Location-Based Services Pinpoint Revenue—But What About Billing?

In recent months, many online retailers have closed their virtual shutters. While they cite financial reasons, it’s probably not due to lack of interest on the part of consumers. In fact, a recent report by the U.S. Department of Commerce states that online shopping between October and December 2000 increased 36 percent from the previous quarter. In addition, a report by Strategis Group in January, “U.S. M-Commerce Marketplace,” forecasts that from 2001 to 2007, total mobile commerce revenues will grow by a compound annual growth rate of 178 percent.

Today, it’s possible to buy goods and access information through existing wireless handsets and 2G networks. But consumers are wary over security, connections are slow, and user interfaces are not very attractive. 2.5G networks, new handsets and wireless public key infrastructure and the security component of WAP should improve adoption. Still, most industry watchers say a lot needs to be done.

This consumer hesitation could change with the introduction of location-sensitive services, which tie the content and other services specifically to the user’s location. Examples that many regard as compelling include receiving coupons based on proximity to stores, or an expansion of instant messaging that tells you where your friends are at a given time. “I think it’s important in that it’s going to be one of the true differentiating factors of mobile commerce and e-commerce,” says Cynthia Hwse, senior analyst at Strategis Group.

Enhanced 911

Wireless carriers in the United States will get a push into location-based services from the FCC mandate to support Enhanced 911 (E911). The mandate will allow emergency services to pinpoint the location of wireless phone users when they call 911. Phase 1 states that when a wireless phone user dials 911 the carrier must be able to locate the caller within a cell sector and then route that information to the appropriate public safety answering point. Phase 2 improves on the accuracy of pinpointing location, so instead of narrowing it down to a cell sector—which in some cases can be anywhere from a city block to many square miles—emergency services can locate a caller to within 50 to 125 meters.

Network upgrades for location capabilities may include adding a location-based platform or gateway, or embedding a Global Positioning System (GPS) receiver in the handset. Additional upgrades might involve adding a database for collecting information, and security measures so information isn’t released to unauthorized users, says Steve Krom, vice president of marketing, data and Internet services at mobile service provider Cingular Wireless.

“We need commercially viable applications to utilize information in a way that gives customers something they desire as well as generate something for the carriers,” adds Krom. Cingular is evaluating the marketplace and will soon decide how to meet the E911 mandate and support its own commercial aspirations.

International providers may not be feeling the same sense of immediacy, but they too are gearing up for location-based services. For them, the driving force may not be E911 per se, but it’s the understanding that these services could be a serious source of new revenues.

“In Europe, the push will be more how do they invest in this technology, and are they going to be able to increase their prices or price uniquely because they know where the subscribers are,” says Darren McKinney, market development manager of mobile Internet at Amdocs. “Because Europe tends to be a little bit ahead of North America as far as mobile technologies goes, I think they’ll be more open to looking at it as a way to differentiate services, versus in the U.S., where carriers are thinking, ‘We have to do it, and now maybe we can differentiate our services.’ ”

Wireless carriers in the United States should be compliant with Phase 1 of E911 by late in 2001. Because carriers are bound by the FCC mandate and will incur costs to upgrade their infrastructure, you can bet they are going to try to get a return on the investment. McKinney adds that since E911 on its own will generate very little, if any, revenues for service providers, they’ll likely jump into mobile commerce fairly quickly.

Incomplete Infrastructure

Regardless of E911 or other forces driving carriers to look seriously at location-based mobile commerce, additions to the wireless infrastructure will be necessary. A number of companies are supplying the means to not only locate subscribers, but also to provide them with relevant content and billing for these new types of services.

SignalSoft, for example, makes E911 platforms and location gateways for wireless carriers. The company’s gateway works with location technologies from companies such as Cell-Loc, SigmaOne and SnapTrack, and talks to network switches and passes information about a subscriber’s whereabouts to applications.

In February, SignalSoft announced it would work with Portal Software on location-based billing for wireless services. The two companies plan to develop a billing platform for 3G services that will allow carriers to collect revenue from mobile commerce and location-sensitive applications.

“Even though you locate someone, how you bring that information into the network and make it available for use is a significant issue,” says Mark Flolid, executive vice president of corporate development and cofounder of SignalSoft. “There are issues of quality of the location information, how it interacts with other parts of the network, and how you scale it so that you can support 20 million subscribers.”

While many location-finding products rely on GPS or cell tower triangulation, Gravitate’s Gvoice product allows carriers to locate subscribers without the location-precise infrastructure mandated by the FCC, according to Pascal Stolz, executive vice president of marketing at Gravitate. The end user dials a number and says their address, Stolz says. “We convert that information into usable X-Y coordinates, and manage applications and information.” Gvoice relies on the user to speak the address information, but then wireless data applications take over to provide the location-based content requested. “Location-based service in the U.S. will take some time even with E911, so we’ve developed other ways to find a user’s location.” Gravitate has partnered with Webraska, a French company that provides mapping, routing and tracking information.

Although these technologies are being developed to locate the user down to a few dozen meters, that probably won’t sit well with all users, and many in the industry realize that. For more on the issue of privacy, see “Big Brother Is Watching,”.

Pricing and Billing

Location-based services, by their very nature, will probably be priced quite differently from more location-agnostic content. “Pricing may be based on zones, so you might have one pricing program when you’re at home and another when you’re in the office,” says Amdocs’ McKinney.

“Wireless carriers want people to use their phones, which means they want people to quit using wireline phones in favor of wireless ones,” says SignalSoft’s Flolid. “It gets into the issue of giving them a competitive rate when you make a call from home or office.”

From a carrier perspective, zones may work, but it will depend on the value both to the customer and to the carrier itself, says Cingular’s Krom. “I could see pricing plans based on location and we’re hearing about trials around micro market billing zones, but they are very small niches in the market that demand that—like business parks or campuses,” he says. “But if you look at the price and how much cost the carrier extracts from a particular area of a city, I think you’ll find there aren’t a lot of incremental savings for the carrier. Do you create a different pricing structure if there’s no difference in the cost to the carrier?”

One real-life example of location services is telemantics, an automotive communication technology that delivers wireless voice and data to the car.

Billing could become complicated, especially if a carrier chooses to bill partly by flat fee and partly per transaction. For example, customers could be charged a monthly flat rate for access to wireless Web or other content services. Then, if they access traffic or weather reports based on their location, they might be billed per screen view. But even in this instance, carriers might want to tread lightly so they don’t alienate customers with Byzantine billing methods.

“Pricing models will vary depending on geography; in North America we’ll see more flat rate for a service, while in Europe it might be transaction-based,” says McKinney. He also envisions carriers charging a flat rate for a certain data volume and then charging an overage beyond that. “They’ll pick a cap that most people won’t hit, … a number where 90 percent to 95 percent of the subscribers will never hit that threshold,” he says.

We’ll see pricing based partly on flat rate, partly on location and partly on content, says Gravitate’s Stolz. “At this stage it’s probably not something we need today, because adoption of the services is a few months or years away,” he says.

Cingular’s Krom agrees that pricing plans will change and will have to evolve. “You will still have access and usage fees that will go on regardless of the technology or the service,” he says. “I think what you’ll see is an evolution of billing. If people are mobile and hitting a lot of different transactions, how will that be dealt with, versus when they do bigger transactions using credit cards? Also carriers have to ask themselves if they want to be a clearinghouse for a lot of these transactions or location services.”

Regardless of pricing models, billing systems need to be notified that a location-based service was accessed. One thought is that the CDR—whether an IPDR or something similar that conveys information about content usage—would contain one or more fields indicating location. “There will definitely be additional information in the CDR itself that could have different values,” McKinney says. “When the rating system goes through the CDR, it could look at the location field and see where the user was when they made the connection, and rate accordingly.”

He adds that a billing system could also identify that a service contains a location-sensitive component and could price based on a variety of parameters. Whether this so-called location field within a CDR needs to be standardized, McKinney is unsure. “My usual reaction would be to say yes, but because there are so many different types of technologies to tell you about location information—you could get that value from your own network, or your network plus a location platform—I don’t know if it needs to be standardized,” he says. “But, because it’s so new, if it does get standardized I don’t expect it to be done in the short term.”

Sharing the Wealth

With any new service that involves more than one partner, the big question is how everyone gets a piece of the action. It’s no different with location-based services, where the service provider may be working with several or even dozens of content partners, a company to help pinpoint customer location and relay the information, and a financial institution to settle the transaction.

“Carriers are in a good position now because they are basically the ISP for the wireless Web,” says the Strategis Group’s Hwse. “Because we’re still in a narrowband network environment where there are a lot of capacity constraints, the carriers basically have all the content providers and retailers by the neck. When we get to a packet data environment, we’ll be able to send tons of data over the network and not be charged by the minute but on a flat monthly fee.”

Hwse believes that as mobile service providers make the migration to wireless data networks, they have a very small window of opportunity to get the customer comfortable with these new services. “This is why NTT DoCoMo is so successful; they are the clearinghouse for all the retailers and content providers going over their network, and they make it easy for everyone involved,” she says.

The likely candidate to act as the hub for location-based transactions will be the mobile service provider. The providers have direct relationships with the customer base and are in a good central position to deal with the parties that will be involved in delivering services. But providers don’t necessarily want to take on each and every responsibility.

“I don’t see Cingular becoming a bank anytime soon, but we are making the investments to create the capability and we have current relationships with customers,” Krom says. “Our belief is we need to work with partners to determine what customers really want and how that’s going to generate value for our shareholders.”

Krom adds that he foresees a number of possible revenue sharing models, depending on where a company sits in the value chain. He also cautions against getting too enthusiastic about revenue sharing. “One thing from the carrier perspective is we’re not going to put ourselves in the position where we are revenue sharing every step of that value chain,” he says. “We’ll partner with folks that will enable us to provide a capability at the lowest cost, but I think we need to be careful that a carrier or anyone else isn’t going to want to give away a certain percentage, because you won’t be successful. I don’t see the idea of each company getting X percent happening to that extent.”

If mobile operators are going to split out subscribers’ fees to partners, they need to think about the appropriate model. The actual settlement among various partners could take different forms. “If it’s a transactional charge, which we will see some of here in North America and more of in Europe, that will probably be settled at the time of rating,” says Amdocs’ McKinney. “As the transaction comes through, the billing system will rate it and see if it needs to allocate a portion of the cost to other partners. I look at it conceptually as a second layer of rating—you have the usual service rating, but also rating for settlement.”

McKinney adds that while settlement for mobile commerce and location-based services can get complicated, it really has to be up to the mobile operator to provide those services. “It’s not about the carrier going out and selling golf shirts; it’s about them selling branded goods and services through partnerships,” he says. “If they want to take advantage of this m-commerce movement, they have to be involved such that they can justify collecting a commission for the transaction. This is their opportunity, because no one else knows anything about the subscribers, the partners and the collected revenue.”

Location, Location, Location

Realistically, there is still a ways to go before we get traffic reports based on where we are or the nearby mall sending us special offers. “The timetable for full deployment of location services is still up in the air, depending on what happens with some of these mandated services and how quickly the whole value chain can be put in place,” says Cingular’s Krom. “We’ll start seeing significant trials in the second half of this year, with services hopefully rolling out in the first half of 2002.”

Others in the industry concur with that general time line, but as with most other services involving mobile technology, Europe may be ahead of North America even with the E911 mandate. “As far as commercial deployment, I’m sure we’re 12 months out,” says Amdocs’ McKinney. “Even if today I put in a location platform, by the time I sync it up to a billing system, decide what services I want to offer, tie that in to commerce and content providers, it’s not going to happen overnight.”

Sidebar

Is Big Brother Watching?

When you start talking about service and content providers locating subscribers, questions about user privacy are inevitable. After all, while a cell phone allows users to receive calls wherever they are, do they want the service provider to know within 50 meters where they are at all times?

The futuristic notion of having one’s every move tracked is probably not realistic with location-sensitive services, according to Darren McKinney, market development manager of mobile Internet at Amdocs. “There are a lot of Big Brother security concerns, but with E911 it’s not that the service provider will know where you are all the time,” he says. “If you want them to know where you are you can send a message—for example, when you’re in trouble. But it’s not about the ability to track me at all times without me knowing.”

Rather, McKinney says, location services will be treated more on a opt-in basis, with users choosing when the service provider can identify their location and therefore when they receive particular services.

The service providers agree and are spending a good amount of time discussing the privacy issue. “We need to be sensitive to people’s demand for privacy, except in the case of mandated services like E911,” says Steve Krom, vice president of marketing, data and Internet services at Cingular Wireless. “We really want to focus on making these very much permission-based, from a customer standpoint. We think that’s going to be an important position to take if we’re going to get widespread consumer adoption and acceptance of this type of technology.” Currently, Cingular is working on specific guidelines to manage that. “I don’t think anyone has defined the right model yet; we want to listen to customers rather than just imposing something on them,” Krom says.

Once you couple information about subscribers with their location, in an ideal situation not every party involved in a location-sensitive transaction needs to have a full view of the user, says Cynthia Hwse, senior analyst at Strategis Group. “They’re trying to decide who is going to own the customer profile,” she says. “Only one value chain participant should really have access to that information, and it shouldn’t be proliferated across the value chain to all the different participants.” Most likely that profile owner will be the mobile service provider.

“Privacy becomes important when you get into an ASP model or content, because now you’re going outside the network,” says Mark Flolid, executive vice president of corporate development and cofounder of SignalSoft. “Until now we’ve been talking about a closed loop where privacy and security were not an issue, since you were dealing with the service provider.” Flolid adds that information probably won’t be strewn about just anywhere—as long as the carrier keeps control of everything.