Mobile video has become a key part of entertainment, social networking, browsing and advertising. There is fierce competition between service providers to attract consumers to their on-demand and live video services. YouTube has become the app that most smartphone users choose for watching short-form content and Netflix is succeeding at driving the consumption of long-form (20 minutes or more) content on mobile devices. In addition, social networks such as Facebook, Instagram and Twitter continue to increase their focus on mobile video content and consumption.
Clearly, mobile video represents a big opportunity for mobile network operators (MNOs) to increase service revenue and improve customer retention. However, many smartphone users are hesitant to watch videos on cellular networks because of concerns about price – mobile video services have been prohibitively expensive compared to video viewing on TVs or on fixed broadband – and about the risk of using up or exceeding data allowances. As such, most video consumption on mobile devices occurs on Wi-Fi; Analysys Mason research shows that more than 60% of consumers used Wi-Fi near-exclusively or mostly for watching mobile video (see Figure 1) and that their data usage is significantly higher than those who rely on cellular connections. As a result, MNOs can monetise only a small portion of the mobile video traffic.
Figure 1: Active video users by type of consumption [n = 7451]1
Service-specific and unlimited data tariffs are key to stimulating consumption over cellular networks and creating new revenue sources
MNOs worldwide are increasingly adopting new mobile video pricing models to make mobile video delivery more affordable to end users to counter their reluctance to use mobile video services over cellular networks. Common examples include the following.
- Service-specific pricing (for example, zero-rating). MNOs can offer discriminatory pricing within data packages or as add-ons/passes for the consumption of mobile video services. These plans offer unmetered access to one or more specific apps/services (for example, Netflix or YouTube), or potentially to categories of service (in this case, any video service), typically with a restriction on video quality (for example, SD video/480p).
- Unlimited mobile data plans. MNOs can reduce the constraints placed on consumers' video and other multimedia content usage by offering 'unlimited' mobile data plans with or without fair-usage policies or quality restrictions on video streaming.
T-Mobile US pioneered the zero-rating model with its Binge On service and other MNOs in the USA began zero-rating their own video services in response. Several operators in Europe have launched similar zero-rating services such as 3UK's Go Binge. An alternative approach to service-specific pricing is offering zero-rated OTT content packs/add-ons such as those offered by Vodafone for video, as well as music and social media apps. Zero-rating offers are helping these MNOs to upsell on data plans; attract new subscribers and increase customer engagement without affecting their bottom lines, as discussed in the next section.
Unlimited data plans are coming back in the 4G era in different forms to meet the high demand for video consumption. AT&T, T-Mobile and Verizon in the USA launched unlimited plans, which offer managed video traffic and tiered video quality (SD-480p, HD-720p) at different price points. Operators in Finland and Switzerland follow a different approach and base their tiers on data speed and quality of experience (QoE).
We expect that both service-specific and unlimited data plans will increasingly replace traditional volume-based pricing (capped data allowances) as consumers associate the value to mobile services/apps, especially for video consumption. These pricing models will also be part of MNOs shifting from being simple connectivity providers to being more relevant, content providers/aggregators by incorporating either their own or third-party partner content into their plans. For example, AT&T is following this strategy by bundling its DirecTV service as well as HBO streaming service in its unlimited plans. However, MNOs should be careful when designing their plans because differential pricing may be subject to regulatory scrutiny due to net neutrality issues. For example, regulators in the European Union have taken a tough stance on app-specific pricing, but operators still have significant flexibility as long as they comply with the guidelines (for example zero-rating stops when a user's mobile data allowance is consumed) and make the service available to all content providers to join. Recent changes in net neutrality regulations in the USA enabled MNOs to embrace service-specific pricing with fewer limitations.
Managing mobile video traffic and quality is of central importance when introducing new mobile video pricing models
With unlimited and service-specific plans, network performance and quality of experience become key differentiators for MNOs. Analysys Mason's research shows that zero-rating and unlimited data plans can significantly increase the average video engagement time on smartphones and cellular networks (see Figure 2). This growth in engagement may translate into dramatic increases in network traffic when these services are made available to the mass market, which can result in increased network capex/opex or quality degradations if video traffic is not managed properly.
Figure 2: Potential impact of mobile video pricing models on engagement and traffic2
However, with the use of the right traffic management and optimisation techniques to manage video quality, mobile network traffic growth can be limited by up to 300MB per user per month in zero-rated plans and 1.3GB in unlimited data plans, instead of 4.1 GB and 7.6 GB respectively. This can help MNOs to contain network costs and ensure the viability of these pricing models, while delivering a differentiated QoE. As such, it will be crucial for MNOs to have scalable, future-proof mobile video optimisation platforms that can help them to optimise mobile video traffic (especially encrypted OTT traffic) while maintaining QoE and facilitate building video/content partnership ecosystems for attractive mobile data plans.
1 ‘Near-exclusively Wi-Fi’ refers to panellists who generate at least 90% of their video app traffic over Wi-Fi. ‘Mostly Wi-Fi’ refers to panellists who generate over 50% of video app traffic over Wi-Fi. ‘Near-exclusively cellular’ and ‘Mostly cellular’ refer to the same levels of cellular traffic. 7451 active mobile video users across Germany, India, the United Kingdom and the USA. For more details, see Analysys Mason’s Consumer smartphone analytics: mobile video.
2 This analysis is based on Analysys Mason’s smartphone analytics research and uses existing UK market consumer behaviour as the base case. The assumptions used in this analysis are aggressive in order to establish the upper limits of any potential impact. For more details, see Analysys Mason’s Go-to-market strategies for mobile video: pricing, technology and regulation.