Ooredoo Myanmar just released a new type of data plans: internet night packs.
The night pack concept was not invented by Ooredoo and is quite popular all over the world. And even in Myanmar where MPT launched its own night plans back in February.
The idea is simple, a cheap data plan that you can only use offpeak: between 11 P.M to 7 A.M. Perfect for night owls and insomniacs.
The price per megabyte of these new packages is definitely attractive. Around 3 times cheaper than the regular Ooredoo data packs.
As a comparison, these are MPT internet night plans:
Night packs are definitely a good deal for the customer but it is also and most of all a very good deal for Ooredoo and MPT and here is why.
The challenge of turning Mbps into MBs
The mobile data business model is simple (so to speak…). Mobile operators purchase large amount of Internet bandwidth from upstream providers, cut it in piece and distribute it on their network.
The mobile data pricing model is exclusively per MB. Customers can use data on demand or activate a data package. In both cases, they are limited and charged for a volume of data. Speed on mobile networks is usually not limited and is basically whatever the network can deliver to the customer at that time and at that place (best effort).
The challenge is that mobile operators are not charged per MB but per Mbps (Megabit per second) by their upstream providers. A flat speed not a volume.
This speed can be fixed or dynamic, depending on their agreement with the carrier. But in any case, the problem remains the same:
No matter what the customers consume on the network, mobile operators will be charged a flat fee by their upstream providers. The challenge is then to make the most out of this fixed bandwidth and this is where night packages kick in.
Before getting into the night packs, lets understand how MNOs calculate the cost per GB and design data products.
First, they need to forecast what the usage of this flat bandwidth is going to be. In Myanmar, telcos main focus is mass market, so peaks time will mainly occurred on weekdays at lunch break and in the evening, then more likely on the weekend.
The weekday trend for a mobile operator in Myanmar would probably look like this one:
Note: We took an arbitrary scale of 100 mbps.
Based on this graph, the cost per GB can be calculated by computing how many GB the operator manage to fill for its 100mbps flat fee.
Lets take an example
Ooredoo signup for 1Gbps of bandwidth and get charged 50$/mbps for that. That is a monthly fee of 50,000$.
1 month is 24*30*3600 seconds = 2,592,000 seconds
Ooredoo can theorically consume 1 Gbps * 2,592,000 seconds = 2,592,000 Gigabits or 324,000 Gigabytes (GB) every month.
This is assuming Ooredoo manage to completely fill the pipe 24/7 which will never be the case.
From the sample graph above, we can easily extract the bandwidth usage ratio. This percentage is obviously varying all the time and will entirely depend on the operator strategy and products. For an operator like Ooredoo, Telenor or MPT mainly focusing on mass market, we can estimate this percentage to be around 60%.
So coming back to our example, Ooredoo manages to sell every month: 324,000 Gigabytes * 60% = 194,400 Gigabytes of data for a flat fee of 50k$. Then the cost per GB is easy to find: 50,000/194,400 = 0,26$ (330 Kyats).
Even if these are assumptions, they are probably not far from the truth
We believe operators get international bandwidth at a lower cost. Then they need to add up the taxes and obviously the cost of their infrastructures. Still that is 330Kyats cost vs 1200Kyats average price charged to customer. This is a very good gross margin. These are complete assumptions of course.
This is good but not good enough. How do you reduce this cost of 330 Kyats?
- Negotiate with the upstream provider a cheaper cost per Mbps. Obviously.
- Increase the bandwidth usage ratio ie. sell more MBs for the same amount of Mbps
Lets take the analogy with the airline business. The aircraft is flying no matter what. And there is a fixed cost for it. To maximize profit, airlines need to maximize the seat occupancy. The most seats you fill it at the best price, the more profit you will make.
To increase bandwidth usage, operators need to make the bandwidth curve as linear as possible and as close to their contractual commitment as possible. This is possible by playing with their pricing and also by mixing type of customers. For example corporate customers will have exactly the opposite usage trend than residential customers so if operators get a good mix of both kind, they are obviously going to reduce the cost per MB.
You can see on our graph above that the usage at night is very low. But operators still pay the same flat fee no matter what. So if an operator manage to fill these hours even at lower cost, it increases its usage ratio and reduce its cost per GB. It will probably reduce a bit its average price per GB but still drive both revenue and margin up.
In conclusion, this is a sign that Ooredoo is definitely looking at improving its margins and EBITDA (which was negative in Q3-16 according to Myanmar Times). Telenor was EBITDA positive 8 months after launch but Ooredoo is still struggling to get there.
Night plans are probably a drop in the ocean to achieve this but a clear hint of what is currently going on in the operator bowels.