Cellcos are selling 5G like it’s faster 4G – well, almost …

5G 4G
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Now that 5G is an actual commercial mobile broadband service, one big question is: what’s the business model? Put another way, how are mobile operators packaging and selling it to consumers?

The answer so far appears to be: more or less the same way as 4G, which is fine as long as they’re selling it as a premium and not confusing everyone.

Ovum’s 5G consumer pricing tracker for Q3 2019 reports that 5G operators are mostly sticking to the same basic pricing strategy as 4G – which is to say, tiered plans based on data caps and speed levels. The obvious difference is that the speeds and data caps are much higher, but essentially it’s the same model.

That’s not too surprising, as the chief 5G value proposition in its current form is a fatter pipe for existing 4G users. Consequently, it’s reasonably easy to shoehorn 5G offerings into a 4G pricing template.

That said, according to a research note this week from Nicole McCormick, practice leader of Ovum’s Broadband and Multiplay team, around half a dozen 5G pricing models are emerging as operators try out multiple variations on the 4G package theme – unlimited data plans vs data caps, SIM-only plans vs handset bundles, etc.

Some operators are trying one or the other or both. Some offer 5G to all customers, others market 5G to specific customer demographics, but most target consumers already on their highest 4G tier. Some cellcos don’t even bother to create separate 5G plans at all, opting instead to bolt 5G options onto existing 4G tiers.

It’s natural for 5G operators to experiment this early in the game to see what consumers are willing to pay for and what plans work, but McCormick notes that the “two golden rules of pricing” are still very much in play: keep it simple, and factor in the upsell.

Lack of simplicity was (and in some cases remains) a problem for 4G service packages, and some 5G operators are falling into the same trap, McCormick writes:

For instance, one operator has 5G-branded plans in the market (they are onto their second reiteration of these), but the fine print says enjoy free 5G until mid-2020. What happens after that? Having different pricing/plans for different devices is just confusing and speeds need explaining too. Does the average consumer know what the difference is between a 2Mbps and 10Mbps mobile plan? I doubt it.

McCormick notes that the real innovation is coming from 5G operators who are differentiating on services rather than data levels – which is a good thing because that’s a more effective upsell lever than simply touting faster broadband speeds. Service differentiation is admittedly rare because ballyhooed 5G-specific services like virtual reality and autonomous cars are still immature tech sectors in their own right – but that will change over time.

The need to upsell is also why simplicity is crucial, she adds – consumers need to have a clear and transparent understanding of what they’re getting from a 5G upgrade. That’s also why it’s a good idea to keep 5G as an offer clearly distinguishable from other plans.

McCormick does note one key difference between 4G and 5G pricing strategies. While operators initially priced new 4G services at close to the same price as 3G (under the logic that consumers wouldn’t be willing to pay a premium for a faster connection speed), for the most part they’re not making the same mistake with 5G, she says:

… We are glad to see moderate 5G premiums exist – after all 5G network investments have to be paid for somehow.

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