IoT pricing models – a nightmare in the making?

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I have been following, with great interest, a discussion on the TM Forum Community about IoT pricing models and, as you would expect, it has become complicated. 

It seems the telecoms industry has learnt little from the digital world it feels so threatened by. Here is a chance to get back to basics yet the conversation keeps reverting to complex pricing structures to cope with the complexity IoT will supposedly bring.

We, as an industry, managed to take a simple price per call model from the manual switchboard days to a ridiculously detailed one taking into account length of call, time of call, distance of call, etc. etc. Then we had to design and build ‘convergent’ billing systems that could manage all these s and a melee of new services brought on by mobile networks and data traffic.

With the connection of billions of IoT devices to networks in the coming years we have the opportunity to come up with really simple subscription-based pricing, e.g. flat price per month or year for a connected device dependent on the volume of data it generates.

Now, you would think that makes sense, but the conversation has quickly turned to the myriad of deviations that might occur and would make that model unworkable. For example, what if the devices are mobile and not static and cross over international boundaries and ‘roam’ onto other networks? What if they are application-centric or data-centric IoT devices? Should we have event-based charging where the devices connect periodically? What if the connected device acts as an aggregation point for other IoT devices, should it be priced accordingly? Should pricing be “outcome-based” linking the price of the service with the business value that it brings?

One suggestion was that pricing should take into account 5G consumption that would be a combination of access speed, latency and other non-functional abilities like availability, reliability, etc. Connected cars and homes would have different requirements and should be priced differently.

Cato Rasmussen, who has broad experience in the telecoms space, stated:

“Being stuck in terminologies like BSS/OSS, OCS etc. stand a good change of failing to move the needle”.

Jim Warner, ex-CEO of TM Forum chimed in with what I thought was a classic line:

“The first thing one must do is pretend you don’t work for a telecom company. Create your own ‘Reality Distortion Field’ and imagine what sort of model would entice customers to beat a path to your door. Then mold your business model, organizational structure, processes and systems around that.”

Judging from past efforts by telcos to provide anything more than connectivity I would have to suggest that a dead simple subscription pricing model for a connected device would be the safest option. It is highly likely that most value-added services will be offered by OTT players that will specialize in installing and managing devices remotely, aggregating services, offering security and emergency replacement services, etc. Sure, some telcos will delve into some or all of these areas but, from experience, it is the connectivity part that they do best and are expected to offer.

Maybe, just maybe, a dead simple approach to IoT pricing will be a good starting point. After all connectivity is still the key and he who holds the key could be in very strong position. On the other hand, if an IoT customer demands guaranteed coverage across multiple regions we may see the rise of IoT-centric MVNOs. Being able to aggregate connectivity and offer extra services on top (or should that be over-the-top?) could make them serious players. Perhaps telcos might look at establishing independent subsidiaries specifically for this purpose and, if they do, they would not want to inherit the bloated overheads of the parent.

Whichever way you look at it IoT pricing could be a nightmare in the making – not just for telcos, but for their customers as well.

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1 Comment

  1. Pricing models are much more simpler than business models. Pricing models for IoT connectivity needs to be purely simple. The first order of business for telcos is to connect everything and try to capture as much revenue for that connectivity. As long as that IoT connectivity is fairly predictable, low support and doesn’t chew up a lot of resources, it would be shameful to make it any more complicated. Something as simple as a connected door-bell or a dash button – or even ID Tags do not require complicated schemes.

    However, depending on the IoT business model and the value of the service it delivers, more sophisticated pricing could be used to capture the value. For example, how would you charge for a streaming video surveillance feed with or without cloud storage? a video feed with built-in AI behavioral recognition? A VR sensor feed from a remote location or industrial manufacturing site? What if you’re providing a secured private IoT network? What and how would users of that service be willing to pay?

    It sounds like, and more interestingly, that the community is more interested in discussing ‘the business models and choices” in making money with IoT, than what “price” to charge for it.

What do you think?

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