"Although carriers still struggle to bill in real time for usage and content, the significant decline in per-minute rates will force them to look at prepaid services as a way to target untapped markets where people want data and content services without long-term commitments.
Despite its 4- to 6-percent churn rate, prepay is already compelling for carriers. Average revenue per user (ARPU) rates ranging from $30 to $40 dollars per month are very attractive when the cost per user is between $5 to $16 per month.
Fear of cannibalization of postpaid services is melting away as carriers see the cost-per-gross-add (CPGA) for postpaid exceeding $400 for advertising, subsidized phones and promotions for each new subscriber. Despite the ARPU of $50 and two-percent churn rate, postpaid profitability may be equaled, or even beaten, by prepaid services in the future.
""If Wall Street considers CPGA in churn rate comparisons, many Tier 1s may look at prepay as more than just a way to spark growth only after postpaid flattens out - traditionally after they got 75 percent of prime subscribers,"" says Dave Guggenheim, senior vice president of sales and marketing at Unibill. Having launched both pay-as-you-go and unlimited calling prepaid plans, Unibill customer US Unwired is operating with an ARPU of close to $50 and a cost per user of approximately $16 per month.
Experiencing that level of profitability with just basic plans around unlimited local and nationwide calling will mean an expansion to prepay mobile data services down the road.
For this shift to occur, however, carriers must figure out how to deliver the same value to prepay customers as they do to postpay customers. They can then go beyond targeting just a younger subscriber base and use prepay as a low-cost way to target middle to upper income subscribers in different ethnic and demographic groups.
For example, subscribers in Latin America have made SMS a viable alternative to voice, often using text messages as a means to request that others call them on their land line phones. That means prepay, if handled correctly, could generate revenue from peripheral services not originally tied to prepay.
Prepay Around the World
In Europe and Asia, the trend to offer SMS, multimedia messaging service (MMS), gambling, games, and music dowloads is picking up tremendous momentum. For example, in Japan ringtones, gaming, video and music clips have gained enough popularity that NTT DoCoMo has signed thousands of contracts with content providers.
SmarTone Mobile Communications, Hong Kong's leading mobile network operator in multimedia services, is introducing attractive content services as are Orange and Vodafone in Europe.
Telecom Italia has launched broadband prepay services and P&T Luxembourg has implemented prepaid for its 2G (GSM) and 3G (UMTS) networks.
Pre- and postpaid convergence is taking place globally, as evidenced by Indonesia's Excelcom, Taiwan's Far EasTone, France's SFR Groupe Cegetel, Romania's Connex and Turkey's Terkscell - all of whom have implemented or are in the throes of implementing rating and billing in support of hybrid services.
According to research firm IDC, the number of prepaid wireless subscribers in Western Europe will grow to 189 million this year - as compared to 74 million in 1999. Those subscribers will represent 48 percent to 62 percent of the total wireless customer base.
However, prepay for content services is still a sparkle in most American carriers' eyes.
The most recent promotions in the U.S. involve awarding customers with free off-peak calling minutes or text messages after they hit a predefined threshold. However, the real money lies in charging for the value proposition of a service, which means rating an MMS video differently from a still picture. It also lies in figuring out cross-promotional strategies for rewarding buyers of premium content with free downloads, games or other valuable content. To recognize a GSM customer on a data-enabled rate plan, which will differ from a TDMA subscriber with a basic rate plan, means there must be an evolution in charging.
There are four steps in charging for data services, according to Steve Menear, associate vice president of the Intelligent Networks division of Comverse. They are unlimited fixed monthly fees; usage-based, such as per kilobyte charging; and content-based charging, where subscribers are charged based on the type of content, whether a ringtone, news item, stock quote, video clip, and so on. That facilitates charging for subgroups, such as a premium ringtone versus a basic ringtone. Fourth will be value-based charging, which will enable carriers to charge for the same content multiple times and in different ways. ""If a subscriber attending a football game wants to see a replay of a great play at halftime, he can download a clip. He may be willing to pay as much as $5. Twenty-four hours later, he may want to show that same clip to someone in his office for a price of $2. A week later, he may be willing to pay $1 to show the clip to relatives he's visiting,"" says Menear. ""Regardless of the price points, it's the same content, same amount of data, for which subscribers will be willing to pay different amounts because of a perceived value.""
Some American carriers are delving into steps one and two. Already, Nextel, with its Boost Mobile service, AT&T with its Go Phone, Verizon Wireless with its Pay As You Go and Alltell's Boomerang services are embracing prepaid and looking at rolling out non-traditional services to non-traditional customer bases. Verizon Wireless and Virgin Mobile are planning to build more relationships and subsequent interfaces with content providers to enable innovative prepay services.
In preparation, some carriers, like Verizon and Cingular Wireless, have decided to bring their prepaid billing in-house. ""We wanted to have speed to market and the flexibility to make adjustments to future iterations of Pay As You Go,"" says Brenda Raney, a Verizon spokesperson, noting the decision to sever the ties with its outsourcer, BCGI.
Conversely, Boost Mobile works with BCGI to make its iDEN packet data rating capabilities the center of its prepay strategy. ""For the past 6 months or so, we've been working to run call detail records (CDRs) through billing systems in real-time as they come off the switch,"" says Tammie Phillips, director of product management and billing for Boost Mobile. ""We want to showcase products that reflect the immediate interests of our target market. She points out the importance of breaking down barriers among network engineering, IT and marketing to succeed. ""If you are to know who is buying the phone and for what they are using it, you have to have an open-door policy where there is open communication among teams."" She notes that a lack of central command for project management could lead to different methods for integrating SMS systems, content providers' systems and prepay systems. That leads to complexity when rating with multiple content providers.
Because carriers will no longer be afforded 3 to 6 month time frames for mining data, they must have a way to cull and disseminate information every time they authorize, charge and rate services. ""IT needs to be made aware of calls and usage history reports, which should be available in real time for analysis of complete sets of CDRs,"" says Phillips.
Real-time Billing Crucial to Prepay
With prepay, networks need to instantly recognize and impose credit limits and authorize or deny services. Real-time billing means that network-level experience is critical. With prepay, carriers have to check accounts, credit, authorize and monitor calls, and, immediately post charges and update balances - thousands of times every second, 24/7.
To install a real-time front-end system with minimal impact on existing processes means monolithic and rigid systems must give way to flexible and dynamic systems that can handle new services as they appear.
""There are ways to install a real-time front-end piece that can do authorization, rating and charging, as well as balance maintenance and history tracking - all without affecting fundamentally the remainder of the billing system," according to Menear.
Rather than having switches heavily involved in the billing process - generating CDRs, rating and charging, and handling balance management - the switch can send SS7 intelligent messages to a prepay system, which handles rating, authorization and balance management. ""You can extend that principle by having that interface do all voice, data, messaging and micropayment applications."" The prepay systems and interfaces can then interact with the back-end billing system in the way it is accustomed - generating CDRs as billing expects, according to Menear. ""It's just a matter of turning a slow process into a real-time process.""
That, however, is complicated enough so most operators' systems work in near-real-time, making revenue leakage a concern.
The trouble usually starts in markets where there are handsets that handle the latest evolutions of CDMA1x, TDMA and GSM for PCS services, or where there are very few relationships with content providers, so carriers get away with near real-time at the inception of new services.
""Eventually, operators will go through the pain, as the prepaid systems' ability to authorize in real-time will have applications in many other areas,"" says Menear. ""It will drive carriers to think about how to change tariffs immediately, or introduce new vouchers on store shelves instantly - new concepts to the billing world.""
Another challenge will be the fact that trigger events that activate prepay processing elements will not come from one place, as was the case with voice. ""Content comes from many elements - all of which will need billing system involvement,"" says Miriam Deafy, billing strategy consultant with Amdocs, which has implemented a prepaid/postpaid solution for ExcelCom in Indonesia. ""As content is consumed, there is a browsing activity going on where people work through the equivalent of Web pages on handsets."" That, she explains, means billing systems have to interrupt to see how much services cost. ""To introduce new business models and services with minor changes to systems, there has to be flexibility of where rating can go,"" says Deafy.
Also, charging mechanisms need to extend parameters by which carriers can charge. To authorize a service and accommodate new charging parameters, carriers have to have flexibility in how they configure new tables, as many will want to do so in a matter of minutes rather than hours or days.
Companies like Convergys, Amdocs, HP, CSG and Logica are pushing convergence of postpaid and prepaid, as well as IN service control and pre-integrated session control and billing. And companies like Lightbridge are helping carriers with customer profiling in making a content play.
""Typically in BSS, there are silos with similar processing in different rating and billing modules - appearing much like circuit diagrams with many components doing similar things,"" says Deafy, who recommends reducing the number of systems to gain a single view of customers in real time. ""That's the only way to understand what their behavior is and what they are buying from you, as well as what they are most likely to buy,"" says Deafy.
She finds that the strategic intent of an organization has to be founded on a customer focus rather than on reducing CapEx and OpEx. ""Focusing on the customer, pushes companies to streamline compartments through which customer details are processed,"" she says. But, she acknowledges, it is a large-scale change that has to be championed from high up. ""Getting network and IT departments to talk requires a human change.""
In order to have the ability to coordinate with other systems that monitor usage and authorize subscribers, ""you don't want your network folks - traditionally in charge of prepay - and IT folks, generally in charge of postpaid - to have to rewrite software elements in billing systems every time a new service is launched,"" agrees Boost Mobile's Phillips. ""By somehow getting the two to work together, it is possible to converge separate post- and prepaid customer care, marketing and billing systems.""
Some say that to have real-time requires that OSS/BSS systems be built from the ground up with real-time in mind; otherwise the systems struggle to handle itas an adjunct.
""Carriers are finding they either have to add real-time rating next to their billing systems, or, they can migrate from existing systems to newer ones. It's a balancing act of figuring out the effects on operational efficiency - how much training and maintenance - in synchronizing data,"" says Nicole Thierhoff, director of marketing for LHS Systems.
That complexity can be mitigated with mediation, which can have multiple inputsfor linking content, SMS and GPRS data in prepaid systems. ""Usually, all of those need direct input into the prepaid system, with independent links,"" says Andrew Johnson, regional director for Comptel. ""The benefit is that it becomes a typical mediation argument - only one place to change, as the rating for all that content is conducted in one central location."" By getting the traffic from the SMSC, mediation checks for money in the prepay system and sends it forward or rejects it.
""Prepaid mediation gives a 'bottom-up' view so that carriers can suspend data transactions while rating engines pre-rate services and check whether subscribers have the necessary money to enable the transaction to continue,"" says Jaakko Soininen, president of Comptel Communications.
Carrier/Content Provider Settlement
""Carriers will have to somehow manage and prioritize sessions, content and balances,"" says Boost Mobile's Phillips. ""We know we're headed toward a path of working with multiple content providers - the challenge of which will be remaining organized, scalable and robust."" That, she believes, will be a matter of partnering at the right time with the right companies.
Phillips and others recognize that concurrency will be an issue as well, since subscribers will want to simultaneously participate in services, such as online gambling while text messaging or talking. Unlike voice, data sessions and downloads can happen simultaneously with multiple sessions to the same prepay customer.
For OSSes to accommodate the concurrency aspect of data transactions in real time, they must figure out interface and integration headaches - a challenge once numerous content providers start feeding into the same AAA, prepay systems and switches.
For advanced services requiring settlement with multiple content providers, there must be a way for content providers to integrate directly with carriers' AAA and front-end systems. There are instances where SMS systems talk directly to prepay systems, or where 3G data feeding into a AAA system also interfaces to an SMS system.
CIOs don't want their AAA systems to have to pick through entire databases to match up subscribers with the right phones for data or just voice; rather, they want a subset through which AAA systems could search for a more efficient process.
Whether direct or through a third-party interface, most carriers that get into 3G data services will have to interconnect with partner, making settlement a potential pain points. Authorization and enablement differ in terms of integration, but the settlement is the same headache across the board.
""Content providers will not want to tie into diverse operating environments for each carrier with which it works. Just as a card holder from Chase can use a card anywhere where Visa is accepted, merchants in telecom applications will want that type of interoperability,"" notes Farhad Farzaneh, vice president of products at Valista, which does mobile payments and multichannel top-ups on its prepay charging platform. ""There needs to be a merchant communication protocol that allows either denial or acceptance of risk.""
The carrier has to be in control of its contracts if it is to remain profitable. For carriers that are aggressive in recruiting content providers and getting them to connect into their systems for payment authorization and processing, prepay systems should allow for plug-in rules that establish how much non-payment risk the carrier is ready to take on.
The carriers expect the prepay systems vendors to figure out how to interface to CDMA, TDMA and GSM switches and manage products and services based on those technologies. They want prepaid vendors to manage interfaces in such a way that subscribers can be authorized according to the services to which they subscribe.
While WAP can be provided on a prepay basis with certain prepay techniques such as hot billing, prepay WAP will grow with the adoption of CAMEL phase 3 in conjunction with GPRS as a bearer (see ""Standards Watch,"" this issue). INAP, which specifies the data flows to be exchanged between different entities of the IN functional model and CAMEL, is a standardized IN mechanism for GSM, GPRS and UMTS networks. Carriers will have a better chance of differentiating between customers and services if they have intelligence based in their networks. ""If you have a network-based system installed, and interacting with switches using IN standards, integration with existing support systems will help to generate reports and manage the relationship aspects through customer care screens,"" says Phillips.
Other standards groups and vendors are working feverishly to ease settlement pains. Efforts by PayCircle, SIMpay (founded by Vodafone, Orange, Telefonica and T-Mobile) are leading toward building networks for micropayments and microcharging. ""In the meantime, workarounds are built so that that risk can be shifted around the ecosystem as systems authorize or deny spending limits in real time,"" says Farzaneh.
As such standards catch up to the technology, carriers will be able to implement intelligent networks that instantly recognize and impose credit limits and authorize or deny services. That network-level experience will be necessary for real-time billing, as will the capability to do so thousands of times every second.
As prepay subscribers prove to be just as, if not more, profitable as postpaid, carriers will find the incentive to offer the same services to prepay customers as postpaid. That will drive the implementation of real-time front-end systems to dynamically support new services."
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