Monday, May 19, 2014

Mobile Internet Access Retail Price Might Need to Drop by an Order of Magnitude

Retail price points for consumer mobile, and especially mobile broadband services, face huge challenges in emerging markets.

Consider a “typical” third generation (3G) mobile service network with a cost ranging around one U.S. cent per megabyte.

Emerging market retail prices might range from about 1.5 cents to 2.5 cents per retail megabyte of consumption.

But competition could drive revenue to levels of about $0.002 to $0.004 per megabyte, in many emerging markets, for 3G service, according to analysts at McKinsey.

In other words, retail prices could drop by an order of magnitude in the relatively near term.

That implies potential mobile service provider cost of about $0.001 (a tenth of a cent), to support the anticipated retail prices.

An order of magnitude reduction in costs, in a service provider context, is very tough to achieve. While one might argue backhaul costs, or wide area transport costs, could reach such levels, it is vastly more difficult to reduce costs that much in the other operating portions of the business.

Nor is it easy to reduce capital investment to create the access network, by an order of magnitude. Long Term Evolution, many argue, will cut costs of the network by about 30 percent. Thta's helpful, but nowhere near an order of magnitude (10 times) cost reduction.

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