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Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
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In today's rapidly evolving telecommunications landscape, software-as-a-service (SaaS) solutions have become essential for operators seeking to modernize their infrastructure, enhance service delivery, and maintain competitiveness. However, one aspect that significantly impacts both telecom SaaS providers and their customers is the pricing model. Network-based and subscriber-scaled pricing approaches have emerged as predominant strategies that align costs with actual usage and business growth. But what makes these models effective, and how can telecom executives leverage them for maximum benefit?
The Evolution of Telecom SaaS Pricing Models
Traditional telecom software licensing often involved substantial upfront investments and inflexible terms that didn't necessarily align with business outcomes. As the industry has shifted toward cloud-based solutions, pricing strategies have evolved to better reflect the dynamic nature of telecommunications operations.
According to a recent Analysys Mason report, 78% of telecom operators now prefer consumption-based or subscriber-scaled pricing models for their software investments, moving away from perpetual licensing arrangements. This shift represents a fundamental change in how network software is purchased and deployed.
Understanding Network-Based Pricing
Network-based pricing ties software costs directly to network metrics and performance indicators. This model is particularly relevant for telecom SaaS offerings that manage, optimize, or analyze network infrastructure.
Key Components of Network-Based Pricing:
- Traffic Volume Metrics: Charges based on data throughput, measured in gigabytes or terabytes processed
- Connection Density: Pricing tied to the number of simultaneous connections handled
- Network Complexity Factors: Costs adjusted for multi-vendor environments or specialized network configurations
- Service Level Tiers: Different pricing based on performance guarantees and availability commitments
For example, Nokia's cloud-native network software solutions utilize a network-based pricing approach where costs scale with traffic processing requirements. According to Nokia's 2022 industry report, this model has helped operators achieve 30-40% cost optimization compared to traditional licensing approaches.
The Subscriber-Scaled Model Explained
While network-based pricing focuses on infrastructure metrics, subscriber-scaled pricing directly connects software costs to the operator's customer base. This creates a natural alignment between business growth and software expenses.
How Subscriber-Scaled Pricing Works:
- Per-Subscriber Fee Structure: A set cost per customer served by the telecom provider
- Tiered Pricing Bands: Decreasing per-subscriber costs as volume increases (e.g., first 100,000 subscribers at one rate, next 500,000 at a lower rate)
- Active User Calculations: Charges based only on active users within a given period
- Service Type Differentiation: Different rates for various subscriber categories (consumer vs. enterprise)
Ericsson's Digital BSS solutions exemplify this approach. Their pricing scales directly with the number of subscribers managed through their platform, offering declining per-user costs as operators grow their customer base.
Benefits of These Modern Pricing Approaches
Both network-based and subscriber-scaled pricing models offer significant advantages compared to traditional software licensing:
For Telecom Operators:
- Cost Alignment with Revenue: Expenditures scale proportionally with business growth
- Reduced Initial Investment: Lower upfront costs enable faster adoption and deployment
- Predictable Budgeting: Clear correlation between business metrics and software expenses
- Risk Mitigation: Costs decrease automatically during subscriber churn periods
- Simplified Procurement: Easier internal justification when costs directly tie to business outcomes
For SaaS Providers:
- Customer Retention: Aligned incentives create stronger partnerships
- Growth Potential: Revenue increases naturally as customers expand
- Market Differentiation: Flexible pricing as competitive advantage
- Predictable Revenue Streams: More stable and forecasted income
- Broader Market Access: Lower entry barriers attract more diverse customers
Practical Implementation Challenges
While these models offer compelling benefits, implementing them effectively requires addressing several practical considerations:
Data Accuracy and Measurement
Both pricing models rely heavily on precise measurement of either network metrics or subscriber counts. Ensuring accurate data collection, processing, and reporting becomes critical for both provider and customer.
"The success of subscriber-based pricing hinges on the integrity of the underlying measurement systems," notes a recent Deloitte telecommunications industry report. "Our analysis shows that discrepancies in subscriber counting methodologies can lead to pricing variations of up to 15%."
Contract Structuring Complexities
Contracts must clearly define how measurements are taken, which metrics are used, minimum commitments, and how scaling works in both directions. This can introduce complexity during negotiations.
Managing Cost Predictability
While these models generally improve cost alignment, unexpected network growth or subscriber surges can lead to surprise expenses. Incorporating appropriate caps, floors, and notification systems helps maintain predictability.
Case Study: A Tier-1 Operator's Transition to Subscriber-Based Pricing
A major European telecommunications provider recently transitioned from perpetual licensing to a subscriber-based model for their customer experience management platform. The results were substantial:
- 42% reduction in first-year total cost of ownership
- Improved technology refresh cycles from 5+ years to continuous updates
- Ability to scale operations into new territories without prohibitive licensing negotiations
- 28% improvement in budget forecast accuracy
The operator's CIO noted: "Moving to subscriber-based pricing transformed our relationship with software vendors from transactional to partnership. Our interests are now perfectly aligned—when we grow, they grow."
Choosing the Right Model for Your Organization
Selecting between network-based and subscriber-scaled pricing—or implementing a hybrid approach—requires careful consideration of several factors:
Factors Favoring Network-Based Pricing:
- Network infrastructure-focused solutions
- Consistent subscriber base with variable network demands
- Operations prioritizing network capacity and performance
- Need to align costs with infrastructure investment cycles
Factors Favoring Subscriber-Scaled Pricing:
- Customer-facing applications and services
- Aggressive subscriber acquisition strategies
- Predictable network demands per subscriber
- Business models based on customer lifetime value
Looking Ahead: The Future of Telecom SaaS Pricing
Industry trends suggest pricing models will continue to evolve with several emerging approaches:
- Outcome-Based Pricing: Costs tied directly to business outcomes like churn reduction or ARPU improvement
- Hybrid Models: Combinations of network metrics and subscriber counts with flexible weighting
- Consumption Credits: Pre-purchased "credit" systems that provide flexibility across various usage types
- AI-Optimized Dynamic Pricing: Real-time adjustments based on multi-factor analysis
According to Gartner, by 2025, more than 60% of telecom software will be purchased through these advanced consumption-based models rather than traditional licensing or simple SaaS arrangements.
Conclusion
Network-based and subscriber-scaled pricing models represent a fundamental shift in how telecom SaaS solutions are monetized, creating stronger alignment between costs and business value. For telecom executives navigating digital transformation initiatives, understanding these pricing approaches is essential for optimizing technology investments.
The most successful telecom organizations will strategically select appropriate models for different components of their technology stack, negotiate terms that provide both flexibility and predictability, and maintain regular assessment of pricing efficiency against business outcomes.
As you evaluate telecom SaaS solutions for your organization, prioritize vendors who offer transparent, aligned pricing models that can grow with your business—creating technology partnerships rather than just vendor relationships.