Is Billing Putting the Brakes on Telematics Growth?

Telematics—the name given to in-vehicle communications infrastructure—is still in its infancy, existing today with undefined technologies and business models. Yet by 2006, telematics could be a $20 billion industry, asserts a report by Forrester Research. Alliances have been forming among car manufacturers, telematics operators and wireless providers.

The telematics operators in the market thus far have been pioneering yet uncharted territory. They are functioning in trial mode, grappling with expensive new hardware, pricing plans that don’t fully take advantage of revenue opportunities, and the lack of a proven success model.

“The mode that people are in now is to launch the service, get it out there, and then simultaneously have services and the content get richer over time,” says Bassam Khan, principal product manager at Portal Software. In addition, customer feedback from early systems is starting to influence future development decisions.

The Competitive Battlefield

With the telematics space still unfolding, the most dynamic and unexplored part of the landscape is the competitive battlefield upon which the various players are positioning themselves. In the past, car manufacturers have conceived telematics companies to support their in-vehicle operations. OnStar, for example, was born of General Motors, EDS and Hughes Electronics in 1995. Wingcast was a 2000 joint venture by Ford Motor Company and Qualcomm to outfit Ford and Nissan cars.

In August, however, DaimlerChrysler announced its relationship with AT&T Wireless to provide telematics. It seemed as though AT&T Wireless was now positioning itself to also be a telematics operator, says Forrester Senior Analyst Dan Garretson. Then, in late October, the car manufacturer announced it would use Bluetooth in its vehicles, allowing a customer to merge any Bluetooth-enabled phone with its in-car hands-free system. This would allow customers to keep a current relationship with a provider and synchronize their hardware with their car. The customer’s account would be based on the current account with no additional subscription fees or service charges. Further, the arrangement would mean a customer would have only one bill.

“Our approach is to leave all the options open to our customers, and the customer can take what he or she wants or what they don’t want. This gives us all the options to tailor the product to the customer’s demand rather than one size fits all,” says Wolfgang Bernhard, DaimlerChrysler’s chief operating officer, about the Bluetooth decision.

It’s a good fit for DaimlerChrysler. As Robert Chen, senior manager, market development at Portal, points out, “Most car manufacturers really aren’t interested in buying spectrum and building out the full networks, simply because that’s a really costly process.” Not only do manufacturers not want to build networks, they also don’t want to be burdened with the billing and account management for countless customers.

Bluetooth Barriers

Yet barriers to Bluetooth do exist. Bluetooth phones are priced anywhere from $150 to $500, and most wireless users currently do not own one. Others worry that Bluetooth is unproven. “That is a new technology that just has a very limited availability today,” says Mike Sinley, vice president of enterprise business at Wingcast. “There are over 130 million wireless users today. None of them have phones with Bluetooth in them.”

Other providers, like OnStar, are also scrutinizing use of the technology and watching to see how it pans out. “Chrysler has not announced what services they are going to provide, other than the phone service,” says Scott Kubicki, vice president of core services at OnStar. “But with their current plan, we do not believe they will have any interaction with the vehicle electrical architecture, which means they will not be able to provide services like air bag deployment notification, door unlock, remote diagnostics, or any location-based services.” OnStar has plans to allow customers to use their phone in and out of the vehicle, although “it will not be like what Chrysler has announced they are doing,” Kubicki says.

On the surface, the Bluetooth decision seemed to close AT&T Wireless out of the loop; however, the provider will ultimately step in to offer value-added services that most other wireless players who are not entrenched in telematics do not deliver. This could mean AT&T Wireless will deliver telematics offerings itself or will manage third-party providers in one integrated solution for DaimlerChrysler customers. For now, AT&T Wireless and DaimlerChrysler haven’t announced the services they plan to offer.

Who Will Own the Customer?

The DaimlerChrysler-Bluetooth announcement was a shakeup for the telematics space. Now that customers will be able to keep existing relationships with their wireless providers, what will this mean to the telematics operators? Will they be absorbed by the wireless operators, or exist merely as application or content providers? Or would they begin offering wireless voice services and phones themselves?

Many industry experts think telematics operators could be the next mobile virtual network operators, reselling wireless carriers’ airtime and adding or aggregating functionality. But Garretson believes telematics operators are not going to turn over control of the customer to wireless carriers.

“Companies like OnStar will continue to try to control that environment and own it ultimately, keeping the carriers out,” he says. “There’s a competition. The carriers themselves will try to move into that space, as AT&T is doing with DaimlerChrysler. My own feeling is that there is enough unique about the environment that companies like OnStar will be able to retain a foothold and be successful long term, but that could reverse as companies like AT&T get more understanding in the vehicle environment.”

“The wireless provider would have a hard time entering this [telematics] space, as they would not have the GPS capability in the vehicle, nor would they be able to tie into the vehicle’s electronic architecture to provide critical services,” says OnStar’s Kubicki. “Additionally, the telematics companies depend on the cellular networks maintained by the wireless companies to deliver the services. It is a symbiotic relationship.”

Sinley at Wingcast says, “I think you’ll see more working together and creating enhancements for the end user than you will someone winning and someone losing.”

Pricing and Billing

Currently, telematics services offered include voice, data, maps and directions, backseat infotainment, vehicle diagnostics, theft protection and tracking, and such services as unlocking a car’s door. OnStar has teamed with Tele Atlas and Metro Networks to deliver real-time, location-based traffic reports. In the future, telematics services could expand to include digital television and pay-per-view programming, satellite radio downloads, m-commerce and retail transactions, and location-based services, as well as information about such services as parking space availability.

Every new service, however, adds to the dilemma of how a provider can apply pricing to the service. This ultimately impacts the architecture of the rating engine.

To date, most telematics services are offered for a flat fee per month or year, yet early indications are that most users do not want to be bound by subscriptions and contracts. They are more likely to use a service if priced on the individual transaction. “For the customers that we’ve spent a lot of time talking to, that monthly service fee is quite a barrier,” says DaimlerChrysler’s Bernhard. “They are quite resistant to that.” That is another reason for DaimlerChrysler’s deployment of Bluetooth, in that customers will have no additional fees other than what they currently pay their existing provider.

Providers in the telematics space, however, want to move away from this type of pricing toward event- or transaction-based pricing based on usage.

John Konczal, vice president of new business development at Telution, mentions that a lot of the companies want to charge the customer for a download of information or an event based on the value of that customer—and with that, rating engines are going to have to focus much more on the product catalog. “Rating engines for most companies have been built up as these big back-office horsepower products that process millions of transactions a second. Now, when a provider looks at a transaction, it could have a price for that transaction as well as prices for individual events within that transaction.”

Telution is working with a telematics operator offering fleet services. Still in the implementation phase, Telution is being charged with building the entire end-to-end infrastructure—from sales to order entry to provisioning to event rating and billing to bill production and to some of the settlements process.

In this case, an application server would automatically produce stats for a truck within the customer’s fleet, creating a session record that would download information from the truck at a scheduled time as chosen by the customer. The telematics provider would charge its customers airtime for that download. That session record would contain the individual statistics about the truck.

“We would take that session record and we would have to rate for individual transactions within that record,” Konczal explains. “Each customer would decide what download information they would get. For example, you would get engine stats for free and air tire pressure for free, but if you wanted speed and the driver’s last 10 stops, there would be a price for those events.”

If the customer purchased five special downloads, he would obtain one rated price; if the customer bought 10 rated downloads, he would earn a discount.

“That complication for a rating engine is significant in being able to deal with what’s really the first of what I’ve seen of microtransactions—having one master transaction and transactions within the transactions, and then rating for the overall pricing for a transaction based on the individual elements for that transaction,” Konczal says.

“You have to look at the aggregate and apply rates, and that’s something that a lot of rating engines don’t support,” he adds. “Some of the new ones are more IP network-centric and they focus a little on this, but most of the rating engines that have built up out of the voice networks don’t look at that level of detail, especially in real time.”

The Provisioning Quandary

Provisioning for telematics is a nightmare. “The installation of the device and the turn-up of the device and the education of the consumer are so much more complicated in telematics,” Konczal says. For the most part, provisioning and installation is manual, especially on the business side.

According to Konczal, another major provisioning hurdle is in turning up service with the wireless provider. Since most telematics providers do not own the network and are instead reselling minutes from facilities-based wireless providers, being able to connect to the provider that owns the network to jump-start services is critical.

For the fleet operator, Telution has to be able to send an order out to turn up a device on the wireless network and then provision to a wireless gateway, which would manage network device authentication and access certain applications. Accessing a set of applications servers or external service providers that are providing the services is also key.

The company Telution worked with had all its own servers to download vehicle statistics and deal with the provider delivering the wireless access gateway, as well as with multiple third-party content providers of information such as location-based services using GPS and other concierge services.

A sale would come through to the fleet operator’s call center, which would have to order that device and schedule a truck roll to the customer site to install the device. Then the telematics provider would have to provide four hours of training at installation time to tell the customer how to use the device.

“The real-time [provisioning] experience that exists with typical wireless services is difficult to achieve right now with telematics,” Konczal says. “There is a bit more of a delay, and there are a lot more moving parts in the back end.” These complexities are keeping telematics operators from breaking out. “The only way they can come to market is with very high-revenue, high-margin services, which is the reason you see a lot more telematics products in the business sector than in the customer sector right now,” he notes.

Connecting with various partners for service delivery is another provisioning problem. The process for most providers is manual today, Konczal notes. “The telematics provider is actually calling that content provider,” he says. “They are faxing reports on a daily basis.”

Revenue Management

Another major hurdle providers will face involves interfacing with other content providers—not only for provisioning, but also for billing and revenue management among the various players in the supply chain.

Because most telematics providers are resellers of wireless networks, explains Konczal, they are always dealing with a third party to get their airtime. “There’s always a reconciliation process there to ensure that the telematics provider is getting billed correctly by their wireless network provider.” The settlement reports and rating engine need to be able to convey the reporting information and underlying data back to the telematics provider, to tell the provider how many minutes it used during the month so it can match up the bills it gets from the wireless providers.

On the other side of this revenue equation are the content and other third-party providers. A telematics operator might charge $5 for a transaction, but $3.50 might have to go to the content provider. Thus, the billing system has to be able to provide information about the transactions, but also be able to track multiple pricing or multiple rates per transaction. “You might have your retail rate, you might have your settlement rate, and then you might have your internal cost rate, so billing systems and rating systems are going to have to become much more intuitive based on what that transaction is going to be,” Konczal says. “I can’t say today that we’re fully there. It’s something today that we’re working toward.”

Challenges on the CRM front

Trouble reporting for telematics mirrors the help desk scenario in the IT world: in most cases it is not that the systems are broken, but that the customer doesn’t fully understand how to use them.

“What we found, especially from our fleet operator, was that they were getting calls from truck drivers at all times of the day and night saying, ‘How do I use this feature?’ ” Konczal says. So Telution rebuilt its front-end customer care application to include an online knowledge base that customers over the Web or CSRs in a call center can search for information about such issues.

In spite of these CRM, billing and OSS challenges, telematics operators are trying to move forward with new services and technologies. Yet they will have to tiptoe carefully around these potential landmines, as any one of them is hazardous enough to threaten the success of their services.

Sentori’s Vice President of Marketing David Dague predicts that the more advanced telematics services will likely roll out in Japan and Europe before the United States. But telematics is coming.