Mobile pricing - is a supermarket the unsung trailblazer?

A little publicised mobile phone service from supermarket chain Sainsbury's could be about to force the big four operators to rethink the way they charge customers.

The Sainsbury's proposition is interesting in that it takes a consumer's calls for a month and then sees which of the operators' plans would result in the cheapest overall bill. Many fixed line operators often suggest forward-looking profiles based on users' past call patterns but these are no guarantee of best value.

Details of the Sainsbury's service follow a decision by Orange to allow its customers to create their own unique price plans. (See: 'Your mobile phone bill will never be the same again' http://www.silicon.com/a55424).

Despite only having around 70,000 users by the end of July after more than 18 months in existence, Sainsbury's One service is rumoured to be about to start ramping up.
One user of the service, which piggy-backs on O2's UK network, told silicon.com how happy he is, although he is using his own, more advanced handset.

However, experts are unwilling to call the route the way forward.

John Strand, CEO of Strand Consult, based in Denmark where Sonofon offers a similar deal, said that because of traditionally high dealer commission rates and handset subsidies in the UK it is generally in operators' interest to have complicated pricing structures as a way of maximising revenues. Of course if all operators even wanted to switch to the Sainsbury model it wouldn't be possible - it depends on there being other plans to draw on.

But for the supermarket, Strand said: "It could turn out to be a winner for them. Of course if Sainsbury's is expensive as a mobile operator its core business could get a reputation for being expensive and that would be dangerous."

From an operator's point of view - in Sainsbury's case, O2 - it is a way to extend distribution by setting up operations (as T-Mobile did with Virgin) to compete against itself.

Simon Buckingham, CEO at consultancy Mobile Streams, said: "What Orange has announced isn't innovative. The best plan would have no inclusive minutes. But any operator could charge like Sainsbury's - it's purely a cost-benefit analysis."

With high dealer commissions, big subsidies for handsets and contractual lock-ins lower than in some European countries, the idea of simple, cheaper pricing for an operator would be to increase loyalty, reduce customer churn and bring in more revenue from a single user over time.

It sounds straightforward but it is a big gamble. Complicated pricing looks set to stay - however it is presented - unless innovative virtual operators like Sainsbury's (also known as MVNOs) can move out of their niche and pose more of a challenge.