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Friday, May 06, 2011

Business model innovation in mobile broadband - the insurance model?

At the recent Telco 2.0 event in Palo Alto, I was on the panel discussing mobile broadband economics.

I had an idea there, on the spur of the moment, that I haven't had a chance to write up until now. It's still in "prototype" form and definitely not 100% practical straight away, but nevertheless represents the sort of lateral thinking I have yet to see in the mobile industry.

I pay my car insurance based on an annual premium payment. I phone around (or look online) for quotes, which typically ask me for my age, address, type of car, security I use, history of accidents or convictions, some evidence of history of my actual insurance usage (ie claims) and a bunch of other questions that help them categorise my risk level with some very complex software. Some specialist insurers target particular demographics, or have detailed underwriting expertise that allows them to provide custom quotes, taking into account unusual circumstances. I also get a discount if my previous year's driving didn't result in excess "usage" - ie a no-claims discount.

It got me thinking - why don't we price for mobile data in a similar way? A 37yo male living in central London with an iPhone 4, commuting during busy periods, with a history of video downloads & obsessive Facebook use might get quoted £500 a year for mobile data, while a 57yo female with a BlackBerry living in a rural area and working from home might get a quote of £200. And if someone "abuses" the service, the operator has the right to decline to quote them for a continuation of service next year - or raise the premium considerably - so there's an incentive to be sensible.

Now clearly, this would need a major change to IT and billing systems - as well as some interesting discussions with regulators and re-training of customer service. I'm certainly not saying it's easy. But leave that aside for a second - do you really believe that if the *insurance* industry (hardly the most dynamic group of companies....) can do something like this, then the telecoms industry couldn't as well?

The nice thing about it is that the actual metrics that the telco uses to estimate risk are hidden privately inside the system. It might be a measure of GB data "tonnage". It might bias against people who use lots of signalling-intensive applications. It might involve clever location-based algorithms. It might give discounts for people who have use of 2+ phones. It might discount people prepared to accept a higher "excess" (eg policy management downgrades during busy periods). There's an infinity of clever ways to tweak the system.

I'm sure that there are other industries whose pricing schemes might be borrowed as well - energy, airlines, hotels and so on. Once again, it's about getting rid of the notion that "subscriptions" - especially monthly-based - are the only way to bill or market for telecoms services.

There's lots of nonsense being talked at the moment about "personalisation" fo mobile data - picking from a menu of apps and other such implausibilities. *This* is an example of true personalisation - a unique price and policy, just for you, calculated by examining your individual "risk" characteristics based on network cost and contribution to congestion.


Anonymous said...

This is an interesting idea.

One problem that would have to be addressed is that insurance pricing is not always a fair or reasonable process - at least not in the US. When I was 21, fresh out of college and buying my first car, my first auto insurance quote was $10,000 a year, and this on a $12,000 car. In a system such as this, how do you guarantee that mobile service remains affordable to all demographic classes. For example, teenagers would certainly need to be charged more, much more, based on ther SMS and data usage. Also, how do you insure that poorer people who might need to depend on mobile service more heavily since it may be their ONLY telecom service are not priced out of the market? If that happened, you can bet that the government would get involved and in a hurry (at least here in the US) and that would be incredibly bad.

For the mobile economy to remain viable, we need some way to make people pay a proportionate share for the service they use. The problem is that people don't want to pay a proportionate share.

Putting on the Ritz said...

Next time we meet i will show you the work done by 3 on yield management --(a la airline industry) back in 2001!

Unfortunately never implemented !