How Much Will LTE Allow Operators to Raise Prices?

Long Term Evolution (LTE) is going to provide a key test of whether most Tier 1 mobile service providers can change consumer expectations about pricing levels and packaging for high-speed mobile service, generally involving raising prices.

In fact, it might be argued that although LTE is an important potential platform for creation of brand new services and revenue, higher prices are the more logical near term ways LTE will boost revenue.

Many executives say the "new revenue" will come in large part from an end to "all you can eat" data plans that are instituted with 4G.

In that case, the "new revenue" does not come from "compelling new apps" but only from changes in charging policies. That is helpful for a mobile ISP, but perhaps not the same thing as arguing LTE will create brand new apps.

Clearly, mobile service providers, especially in Europe, have to hope LTE does allow them to raise prices. And the early evidence has tended to suggest that is a reasonable expectation.

Up to this point, 4G prices have been higher than 3G. But that could already be changing.

Comparing retail prices between the second quarter of 2012 and the fourth quarter of 2012, service providers in 73 percent of countries have reduced the “effective cost” of their 4G tariffs to a significant degree, according to ABI Research.

The effective cost in terms of dollars per gigabyte has dropped by 30 percent, overall.  In United States, service providers kept fees the same but offered larger data quotas.

In Australia, Sweden, Japan, Singapore and Saudi Arabia, operators lowered the monthly fee but data quotas have remained unchanged.

?India currently offers the lowest priced plan, ABI Research says. India’s lowest priced mobile data plans decreased 29.4 percent year-over-year in the fourth quarter of 2012.

The good news is that LTE will help mobile operators contain costs, by delivering more bandwidth at a lower cost per bit. As you might expect, though, retail price pressure already is showing itself in the 4G business, and that could dampen the amount of revenue enhancement many mobile operators can expect to see from LTE.