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%.
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.
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.
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.