Not all kilobytes are equal: More sophisticated billing mediation platforms will be required if operators are to exploit the full potential of mobile data services - Profitable Carrier Strategies

Mobile operators need to reassess the way they conduct their business. As the mobile internet evolves, networks will shift from voice-centric switched circuits to data-centric packet networks in the shape of 2.5G and 3G. And in this environment, where voice ARPU and the cost of bandwidth is declining, operators will need to find new ways of charging users for content-based services.

Today, while operators provide access to the content, they have very limited knowledge of the content itself. On the other hand, content providers produce the content but do not offer access for subscribers. By obtaining access to content knowledge and analysing the traffic passing through their network, operators will be able to compete more effectively to own the customer -- this is the integrated billing model to which operators now aspire.

The benefits of advanced, integrated content and access billing are numerous. For example, by developing an aggregated charging model, where content and service prices can be defined and differentiated, operators have the opportunity to offer a consolidated, one-stop service to subscribers. This streamlined and service-focused approach will be a key factor in increasing subscriber loyalty, thus maximising revenues from the existing customer base, as well as attracting new subscribers with a competitive range of content services. Ultimately, if an operator cannot analyse the type of data downloaded and charge it accordingly, it risks losing its users to competing operators offering a more 'bespoke' pricing structure.

Content: the next billing challenge

The major challenge for operators today is that offerings like SMS-enabled services (ie, ringtones and logo downloads) primarily benefit content providers. So what operators are learning is that if they cannot own the content, they will need to at least control its distribution.

Here, they already have an advantage with their existing authentication and billing structure. The challenge now lies in sourcing and implementing new billing technologies that will extend this infrastructure, providing the capability not only to analyse content traffic, but also to develop ways of packaging new content services so that they are attractive to subscribers. After all, the ability to produce content is useless in itself if it cannot be distributed and billed for correctly.

Since content services are the next 'cash cow' for operators, the main technological issues will reside in the ability operators have to upgrade their billing systems to implement content-based billing, thus providing the right infrastructure to allow ease of use and ease of access for content services.

What operators want to avoid at all costs is losing their existing billing systems. Their preferred strategy is to upgrade existing systems for 2.5G and 3G instead of replacing them completely. This means that additional rating and commissioning capabilities will be added to existing systems, to avoid losing any customer information. New components for next-generation billing infrastructure have to be compatible and easy to integrate with existing technologies.

Up to now, billing mediation systems have limited their analysis to connection time or the number of bytes being transferred. To help operators in the future, these mediation systems now need to analyse at content level what is being accessed (ie, if a customer accesses a stock quote service or a weather forecast service) and then pass this information to the new rating engine. This will then apply the right tariff plan before passing the bill to the existing billing system.

Changing billing strategies

What is the next generation of systems able to deliver? Specifically, it is the ability to move to a one-stop charging model that can deliver higher ARPU. Traditionally, telcos' billing models have been designed to handle voice traffic (both in pre-paid and in past-paid models) and, as in the traditional voice world, charges were usually based on price per minute. With content services and new GPRS technologies, where data connection will be 'always on', this model is no longer valid. The new billing models which have recently emerged offer the possibility to charge data services per kilobyte. This is the way operators today are planning to charge GPRS services in the short term, as it is relatively easy to move from a minute-based price to a kilobyte-based price (only the collection mechanism changes).

If we were to make an easy parallel, we could say that while the old billing mediation systems were only looking at the address on the envelope to fix the price of postage, the new mediation systems will actually be able to look inside the envelope at the content and analyse what kind of information is being sent.

But operators are also realising that all kilobytes are not equal, and it is therefore necessary to set different classes of service, where each type of service (like accessing the weather forecast, downloading a video or looking up stock quotes) will be associated with a different price per kilobyte.

Next-generation systems will allow a whole new range of billing models, depending on the operator's preferred strategy and business model. Operators will be able to offer monthly subscription-based services, where users can for example subscribe to a stock quoting service for [euro]1 per month. They can also offer fixed transaction fees: downloading a Madonna song, for example, will cost El, and 15 minutes of weather forecast browsing will cost [euro]0.30. Alternatively, operators will be able to charge different kilobyte prices depending on the service accessed (ie, stock quote browsing charged at [euro]0.01 per kilobyte while weather forecast browsing would cost [euro]0.05 per kilobyte).

These prices will be inclusive of the traffic charges, allowing the operator to bill for the transaction and the associated traffic costs in a single, one-stop-charge.

Differentiated tariffs and services

For next-generation operators billing for content services, it will be crucial to not only offer differentiated tariffs but also notify the subscriber of the pricing scheme. There are two reasons for this. One will be to make the interaction with the subscriber as user-friendly as possible, providing notification of the cost of the service prior to access so that users do not receive higher-than-expected bills. The second will be to answer requirements for possible regulatory reasons: a European regulation is currently being discussed which will ensure that operators send an 'advice of charge' to the subscriber, to notify him or her of the price of the service which is about to be accessed. Such regulatory requirements will demand that operators implement some infrastructure elements capable of injecting traffic in the network (sending the advice of charge for example) while at the same time interacting with the billing systems.

This is where pre-paid poses a specific challenge. Pre-paid is becoming increasingly important for operators, and in some countries like Italy, operators such as Omnitel have over 95 per cent pre-paid customers. In countries like Finland, where pre-paid is very rare, alternative solutions like credit limits are being implemented for post-paid subscribers. This means that the distinction between pre-paid and post-paid is beginning to fade. Some operators are implementing solutions that involve treating all subscribers like pre-paid users and asking for credit reservations for both pre-paid (to check their balance is still positive and there is enough money to cover the service) and post-paid (to check that subscribers remain below their credit limit).

The emergence of 2.5G and 3G technologies is allowing new types of services like data services, and new standards are currently being defined to allow the support of pre-paid for data services. Until these standards are implemented, operators will need to find alternative methods to support prepaid for content services. One of these alternatives is to implement a proxy or active billing mediation that can interrogate the pre-paid system to check the balance and block the access in case the balance is negative.

Migration strategies

In Europe, operators will need to define a migration strategy to transfer existing subscribers from SMS to WAP/GPRS services. The implementation of this process involves three main steps. First of all, operators will need to leverage billing and authentication capabilities to simplify users' access to entertainment services (removing the need to enter an authorisation code or dial a premium 900 number), which should help make this process more user-friendly.

Secondly, the need to use fixed internet access should be eliminated, by providing WAP and GPRS access to these services. Last, but not least, operators need to set up innovative pricing (bundled services and credit facilities, for example) to make ordering directly from a mobile phone more attractive and cost-effective. Clearly, these are major developmental steps.

With the proliferation of third party content providers over 2.5G/3G platforms, the priority for operators is get access to the content knowledge by analysing the traffic which is going through their access pipes. Without discarding their legacy billing and customer care systems, operators now have at hand new billing technologies and infrastructure which they can easily integrate with their existing systems, enabling them to aggregate the content charges onto the traditional voice bill. By controlling what goes through their network, operators will benefit from a flexible pricing structure that will enable them to differentiate their services.

From a passive process, limited to charging users by the minute, billing mediation is fast becoming an active element of the operators' strategy, and the means to develop an interactive transaction with the mobile internet users of the next generation.

RELATED ARTICLE: NTT DoCoMo has over 30 million subscribers to its 2G (PDC) i-mode service and has proven that it is possible to make money out of mobile data -- with a little help from its clearinghouse billing procedures.

In Europe it is estimated that generating a bill costs around [euro]3 per subscriber per month. So, unless content providers are able to generate very large revenues from each subscriber, they will prefer to use the operator as a clearinghouse and pay them a commission for the service. In Japan, this method has worked well with many content providers keen to use the mode platform (NTT DoCaMo charges a nine per cent commission fee).

In turn, this has increased traffic usage for NTT DoCoMo. For example, around 55 per cent of i-mode revenue is generated by entertainment services (ring tones, logo downloads and gaming) which translates into a substantial [euro]10 per month per i-mode subscriber.

With the commercial introduction of its 3G FOMA service in October 2001, NTT DoCoMo has demonstrated the revenue-generating potential of next-generation mobile services. By using the 384Kbps FOMA platform, the average daily traffic generated by an average customer increased by 1,000 per cent compared with the 9.6Kbps i-mode customer. This indicates that usage will increase with the availability of more bandwidth. As the transfer speed increases, more and more applications can be used in a mobile intranet context, favouring a wider acceptance of such a technology. Business customers will see mobile internet as an extension of the company intranet, for example, allowing their sales team to offer realtime quotes to customers, or allowing fleet management companies to provide real-time traffic load information to their drivers.

Alain Lefebvre, EVP, sales and marketing VoluBill

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