Mobile Content: Pricing Models to Dictate Back-Office Requirements
Ed Finegold
01/01/2007
The mobile content business is becoming increasingly complicated, and as a result it’s developing a number of vulnerabilities that could erode profits. With all of the lessons learned in the voice world about revenue assurance, this type of infrastructure isn’t typically part of the content business—at least not yet. Similarly, it hasn’t yet built up layers of fraud detection and prevention systems and processes. Knowledge of specific customers and their behavior is still limited, as the systems and practices needed to generate that knowledge are not yet established.
It’s not even agreed yet what direction pricing will go and whether Internet-like flat rates are the way of the future. For now, the service providers’ content strategy remains in an early phase, where the focus is on infrastructure and throw-it-against-the-wall-to-see-what-sticks tactics. But content has been a multibillion-dollar business for several years, thanks largely to ring tones. Now service providers are busy introducing new partners and new types of content. While things like fraud prevention and revenue leakage are in the discussion, effort is not yet being spent on putting the controls in place that a mature content business will need.
True Knowledge Means Knowing You Know Nothing
“Every provider recognizes that they do not know enough about their customer or the service they are giving to that customer. They do not have the mechanisms in place to assure the delivery of that service to that customer,” says Gordon Rowling, product and solutions marketing director for Amdocs. “In one way that’s very negative—but on the positive, every one of those providers is thinking about how they can address those issues and understand what customers really want.”
The thinking extends beyond customer behavior and service delivery to areas like partner relationship assurance. “The status I would put out there is one of awareness,” says Matt Fuller, senior solutions consultant for Subex-Azure. “They are aware that the partnerships and content partners need to be managed more closely. … We’re not seeing full implementation of mature programs. Those programs are just getting underway.”
Despite the relative lack of business controls in content operations, content partnerships seem to be consistently profitable. “We have rarely seen a partnership that hasn’t resulted in a profitable scenario for both parties,” says Joe Levy, director of product marketing for Amdocs’ Qpass division, which specializes in enabling content offerings and partnerships.
The invariable profitability of these offerings, however, is not a reason to ignore the vulnerabilities. If industry executives have learned anything from the voice world, it should be that multi-provider scenarios lead to significant loss and fraud. Interconnect billing problems practically spawned the revenue assurance industry. It’s safe to assume that the introduction of so many new services, network elements, payment options and content providers creates massive possibilities for fraud and revenue or cost leakage.
Interconnect Monkey-Business Is Already Happening
As soon as there is a system that cranks out money, the less honest among us will find ways to exploit its weaknesses. Content systems are pretty simple right now, so they are fraught with weaknesses, not the least of which is the fact that settlements are based on downloads that aren’t validated. “Some customers have a strong feeling that some of their content partners are forcing download failures,” says Fuller. “They are convinced there is a mechanism in place to force the failure of every 10th download in order to increase their charges.”
In most cases, content partners are paid by the number of downloads initiated, but no process documents whether the download succeeded. Either way, as it is now, the service provider pays. This is one back door that simply has to be closed off. Providers could do that with a relatively simple validation process similar to those embedded in voice-world revenue assurance applications, but “I don’t think anyone has an A/R system that can track these things on an item-by-item basis, and that’s a time bomb,” says Ed Shanahan, principal with Excelerate Partners. In other words, content businesses, without the proper controls in place, are vulnerable to classic fraud that takes advantage of float.
Fuller at Subex-Azure explains that what’s happening is similar to the days of the 900 number. A fraudster might, for example, set up a content server on a Caribbean island and have it deliver some kind of content through the major mobile operators, who are making it easy for content creators to sign up and on-load their offerings. That fraudster would then set up a number of fraudulent cell accounts in the United States and drive as much traffic to the content server as possible. The content provider’s bank account—most likely under a false identity—will be paid its settlement fees for the traffic, but the carrier will never collect from the end users. According to Fuller, this type of scenario has resulted in losses as great as $1 million in a single weekend.
A less insidious but no less damaging practice is simple billing inaccuracy, whether it’s deliberate or otherwise. Any carrier should insist that a partner “show me all the downloads that came in, don’t just send me a bill that says there were 300 of them,” Fuller explains. “We’ve told many of our customers that they have to have visibility into their partner network. Without having visibility into the data, they have to trust their partners to send them an accurate bill.”
Other straightforward steps can be built into a process to help filter out some of the basic fraud or bad debt scenarios that without controls will become problematic. Qpass, for example, performs a confirmation of purchase before customers buy any content, says Levy. “That’s an important step that some don’t provide, and it alone can lead to fraud. We make sure the customer is authorized and approved for the type of purchase and doesn’t have a negative balance,” he says.
What’s the Price of Success?
Debates continue around pricing and for how much value customers are willing to pay. On one end of the spectrum is the argument that the new direction of the Web 2.0 world is a flat-rate direction, and that new content services should be offered in flat-rate bundles, including all-you-can-eat. This idea is analogous to the Internet concept of letting someone go out and look for whatever content they want. On the opposite end of the spectrum is the pay-as-you-go argument that people are willing to pay for added value and that flat rates will only diminish the content revenue opportunity.
“There’s a way to make charging work to provide incentives in content partnerships, but the killer for that is the brain-dead thinking of the telephony companies who probably won’t get this right,” says Duffy Mich, president for Aperio CI. “They don’t think customers will pay based on value, only on fixed fees.” He sees this as a major problem as the telecom industry tries to shift its value proposition away from one-size-fits-all POTS service. “If we keeping making things bland and they all cost the same amount whether you get package X from Verizon Wireless or Cingular and we don’t differentiate the kind of content individual consumers want, we’ll keep teaching people that your phone is cheap or free and that you can’t do anything new on the Internet,” says Mich.
On the other hand, there are arguments to be made in favor of flat-rate pricing. “If you get too greedy, you can run into trouble,” says Shanahan. In other words, a focus on pay-as-you-go coupled with up-selling poses a risk of turning the customer off from spending all together. Further, Shanahan says, “going flat-rate makes the billing simpler and the OSS aspects a little easier, and that can really help to reduce the overall cost. It’s also all about packaging and bundling now, and if you do that with a flat-rate offer, you can have success. It’s also easier to open up all of the features to you than let you go a la carte, because of all the systems, services and management in the background that otherwise becomes too granular.”
As usual, the smart answer to the pricing questions is somewhere in the middle, and would embrace both Shanahan’s and Mich’s points of view. “If you want to drive a deeper relationship with the customer, then you need to provide the appropriate charging mechanism,” says Rowling at Amdocs. This customer-centric approach seems to have caught on in Europe, where BT has been very vocal recently about its plans to be a transaction enabler and to allow customers to be billed and to pay in any way they like—from paper to online and from check, credit or debit card to cash (see Q&A with BT Retail CIO Maria Pardee in December Billing World).
This flexible, open approach sounds like smart business, but it is very complex to deliver. What Mich is hearing—that U.S. providers may want to stick with flat-rate—could reflect a desire to avoid some difficult aspects of IT transformation while embracing Web 2.0 thinking that theoretically encourages simplicity.
Executives Say Little, but Reveal Some
As the new content business progresses, there is tangible fear and uncertainty around exactly what it means for the OSS/BSS sector. At the recent TeleManagementWorld Americas event, the mood was confused and excited. Engineers, of course, tend to thrive on confusion, because it means there are complicated problems for them to fix. Yet it’s clear that no one is completely sure where the content business is headed exactly. Keynote speakers from AT&T Labs and BT both expressed concerns about their cost structures, and made statements suggesting that OSS/BSS vendors and integrators aren’t getting in line fast enough with new world economics and technical approaches.
“I don’t see the progress in software and business systems design like we have in the network,” said Keith Cambron, president and CEO of AT&T Labs. “We haven’t seen a paradigm shift like we have in optical networking and other areas.” In the optical networking world, carriers have seen remarkable advances in capacity, features and intelligence combined with declining price points and clear, measurable ROI. Software has not delivered similar advances in capability, and has not brought about the economies of scale service providers expected.
Cambron said further that for AT&T, “it is the breadth of technology we have to integrate that is our biggest challenge today.” This is a shot across the bow to all technology providers and a call for them to take on more of the integration and standardization burden, on which service providers still feel they must spend too much money and manpower. It is especially relevant to OSS/BSS providers, however, because of the fragmented nature of product lines.
Phil Dance, CIO for technology at the BT Group, echoed Cambron’s sentiments as he said, “You have to simplify.” He was referring to the end goal of transformation, suggesting that all of the new technology being introduced and the overall shift to end-to-end IP networks should, at the end of the effort, result in a simpler way to do business and introduce new capabilities. He also stressed that service providers “have got to be able to scale up and down,” so that masses of unused resources aren’t sitting inefficiently idle in the network, as is the case today. This is another shot at OSS/BSS providers, perhaps to remind them that part of their job is to bring just-in-time economics to networks.
Dance also voiced what seems to be widespread dissatisfaction among service providers with their traditional system integration partners. “We didn’t use Accenture, Cap Gemini or anyone else” to perform BT’s rapid transformation, said Dance. “It was all grey hairs like me inside BT that got the job done on time and within budget.” As he stressed “on time and within budget,” Dance was clearly making reference to SIs’ reputation for struggling to do so themselves.
Ultimately, the real question around the content business is what role telecom providers will play in it. Clearly they are not the biggest dogs on the block anymore, so as their content businesses mature, it is important to recognize what long-term role makes the most sense in order to share in all of the growth potential.
“I don’t think we’ll see a vertical market where the telco runs everything,” says Dance, “but we will see a world where the telco is critical and centrally involved.” If service providers want to be centrally involved, then it’s time to stop talking and start shoring up the loopholes in their content delivery and settlement processes.
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