Mobile Operators Race to Embrace Retail Models

The vision of becoming the main touchpoint for myriads of services begins with the hype around IMS and service delivery platforms (SDPs), as they establish a means for moving away from solely network operations to dynamic, retail-focused strategies where operators monetize content and become the applications and content providers of choice.

Mobile operators have to move toward a per-download or per-transaction model if they are to roll out creative services comprising of innovative credits, top-ups, charge-backs and payment options.

The fastest way to offer compelling content-based service combinations and flexible payment options is to forge multiple partnerships with third parties, such as aggregators of content, the content providers themselves and perhaps even financial institutions for micropayment options. Of course, the more partnerships, the more you eat into profits, and the more exposure you have to revenue leakage and fraud.

It is a necessary evil, as product catalogs can no longer be simple jukeboxes into which content is plugged in a standardized way. Standards like Brew are no longer sufficient to help carriers establish how content, publishing, charging and settlement are to be treated. Going forward, operators can no longer afford to have their hands tied by third-party parameters and standards.

More than anything, operators are searching for the freedom to create in an open environment. That means there is a lot of hype around “flexible,” “end-to-end value chain management” solutions and “SDPs” for rapid development of applications and services across lines of business and across networks.

SDPs grew out of a non-standardized world of IT and software, while IMS grew out of the standards-based world of telecom. Consequently, it is important that mobile operators field vendor hype with an eye toward “proof” that there is a platform at the service level of the IMS architecture. That is what is necessary to facilitate the type of rapid development they so desperately need—especially for things such as machine-to-machine applications or other potential “killer apps” that could serve to differentiate them from other service providers.

“There is a lot of guesswork about what the killer app will be, but it will likely revolve around the ability to enable subscribers to consume the services they want, where they want, and how they want,” says Highdeal’s David McNierney, VP of market development.

To sell that concept and charge for it requires a lot of forethought and changes in pricing, rating, mediation and settlement mechanisms.

Hand-In-Glove Pricing and Rating

Mobile operators have to experiment with sophisticated pricing and charging, cross-product promotions and discounts that will stimulate demand and reward loyalty.

Pricing will be the front-office function that involves the marketing, business development and sales people. It should encompass inbound revenues, for which the carrier pays the content provider, and outbound revenues consisting of what the carrier charges the customer—whether a subscriber, retailer or other third party.

Rating will be the “techie” part of the equation for calculating charges after products are launched. “The pricing and rating should be separate functions that fit together like hand in glove,” according to McNierney, who explains that pricing is to service creation as rating is to service delivery. In other words, the operator is charging on the inbound side while calculating wholesale costs, licenses, royalties and commissions with content providers, resellers and advertisers on the other side.

Charging becomes an “active” function in the call path to authenticate, authorize and charge for transactions. “The charging platform sits in-network and decides if a subscriber is pre- or postpay in order to determine whether to intervene or not,” says Joe Hogan, CTO of Openet. He notes that every packet has to be intercepted and acted on within 10 milliseconds or so. “The responses should be based on open rules established through open GUIs, where marketers configure services by quickly attaching to new servers holding new content.” As traffic starts coming from new destinations, events and requests are handled through logic management systems that modify and control content. That means operators have to carefully consider the business logic in their chosen charging platforms.

“The more you can use logic to manage something like the depth of spend through a provisioning portal, the more attractive the mobile operator becomes to content partners and to subscribers like parents or corporate executives,” notes Hogan. “The charging decisions around contractual terms and conditions should be easily handled by charging platforms, which serve to reconcile the bills and manage relationships according to contractual terms determined by studios or gaming companies.”

As more and more balance checks are necessary in accepting or rejecting terms and conditions, the more important it is that the charging platform work with the content services gateway, or multiple instances of a charging platform.

Usually, a gateway plugs into the network to intercept traffic so that it can ask the charging platform if a subscriber should be allowed access or not. At that point, the charging platform looks at an IP address and determines the user’s identity and whether to act as prepay or postpay. The balance that is cached in the charging platform is checked and decisions on advice of charge or other notifications are then made. In milliseconds, balances can be either decremented or line items added, depending on the decision process.

The Hype Around “Flexibility”

As operators evaluate the capabilities of rating and pricing engines, the word “flexibility” will come up over and over again. Operator need to question what the true meaning of “flexibility” really is in rating and pricing.

“It should mean unconstrained pricing and charging,” according to Highdeal’s McNierney. “That means that an operator should not have to differentiate between the pricing and packaging types of functions on the outbound side, or the terms and conditions on the inbound partner relationship side.”

In other words, flexibility means “divorcing” pricing from ratings so that business developers can negotiate with content providers the type of flexible options they want. If they want to pay per transaction, while on the customer side charging by subscription, they should be able to do so.

Flexibility also means enabling non-technical people to create compelling offerings. That usually means product creation is done through GUIs that simplify the manipulation of rules.

“We think GUIs should be based on decision trees rather than programming logic,” says McNierney, “so that business people can define terms and conditions in plain language”—meaning through Word and Excel.

The key is empowering the marketing and business development folks so they can take advantage of events in near real time. If episodes of “Survivor” or “American Idol” or new releases from Madonna become popular, you want promos that can be created in minutes. As operators move down the “long tail” (see “The Long Tail: Moving From Mass Market to Niche Economics,” September 2006, page 10), they could react to local happenings, such as offering discounts at a pub during happy hour for certain plan subscribers.

“The goal is to shorten the process of defining life cycles and eliminate the need to get specs from IT for testing to begin,” says Scott Kolman, director of product marketing for Amdocs. Those arduous processes, he says, have stifled product managers and burdened IT for years.

The ideal is an environment where marketers and partners can create services without forcing IT to rip out or replace existing systems. “If a push-to-share service may have an impact on a certain bundle or on different content partners, you want to do fast simulations of impact on margins, on loyalty and other important variables,” Kolman says.

Having a “front-loaded” environment requires systems that capture information and map it back to charging engines and billing and replenishment systems in as automated a fashion as possible. That means systems that can generate and support different types of records—such as CDRs and IPDRs—so that mediation can distinguish voice events from data and multimedia events before passing it on to billing, rating and management systems.

Feeling the Heat

Once operators have fully automated processes, they can use them to their advantage in negotiating with content providers and aggregators. As carriers struggle to maintain margins while paying out large chunks of their revenue stream to multiple third parties, the name of the game is negotiating the best contractual arrangements possible. They will have to balance the power among the customer, the network provider, the aggregator and/or content provider, and themselves.

“The third parties are the real wild cards, as they are getting increasingly demanding … that they be designated some sort of ‘favored’ provider status so that they can lock in the best percentages over time, preventing operators from negotiating better terms with other content providers,” says McNierney.

Inevitably, there will be conflicts, as operators will see possibilities for better pricing and time to market if they go through the content provider directly.

For those reasons, innovations in pricing for inbound and outbound transactions will be very important to operators. For example, there can be terms dictating that a carrier pay a content provider smaller fees, should a certain threshold of subscriptions or transaction fees be garnered. If an operator can make more off subscriptions than transactions, it could try to include terms that best reward that fact.

Carriers can also factor in their value as the main customer touchpoint. “We’ve seen them calculate the retail value of a transaction, and then subtract a fee for servicing the customer. Or, perhaps the operator would subtract a fee for agreeing to allow customers to pay for content with a credit card,” explains McNierney.

As mobile operators become more comfortable with partners and more adept at negotiating, they may move more toward Web-based portals for managing the terms and conditions with partners. Of course, with IMS, the hope is that a third party could have more real-time access into a portal so as to push content or take it out, based on trends.

“Visibility will be key, as operators have to open up access to buy-rates and any alterations to availability of content on servers,” notes Curt Champion, VP of market and product strategy for Convergys. He believes “open” or “off portal” environments will be necessary as partners and consumers ask for access to manipulate contract terms over the Web. “Any move to open up access to content providers could become a leg up in attracting the most innovative or popular content providers,” he says.

For now, however, most operators have a “walled garden” or “on portal” environment.

That may change soon, as nontraditional and potential competitors for the consumer dollar change their business models to accommodate consumer desires, such as AOL making its content available to anyone who wants to consume it.

Where To Put PRM?

The development of partner and customer portals will rely heavily on partner relationship management (PRM) and how successfully operators manage the growing number of relationships with third parties. As content types become more numerous, it becomes more difficult to know who owns the content and what digital rights rules apply. For example, there might be different terms or conditions for animated versus still images, or different rules for using company logos on games versus videos.

Traditionally, functions of PRM fell into the hands of finance and settlement or other groups outside billing; however, the billing domain needs PRM now that the retail mindset is more important.

Indeed, traditional billing systems were not built around the retail concept of the “4 p’s”—product, price, promotion and placement.

PRM traditionally focused on settlements, the process of on-boarding a partner, integrating without big-project time and money, and establishing the proper merchandising tools, advice of charge and AAA, so payment and settlement is somewhat unruly right now. Billing doesn’t have the time or budget to worry about settlement, so there’s a split that is becoming a bit of a problem—especially when considering how to capitalize on impulse buys where settlements need to be calculated right away.

PRM is becoming a layer over settlement and over rating engines, but in many ways it must become an extension of CRM, particularly if carriers want to put the onus on the content providers to manage themselves someday.

Because mediation plugs into PRM for content charging, the operator has to decide where things like credit card transactions or micropayments may happen someday—whether in mediation, or some sort of standalone PRM system, or a CRM system and so on.

“Operators have to look ahead to consider what will happen if they have 300 or 500 content providers attaching to their back office someday,” says Amdocs’ Roger Parks, VP for Qpass.

As wireless operators work to manage the full value chain (including their content partners), content portal platforms and billing systems will have to possess more and more PRM capabilities. The key is maintaining an unconstrained and flexible environment to handle different types of terms and conditions across lines of business and across partners. That way, the value chain from carrier to customer to aggregator to content partner and financial institution can become “trackable,” so that mobile carriers can monitor subscribers’ usage and the entitlement and replenishment of accounts in both pre- and postpay scenarios. That is particularly important to protect against unscrupulous practices, such as double billing, where content providers partially download content initially, and then conduct a full download the second time, thus charging the carrier twice for the same transaction.

“You need the end-to-end offering for payments, settlements, storefront management and systems integration,” says Parks.

Because there is no standard roadmap of how to do these things, the pain points around integrating vendors may push most operators to look for some sort of suite or “end-to-end” solution to manage the digital commerce life cycle. “You need to be integrated enough to know when a super subscriber has purchased numerous ringtones, so then reward him with three music downloads and know to charge him on the fourth. That takes real integration to do that quickly,” says Parks.

He expects that operators will increasingly integrate third-party goods and services into their own bundles so they can do creative merchandising around traditional services, such as invent “teen gamer packs” where teens access a game zone to get premium content not available to others.

Some operators may initially try to do such things, as well as minimize the number of relationships they manage, by going through aggregators. It is likely, though, that someday they will want more direct control in on-boarding content providers, merchandising content, settlement and reconciliation.

For that reason, fully integrated solutions for partner management are ultimately going to be necessary. “Ideally, the subscriber and partner information should reside in the same system, so you can integrate the subscribers’ charges and settlements and better ensure you don’t credit something for which you get no revenue,” says Champion at Convergys. “You don’t want to pay a settlement on content that hasn’t been billed fully to the subscriber.”

According to Parks, the best way to do all of that is to have a PRM system that connects to billing, CRM and provisioning in order to provide one integration point for third parties. “Third-party activity happens above billing and CRM, so you want to be able to abstract all the content provider relationships from the back office,” says Parks.

There should also be a way for real-time rating and charging functions to act as a complement to billing processes, according to Jeff Popoff, VP of marketing for Redknee. “You have to know the SKU, the bundle and the price at the moment, and recognize the subscriber as a real transaction or punch it through to a CDR for postpay billing and settlement later on.”

He admits the SKU model is being “brutally stretched” at the moment, but that it is serving as a stepping stone as carriers figure out how to handle the growing amount of content.

“Everyone thought it might be sufficient for content providers to have individual IDs for settlement purposes, but that fell very short of the mark,” says Popoff. “Rather, every piece of content needs a SKU, as in retail, so that the multiple prices and changes in prices for the same product can be followed by the operator.” That, he believes, will enable value-based pricing.

For example, the value of a Spiderman video clip could be $2 before a movie launch, and $1 during a movie’s run, and then 50 cents in an operator’s catalog months later. The content can then be packaged in different ways, such as pay-as-you-go, pay monthly as a recurring charge, or as a bundle by theme where movie trailers, songs and games can be packaged under a theme. It could be 20 songs, 10 games and 5 ringtones for $10, for example.

“For that to happen, you need vendors familiar with value-based rating,” says Popoff. “Then you can instantly recognize the SKU of a product and know its worth and the profile of the person requesting it, so it can be put in the correct settlement ‘bucket.’”

Data and data records will be the core of auditing transactions in the network. For example, things like rating, customer care calls and return-merchandise authorizations have to be stored in data warehouses and CRM systems so the records can be sent downstream when disputes come up or QoS is debated, and so on.

Steps Toward Click-and-Buy

Once carriers integrate partner management systems, settlement and the subscriber billing functions, they can offer more creative multi-service bundles and perhaps payments.

Inevitably, the “click-and-buy” attitude fostered by eBay and Amazon might push carriers to look at the possibilities opened up by IMS and online charging systems, which are designed to facilitate real-time rating. Then, content can be bought via a portal in real time, or in a near real-time shopping basket approach.

For now, the goal is to catch up to Europe and Asia, where people already use phones for micropayments, such as paying for cab fares, vending machines, movies, parking fees and groceries. U.S. operators are still figuring out payment strategy.

For example, in the United Kingdom PayPal expanded its “Text 2 Buy” program with an offering that allows users to purchase magazine subscriptions and consumer electronics over their cell phones. The difference is that European culture accepted the prepay, real-time model long before the United States, which considered it primarily as a credit risk protection. Also, other countries embraced data services long before North Americans did.

However, different payment models are evolving in the U.S. that could serve as a foray for mobile operators. For example, companies like Apple are successfully aggregating charges and clearing bills using credit cards, despite lacking the billing relationships with customers that mobile carriers have.

To accommodate a breadth of individual tastes, carriers will have to decide when to serve as the direct touchpoint, or when to be the intermediary or aggregator to allow alternate payments. The question is one of aggregation and where it should take place. That really depends on how much liability the network operator will be willing to assume as it fights to maintain the billing relationship with the consumer.

Mobile operators have the advantage of a billing relationship with consumers. They already have systems handling large volumes of transactions. Mobile operators also possess the experience with pricing and packaging with subscriptions, overages and prepaid mechanisms.

The convenience of multiple payment methods could attract and keep customers. Wireless operators have an opportunity to leverage their billing relationships so that small and even large transactions could end up on their bill rather than that of Amex, Visa or MasterCard.

For now, however, most telcos are avoiding anything that makes them look like a credit card company. They are wary that credit or debit transactions mean a lag between service delivery and actual payment.

“It’s one thing when you have your own service—then, your tolerance for non-payment or fraud is greater,” says McNierney at Highdeal. “But to assume liability for someone else is something operators are not yet comfortable with.”

Consequently, operators whose contracts dictate payment per download to a content provider partner will want to invoke controls or limits for subscribers through a centralized rating engine that leaves room for rules about how much discretionary access to give a subscriber who has not yet paid a bill.

Prepay is therefore the key way operators can gain some sort of credit control and mitigate risk, as well as open the door for pay-as-you-go, recurring charges and enumerated bundles. That means powerful tools are needed to handle top-up, advice of charge as well as the ability to settle parameters for content services, voice services, time of day and type of event.

“With high volumes and higher-revenue transactions, operators will have to get into credit control, which means getting into real-time authorization and charging. They’ll want to ensure payment, so alternate payment methods and a mix of pre- and postpay will be the way they settle immediately,” says Champion.

The concept of convergent charging enables any product or service to have its own charging strategy so customers can switch between postpay and prepay modes.

For example, a primary customer like a postpay mother whose two teenage sons are prepay also becomes an executive with a prepay account under another primary, such as her postpay corporate account holder. The rules of collection will change even though it’s the same person, so that mom or the company can be charged back according to the transaction and the rules that apply to it.

To get there, operators have to cross a huge chasm from infrastructure built around voice calls, basic CDRs, and simple subscriptions and business models. To become truly multi-service providers, operators have to go beyond simple payment models for ringtones and games and toward per-transaction and per-download models that can also handle recurring charges.

The Race Is On

Creative bundling and payment options will be necessary at some point for competitive advantage. The current backlash around MVNOs has done little to keep other types of CSPs from racing to get their share of the entertainment dollar.

The barriers for reaching customers are, indeed, falling, and content providers could reach customers directly someday soon. Cable infrastructure is not built around simple platforms, so cable operators can do things like centralize rating in an expedited manner. Also, MVNOs may find their niches and eventually alienate themselves from operators for things outside of network access. Just recently, Videotron became the first cable operator to enter the MVNO market. The company is implementing a centralized rating engine from Highdeal for core services and quad play from a retail perspective. Other cable operators and CSPs may follow suit and attempt to bypass carriers in the not too distant future.

That’s why it’s important for mobile operators to move from a purely operational focus to a marketing focus. Then they can be the ones to stimulate users with special promotions based on historical or volume parameters. It could then be the mobile operators who whet subscribers’ appetites for services across multiple lines of business. Then profitable premier users possessing high minute commitments can be transitioned to gaming, music downloads and videos.