To make money from 3G, mobile operators need to resolve complex
billing issues. Ian Murphy reports
As the roll-out of third-generation (3G) services approaches, the
need to ensure that mobile operators can cover their debt has
become a major issue.
Operators are desperately trying to raise money to build their 3G
infrastructure and are focusing their attention on business issues
rather than marketing. This means cutting costs, improving revenue
yields and persuading customers that they can offer new and
innovative services.
The first steps in this process have already been taken with the
massive increase in the cost of pre-pay mobile phones and the
attempt by mobile operators to try and sell post-pay contracts to
the pre-pay market.
The irony is that the pre-pay market sprang up because credit
scoring procedures discriminated against many people when they
wanted a mobile phone and the youth market was not legally able to
sign a financial contract.
There are other reasons for moving pre-pay customers to post-pay,
including a need to reduce churn and gather customer information so
that new 3G services can be marketed directly. It is also an
attempt to reduce fraud, of which pre-pay accounts for around 50%.
Micro billing
The most important component of many
mobile operators' strategies for 3G is the introduction of micro
billing. There are several ways this can be done - the problem is
to find an effective middle ground between practicality and
profitability.
The idea is to persuade customers to use their mobile phones to buy
goods. The way of doing this varies between pre-pay and post-pay
customers.
For pre-pay customers, the mobile operator needs to immediately
deduct the money from the card inside the phone. While the customer
is using the mobile operator's own network this should not be a
problem but if the customer is roaming - using another operator's
network - this could be difficult. The problem is to reduce the
available credit in real time.
If the pre-pay customer is accessing the mobile Internet at the
time their credit expires and they are in the middle of a
transaction or downloading a file, there has to be a mechanism that
does not simply disconnect the user.
Penalties
If, for example, the user has just spent £10
downloading a file and they are disconnected when their credit runs
out because the time required to download the file exceeds their
credit, what happens to the data?
The user needs to be told the length of time and the cost of a
download in such a way that even if the operator experiences a
slower than expected network, the customer is not penalised.
In another example, what happens if the cell suddenly comes under
pressure and the user is downgraded because they are on the edge of
the cell or they lose the connection? The question as to who is
responsible and how compensation could be claimed needs to be
resolved.
For post-pay customers there are a range of choices. One method
would be to pass every transaction back to the user's bank account.
But, with electronic transactions attracting a standard charge of
40p per transaction, buying small items such as newspapers or goods
from a vending machine would be prohibitively expensive.
Another way would be to debit the amount directly from the
customer's credit card but the cost of such a transaction would
again be prohibitive for low-cost items.
Credit card charges for low-value transactions also come into play
because the retailer is often forced to accept the charge. As a
result, few would accept payment via this mechanism.
Alternatively, the mobile operator could carry the debt until it
reached a certain level and then pass it on to the user's bank or
credit card. This would require operators to be more stringent in
their vetting procedures, a move that seems counter to their
attempts to move pre-pay customers onto post-pay contracts.
Another approach is to provide the customer with a payment escrow
service where they buy credit in advance, similar to a pre-pay
account, but if the credit expires mid-transaction, then the
outstanding amount is transferred to their normal post-pay bill.
All this presupposes another crucial issue: that mobile operators
can persuade retailers to accept this method of payment. Given the
vast sums of money spent by the credit card industry in creating an
infrastructure, the last thing mobile operators can afford is to
try and replicate that system. Retailers also need to be convinced
that mobile operators can guarantee to pay on time.
Around all this, mobile operators also need to build the systems to
cope with the different ways that 3G content and services will be
charged. Today, charging is usually on a per second basis. With 3G,
the options include per megabyte, per kilobyte, per second, or per
transaction.
It could be that the content operator will set the charge and will
return that information in the session headers. In this case, the
user could pay the content provider directly or the transaction
amount could be extracted from the header and dealt with by the
mobile operator through its micro billing system.
The user could even choose the download speed, especially given the
various bandwidth options under 3G plans, and pay a surplus for
fast access, or take a credit for slow downloads. It is likely that
many systems will use a combination of these transaction types.
Whatever the method used, the number of mobile phone transactions
is likely to soar.
Forecasts made at recent billing conferences predicted that future
billing traffic could be as much as 200 times greater than today.
If this figure is even partially right, the amount of data will not
only overwhelm existing systems and create massive problems for
users but will also create circumstances that could be exploited by
fraudsters.
The biggest concern is in the area of pre-pay customers where
credit will need to be reduced in real time, necessitating billing
system components that can operate over other mobile operators'
networks.
The complexity of the situation should not be underestimated - a
look at the problems faced by the fixed-line Internet service
providers shows how difficult making money from the Internet can
be. In addition, many mobile operators are desperately trying to
move their customer support away from the call centre environment
to a self-service approach.
Complete overhaul
This will require a complete overhaul of the entire system by which
customer support and other services are managed.
So extreme are the changes that when MobilOne of Germany decided to
build a new customer service system, it was forced to abandon
traditional approaches and redefine its business processes and work
out how access to data should be managed.
The first chance to see if mainstream mobile operators can really
make the move to new ways of managing their customers in a 3G
environment will be when Manx Telecom, a subsidiary of British
Telecom, launches its 3G service later this month.
Although the number of users will be limited and there will be no
roaming issues, the basic business processes will be under extreme
scrutiny.
If mobile operators are to convince the market that they can make
money from 3G, they need to demonstrate mastery of a new and vastly
more complex billing model, without increasing the amount of fraud
on the network.
Despite these apparent problems, few billing systems suppliers and
mobile operators seem to have grasped the nettle and begun to build
adaptable systems.
Making money from 3G
Operators are trying to raise money to build 3G infrastructure
They want to move pre-pay customers to post-pay contracts
Pre-pay accounts for 50% of phone fraud
Operators want to increase the volume of purchases made by mobile
phone. Problems include excessive transaction charges for small
items; convincing retailers to adopt the system; and updating
users' credit records in real time.