Pricing of Telecommunication Network Services

Pricing is one of the key components of services marketing. Service providers like that of telecom service providers, often are at a major dilemma, how to price their offerings? What would be a sensitive price point for converting a potential target customer into an actual consumer? The divide between perceived value of  a service and its perceived cost would often vary across segments of customers for the same service offering.

So how should a pricing manager go about pricing network services?

Typically some of the more classical approaches in pricing Telecommunication Network Services are as follows:

  • Maximization of consumer surplus
  • Welfare maximization
  • Peak load pricing
  • Pareto optimal pricing
  • Ramsey prices
  • Cost based pricing

Here the objective of the pricing manager would be to set a pricing technique which depends on measurable parameters

  • Fully distributed cost pricing (preferred by regulator)
  • It may obscure the fact of inefficient technology
  • Over provisioning of infrastructure
  • Long run incremental cost approach
  • It may be costly to implement

This pricing technique must ensure that if not at an individual service level, at least at a service bundle level, the price bundles post consumption must be profitable to the service provider.

Another  major challenge for the pricing manager is how to apportion the cost when same resource produces two services (voice and video). This becomes extensively critical when a cost based pricing mechanism is used. It is important to note at this point that decisions, if not prudently taken, would turn a Business Unit of the service provider into a potential cost center without strategic deliverables. Cost apportionment is especially problematic and questionable in an industry marked by production not directly proportional to input materials (as all services are, where the intellectual capital matters a lot more than tangible artifacts).

To take care of this challenge, one may approach this dilemma using the following approaches:

  • Subsidy free (very difficult to decide on the price)
  • Sustainable (Ramsey pricing)
  • Activity based costing : It is based on a hierarchy of four levels and is a refinement of FDC approach

Another major issue is Pricing Services Bundles. Pricing is a major decision point in the adoption of service bundles, especially when the key differentiators are extremely intangible in nature. That again is another ball game. If you find that interesting, you can go through the following article of mine: A Model for Bundling Mobile Value Added Services using Neural Networks, 2012, International Journal of Applied Decision Sciences, Vol. 5, No. 1.

Do get back to me if you have any queries.

Please follow and like us:
error20

Author: Kar

Dr. Kar works in the interface of digital transformation and data science for business management domains. Professionally a professor (IIT, IIM) and an alumni of XLRI, he has extensive experience in teaching, training, consultancy and research in reputed institutes. He is a Regular Contributor of Business Fundas and a blogging addict. Note: The articles authored in this blog are his personal views and does not reflect that of his affiliations.