"Customers have been conditioned to all-you-can-eat plans," said Richard Siber, partner for Accenture. "Carriers have not been able to differentiate value for any of the products and services they offer. This is going to be a big deal to try and change the mindset."
For instance, Verizon Wireless launched its packet data 1X CDMA network in select cities last month with flat-rate data pricing plans instead of per-usage plans. The service, called Express Network, requires customers to pay an extra $30 per month on top of their voice calling plans. Data usage minutes are then subtracted from customers' total airtime allowance.
The ultimate goal of many wireless operators is to mimic the success experienced by Japanese operator NTT DoCoMo. Its i-mode data service contributes nearly $25 of ARPU every month. The carrier charges a $ monthly fee in addition to a 25[cent] per-packet fee and receives a 9% commission for online transactions. And DoCoMo goes even further by charging users for content as appropriate. For instance, less popular Web sites warrant higher commissions to make up for the traffic shortfall.
But North American carriers are a long way from achieving the success of i-mode, and they aren't quite sure what customers are willing to pay for.
"One thing we're about is simplicity," said a Sprint PCS spokesman. "How we get [to charging for content] is going to depend on research and asking customers what they would like to see in terms of billing."
Some operators have begun to experiment with their billing plans in an attempt to figure out what customers want. Telus Mobility in Canada recently began offering pay-per-use wireless Web service to help prepare customers for its introduction of CDMA 1X packet data technology. Meanwhile, Cingular Wireless, AT&T Wireless and VoiceStream Wireless have introduced new general packet radio service (GPRS) and are charging on a per-volume basis. And Cingular last summer introduced DirectBill, a micropayment solution that allows customers to purchase low-cost digital goods such as ring tones via their wireless phones or the Internet and then charges them on their monthly bills.
Cingular and AT&T Wireless have no choice but to charge customers for the volume of wireless data they carry on their GPRS networks because the technology requires carriers to allocate voice channels for data. One advantage of volume-based pricing is that it enables carriers to measure capacity and ensure that heavy users don't clog the network.
But many analysts question consumer acceptance of volume-based pricing. Jeff Rickard, wireless services analyst for Current Analysis, noted that the simple act of reading the front page of an online newspaper over AT&T Wireless' GPRS service uses up about 75 kb of data. GPRS providers are charging in 1 Mb increments. "That is less than 14 times a month a customer can read the front page before they've used up their data allotment - without including any other data interactions customers might choose," he wrote in a recent research report.
Early attempts by wireless data players Ardis and RAM to charge per byte resulted in customers literally counting the number of characters they were sending, leading to consumer frustration Siber said.
Carriers are likely to have a variety of pricing models for wireless data services, said Lisa Huetteman, director of business development for billing clearinghouse company TSI. Packet-based pricing will have its place in the wireless data industry in terms of applications such as e-mail, but profitability boils down to convincing subscribers to pay for certain content, she said.
"It's difficult to go from free to charging [for specific content] unless you provide tremendous value," Siber said. "One of the ways carriers will demonstrate value is when they add location and personalization of content. Then it becomes a content-rich environment vs. more of a convenience."
The Yankee Group has identified five different services customers may be willing to pay for. In the m-commerce arena, Cingular is starting small, charging customers 99[cent] to download ring tones and downloadable games. Eventually, the carrier plans to offer hard micropayments such as purchases from vending machines and parking garages.
Cingular is using a solution from Qpass that bills purchases made by wireless phones or from the Internet to a subscriber's Cingular bill. Qpass serves as a billing aggregator, authorizing purchases, collecting subscribers' billing records and feeding them into Cingular's billing systems.
"We've seen phenomenal uptake with that product," said Dahna Hull, director of mobile commerce development for Cingular. "It gave us the opportunity to test the micropayment concept. Based on that success, we're excited about the next things we will roll out. Once location-based services come online in combination with commerce, customers will find them to be extremely valuable."
While the wireless environment is migrating slowly to value-based billing, billing systems have been hampered by their inability to charge for different types of content, stunting carriers' ability to offer a gamut of wireless data services. It's vital for carriers to be able to bill for content and voice through one comprehensive system, experts said.
"The problem is how do you allocate the cost of offering data services on an infrastructure designed for voice with a packet overlay?" asked Andre Kopostynski, director of marketing for Ericsson's system integration practice. "A lot of legacy systems are designed around the concept of dealing with voice service and recurring charges. We see a need in the marketplace to add a new rating component that can deal with the new dimensions."
New dimensions might include billing for location-based services, accounting for a combination of volume and discount schemes or referral revenues in which a company such as offers special discounts to all Sprint PCS customers that result in a commission check for the carrier.
Most carriers, leery of spending money on new billing systems for an uncertain revenue market like wireless data, instead are making changes to their billing systems to account the new data services they are starting to offer. The challenge, analysts said, will be for carriers to continue to use their legacy billing systems while consistently adding billing capabilities for wireless data.
Ericsson's customer management solution (CMS) mediation platform is one product designed to help the wireless industry migrate from the volume-based model of today to the content-based revenue model of tomorrow. The CMS prepares carriers for complete revenue control over IP-related services.
For example, Estonian Mobile Telephone uses the system to offer a location-based service that identifies nearby gas stations. The billable event record is generated simultaneously and polled by CMS mediation platform. It is then sent to the rating module, where it is priced according to the business rules and logic that have been defined between the operator and the content provider.
"The business opportunities are only limited by vendors' and carriers' creativity," Kopostynski said.
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