5G tariff bundles ride the OTT growth wave

May 5, 2022

Jonathan Kriegel


With broader commercial rollouts of 5G networks by mobile carriers worldwide, the experience of consuming content on smartphones is undergoing a sea change. Mobile carriers, however, have not been able to charge the kind of premiums they were hoping for to monetize the capital investments in 5G infrastructure and spectrum. According to Arthur D Little, mobile carriers worldwide are experimenting with pricing and structuring of 5G tariff plans[i]. While a few Mobile carriers have slashed their price-per-gigabyte (PPGB) compared to 4G, others are charging a premium. However, most have set 5G pricing at similar levels to 4G.



Some mobile carriers are beginning to offer higher data bundles to increase the average revenue per user (ARPU). In South Korea, 5G customers are already using three times more data per customer than 4G customers over the same period. For Mobile carriers already offering unlimited or large 4G data plans, introducing 5G exclusively on those plans will also enable upselling to customers on basic plans. To monetize optimally in the 5G era, carriers should structure their offerings based on tiers of network quality parameters, such as speed, latency, and reliability, as volume-based tiering becomes redundant.

McKinsey recommends a model called “speed tiering” and flexible and personalized 5G plans as another way for mobile carriers to increase ARPU[2]. For example, suppose a customer needs stronger connectivity to stream a video, play an interactive game, or make an important phone call. In that case, they can simply press a button, pay $1 to $2, and receive a temporary performance boost. This pay-per-use 5G will be especially valuable to customers when networks are congested, allowing telcos to reasonably monetize the temporarily scarce resource of premium connectivity. A forerunner of this approach is the option to purchase Wi-Fi on an airplane; customers can decide at the moment whether the additional charge is worth it. By creating differentiated tariff structures, multiple Hong Kong telcos, for example, have increased ARPU among the highest-paying customers by 20 to 30 percent—driving expected revenue growth of 5 percent in the next three years.


According to McKinsey, however, the best approach for telcos to monetize 5G networks may be the 5G-enabled experiences. Carriers can proactively partner with OTT and Gaming brands to offer the experiences their consumers seek.

Cloud Gaming and potential impact on ARPU

While a certain number of customers will be willing to pay telco providers for an enhanced gaming or other app experience, a much larger share may be more open to paying content providers directly for better, on-demand network performance, according to McKinsey’s survey[iii]. Bundling a 5G charge with fees levied by a partner such as the popular online game Fortnite, for example, could prove more efficient than charging for 5G separately. To create a seamless customer experience, carriers might consider embedding 5G connectivity directly into partners’ apps. By acting as a wholesale provider of connectivity, carriers can significantly expand the potential customer base for these 5G use cases. Niantic, the AR-game developer behind Pokémon GO, is collaborating with carriers including Deutsche Telekom, Orange, and Verizon (as well as device manufacturers) to build a “planet-scale augmented-reality platform.”

Mobile carriers can proactively partner with services such as Google Stadia and Amazon Luna (Prime Gaming), becoming increasingly popular as the platforms expand their content libraries. Gamers will be happy to pay a premium for access to the low latency offered by 5G networks. The real-time multiplayer gaming experience is dramatically enhanced without the need for consumers to buy expensive consoles. Singtel has recently partnered with RiotGo[iv] to provide unlimited Gameplay data in an exclusive agreement with Riot Games. Xbox Game Pass is also partnering with mobile carriers to offer the Xbox experience without the console as part of 5G tariff bundles.

The promise of virtual and augmented reality

Most of the carrier OTT partnerships continue to be focused on streaming video and music today. However, some progressive mobile carriers are beginning to realize the promise of AR and VR-based OTT services quickly. SKT in South Korea offers its video app, Oksusu’s zero-rated VR experiences, and 4K UHD videos as a bundle with 5G tariff plans. Singtel offers a bundle with MelodyVR in Singapore. MelodyVR enables users to experience live concerts in virtual reality. Singtel is also a bundle with Bookful, an interactive augmented reality application for reading books. These partnerships will serve as solid use cases for other carriers to emulate, and we can expect many more worldwide to follow. Direct carrier billing does well as a native payment layer for such tariff bundling partnerships, with a faster onboarding and checkout experience for consumers.







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