point
February 27, 2003
This article is written by John Delaney, Principal Analyst at OVUM.
Back in November last year, I wrote an Ovum Comments piece entitled
Flat rate now, flat broke later. It was a reaction to the initial,
sketchy announcements on service pricing from 3, for the services
that it will soon be launching in Italy and the UK. I expressed
concern that 3 seemed to be moving in the direction of flat-rate
service pricing, and was in danger of migrating the internet pricing
model – where people pay for access to the environment, but don’t
pay to use services – onto the mobile network.
We’ve had more detail on service pricing from 3. It turns out that
they’re going to be cleverer than the first indications suggested.
In particular, 3 UK has come up with a well thought-out set of pricing
packages, which provide a range of options, while steering well
clear of all-you-can-eat hell.
There are three pricing options
- 3 To Go: no subscription fee, all services charged by usage (though
some are free until the end of June).
- Kit on 3: £59.99 per month subscription (12-month minimum), which
pays for a bundle of voice minutes, video minutes, text messages,
multimedia messages and content/application downloads. Usage charges
apply for any excess (eg voice calls from 15p a minute, video calls
from 50p a minute).
- Caboodle on 3: £99.99 per month subscription (12-month minimum),
which pays for a bundle twice as big as the ‘Kit’ package. The same
usage charges apply for any excess.
In each case, prices of phones start at £399, with a 50 percent
discount for the first 20,000 ‘Kit’ and ‘Caboodle’ subscribers.
The latter two packages are flat rate – but only up to a point.
If you use the services beyond that point, you start paying to do
so. Not only that, but the thresholds apply to individual services:
so if you exceed your video call quota, for instance, you start
paying to make more video calls – but you don’t pay for using other
services. We’re not talking about internet-style flat rate here.
This is closer to the event-based, predictable charging that research
consistently shows users prefer for mobile multimedia services.
It feels like a good compromise between what the users will like,
and what the operator can bear.
So far I’ve talked about pricing structure, but not about pricing
level. For 3, this is the big gamble. Can they pitch the price high
enough for a viable long-term business, but low enough for the services
to take off in the mass market? Frankly, we don’t know yet. But
it isn’t cheap: someone has to want something pretty badly, to part
with £400 up front and £60 per month for at least a year, in order
to get it. The precedent of ADSL broadband shows how sensitive monthly
service fees are in the UK: at £50, it was too expensive for most;
at £30, people are starting to pile in.
3 is blazing a trail this year, as the first operator in Europe
to launch a full UMTS service. The only operator in the UK and Italy
without a 2G licence, it lives or dies by the success or failure
of 3G in those countries. As 3 approaches its launch date, the question
everyone is asking about them is: “can they survive?” The most important
thing that will determine the answer is whether Hutchison Whampoa
will continue to pour money into 3 while it’s building its subscriber
base. But at the next level down, other factors come into play,
and one of the most important of these is whether 3 can get its
pricing right.
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3G Motorola A920
