Over the past decade, mobile networks across the globe have grown and matured. The International Telecommunication Union (ITU) estimates over 87% of the world population is now covered by at least a 4G Long-Term Evolution (LTE) (or similar) network. Similarly, we have seen a dramatic shift toward smartphones. In 2019, mobile devices surpassed computers as the preferred online access method which were responsible for more than half of daily time spent online (global cohort). Mobile has grown from only 25% of daily time (in 2013), to now a dominant mechanism enabling 57% of users time spent online (4Q2022). Mobile connectivity is an increasingly entrenched “sticky” service, and now a well-established cornerstone of modern lifestyle.
When consumers choose to spend more time with a product or use case, they are—to an extent—voicing their preferences. In other words, time (as a unit of measure) could be thought of as a proxy for the utility that an individual assigns to a good or service. There are a finite number of hours in each day, and theoretically, people are always optimizing those hours to maximize utility. With mobile phones becoming the preferred access medium for the internet, this behavior must be accomplishing things for the user in a unique way that is preferred (maximizing utility), compared to the previously existing or available alternatives.
The challenge for any industry is developing a clear understanding of associated use cases and finding a way to express the value creation in a relatable way. For example, in the early days of circuit-switched telephone networks, it was sensible to use “time” to represent costs, because the time a user spent occupying a circuit was directly proportional to the ability to monetize the circuit (since only one user could use the circuit at a time). It was also easy for the consumer to recognize time as both a unit that is billed (e.g., $0.10 per minute), and as a unit they are consuming. These units could be marketed in volume to represent value (e.g., 1000 minutes for $50). The telecommunications industry would continue this trend, and the broad adoption of text messaging would follow suit, with similar unit-based pricing (e.g., 500 texts for $5).
As 4G LTE networks were deployed, these packet-based internet protocol networks were now data-centric. Coupled with advances in consumer electronics (e.g., the first Apple iPhone), there was suddenly much more that could be done with the cellular network than simple talk and text. Consequently, consumer-facing unit economics for wireless shifted toward metering data (e.g., $10/GB, 5GB for $30). Meanwhile, the unlimited access granted by fixed-line home broadband led to throughput (or data rate, e.g., in Mbps) as the primary way to differentiate different access product tiers.
Different product tiers and pricing allow the end user to address the business of optimizing and maximizing their utility. In other words, it creates the “quantity demanded” for a good or service.