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Reader Forum: The data optimization paradox

By selectively optimizing data, mobile network operators can increase revenue. Although it seems like a paradox, the conventional wisdom that subscribers will pay for extra bytes beyond their data plan has proven generally false.

As subscribers become accustomed to doing more online activities with smartphones, it is assumed that they will purchase larger data plans and/or will be more likely to go over their caps and pay overage charges. That’s more revenue for carriers eager to shore up falling average revenue per user caused by increased use of over-the-top services.

However, this has proven to not be the case. There is a paradox here that some MNOs are just now beginning to recognize and take advantage of: By selectively optimizing data, they actually increase revenue.

How is this possible? Optimization of all data might be beneficial to the network management team, which is always trying to catch up with the exponential increase in data demand, but the business people don’t like it one bit – all they see is lost revenue.

Focus on video
Mobile video is difficult to consistently deliver with a high-quality user experience, with no stuttering and re-buffering. It gobbles bandwidth and is sensitive to network capacity, congestion and latency.

When subscribers have a poor experience watching mobile video, they don’t blame the video site or the handset maker, they blame the MNO. Right or wrong, subscribers believe that stuttering video is the fault of “bad” networks. That means the ability of MNOs to deliver smooth, dependable streaming video has now become a critical factor in customer experience and retention.

On small smartphone screens, most subscribers can’t tell the difference between a video streamed at 1080p and one at 720p (watch this demo for an illustration). Yet video players, like YouTube, request high-definition 1080p versions of videos if the current network conditions appear to support it when the video begins. As soon as network congestion sets in, or if the subscriber moves to a location with a weaker signal, the video will be forced to select a lower bitrate, disrupting the subscriber’s viewing experience. The user has to wait for the new version of the video to be buffered.

Video is now the majority of mobile traffic in many developed countries (Cisco) and it is challenging the capacity of mobile networks. This trend is still accelerating, so carriers in less-developed markets, where data consumption is only now beginning to become common, should expect to see the same trend toward video, eventually.

Insatiable appetites
MNOs must recognize two important facts. First, subscribers who enjoy smoother video streaming will remain loyal. Second, most subscribers manage their data usage to fit their plans to avoid overage charges – in fact, only 14% of subscribers paid overage charges in 2013 (Statista).

This second fact cuts both ways. Users want to get the most out of their data plans. They will usually use it all up but try not to exceed it, and they will do so no matter how much or how little data is needed to stream a video. If the data required to deliver videos to subscribers is halved, subscribers will stream twice as many videos. What they won’t do is leave the rest of their data plan unused. They will watch more videos.

MNOs should not fear video optimization. Instead, they should embrace it. Especially products that can be finely controlled and targeted, and work with todays’ HTTPS-delivered (encrypted) video (and, if necessary, can be controlled by users themselves where net neutrality rules prohibit video throttling). Optimization provides the user a video with resolution that is essentially indistinguishable from higher resolutions, which will stream much more smoothly and reliably, increasing quality of experience. This leads to higher retention and revenue and lower customer reacquisition costs.

This applies to nonvideo data such as news, social media, general browsing, etc. Faster page loads increase subscriber happiness and loyalty. Subscribers will use as much data as their plans allow.

It also applies to prepaid subscribers as well as postpaid. In fact, allowing subscribers to consume more data for the same price can be a weapon against competing carriers in markets that are dominated by prepaid data plans. Prepaid subs will be incented to reload the SIM card from the carrier that lets them consume more of the Internet for the same amount of money.

Another effect that video optimization has in emerging markets, according to a large Asian MNO that Mobolize is working with, is that it tends to drive greater consumption of not just data (Internet), but voice and text messaging, too. By allowing consumers to stay online longer, regardless of less video consumption per second, the user is holding her smartphone in her hand longer, and so tends to spend more money on calling and texts, as well as more on data.

Conclusion
Carriers should stop assuming that targeted video optimization results in lost revenue. Users will keep consuming data until they hit their monthly caps, and will tend to avoid overages, no matter what. Optimized video is perceived as not only equal in visual quality, but it streams more smoothly and generates fewer complaints about poor network service.

In emerging markets where Internet data consumption is just beginning, and tends to be expensive relative to incomes, optimization can actually increase revenue per subscriber by getting them to become more dependent on the Internet, so over time they will buy bigger data plans, and use more voice and text messaging as well.

A better video experience leads to lower churn, larger subscriber bases and lower marketing costs associated with subscriber acquisition. It also means increased revenue for mobile carriers.

Editor’s Note: In an attempt to broaden our interaction with our readers we have created this Reader Forum for those with something meaningful to say to the wireless industry. We want to keep this as open as possible, but we maintain some editorial control to keep it free of commercials or attacks. Please send along submissions for this section to our editors at: dmeyer@rcrwireless.com.

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