3G Pricing Woes
By Wendy M. Grossman, Tue Apr 03 00:00:00 GMT 2001

If the present billing model is proven to be inadequate for mobile data-driven services, are we talking about creating a whole new set of models or upgrading the existing one to a two (or even three) tier pricing model?

Hope springs eternal. The Internet is huge and getting bigger every day. Mobile phone users, who outnumber Internet users by an absurd amount, will inexorably have to move to 3G just as they had to move, from analog to digital. Surely there must be loads of money to be made out of these two phenomena. But how?

It turns out that figuring out how to bill for services in the era of UMTS and beyond is going to be extremely complicated. For example, say a car maker installs a UMTS service in its cars that continuously checks for servicing needs; when your car is due for a check-up the system contacts your garage and your diary, arranges a date, and asks you to confirm, then confirming with the garage. There are, the Global Billing Association (GBA) points out, as many as six different uses of the network in that single transaction. Assuming consumers will pay for such a thing – but why should they?

It would be a lot simpler just to have the car give you a readout – but then who gets the revenues? The mobile network operator gets some, sure, but does the garage and the car maker get commissions? And how is the money extracted from consumers? Via telephone bills? As a separate subscription? And who carries the burden of false alarms?

There’s an additional problem, as soon as you start to think internationally, in that while in Europe the caller pays the entire cost of a call, in the US the receiver pays the lion’s share.

Determining the payer and the payee

Apogee Networks, which boasts it’s the leader in content and intellectual property billing, recently showed off a demonstration system that would enable wireless carriers and data providers to bill for Internet content delivered to wireless subscribers. In addition, the system is expected to allow operators to bill separately for voice and data traffic, bill for content on a usage basis, and support settlements between content providers and wireless service providers.

But providing the infrastructure is simple compared to the difficulties of figuring out who should get what and how much the market will bear. Certainly, on the Internet users have been extremely reluctant to pay for content.

Paying by the megabyte, a popular idea among network operators because of the realities of limited available capacity, has never been sold to Internet users for the simple reason that when you request data (such as a Web page) you have no idea how much data you may be sent.

In the telecommunications world, while people are used to the idea of paying per minute to transmit voice and data, the last few years have also trained them to expect ever-decreasing charges.

Research bears this out: The London-based research firm found in 1999 that users generally expected to pay same or less than a voice call for data services. Even so, DoCoMo has had success with some services; the GBA highlighted, for example, one that sends a daily cartoon to subscribers for about $1 a month. Cartoons can be forwarded to friends for a small additional sum.

You can see the point of paying for that if the cartoons are good and the service is distinctive. When the fixed Internet penetrates deeper, these tradeoffs are going to be difficult. Do you have to pay $1 a month to have a cartoon arrive on your mobile phone if you have fixed, broadband Internet access and can simply tell your computer to load the Dilbert site or the Daily Telegraph’s Alex every morning?

Certainly, the archetypal trader who stands to lose hundreds of thousands of dollars if he misses a bit of market news won’t balk at paying to receive a steady stream of market updates. But an ordinary person whose car alerts him that it needs to be serviced actually has no reason to use a mobile network, even a high-speed one, to do it.

Weighing the scenarios

It seems likely that two types of paid content will emerge. First is the type of information that is useful only because it arrives at the right time in the right place. I probably wouldn’t pay $1 a month to receive cartoons. But I probably would pay that to be able to hit a button in a London Underground station to get the accurate time of the next train to my destination. That would let me make better decisions: Do I have time to get cash, buy a newspaper, and make a phone call? That sort of information is highly perishable and extremely location-dependent.

Second is the type of media content that’s available on other platforms, but that some people would prefer to receive on their mobile phones (or other devices) rather than in print, on TV, or via radio in what could be described as device-shifting (like the time-shifting VCRs make possible). Maybe you have Web-based publications you wish you could read on the way to work every day, or you’d like to listen to the radio on the move but don’t want to carry an extra gadget. Both will require a delicate balance in setting price points.

In either scenario, billing by the amount of data seems impossible. It will cause too much of a collision between the user’s interests (minimal amount of data, high speed) and the content provider’s (lots of data, higher charges).

Charging a flat subscription for services, while tempting, is probably going to be too clunky. People will always find they’re subscribed to the wrong services at the wrong time. For example, I’d wind up paying for the London Underground system when I never traveled or was out of town. Some mobile operators have proposed the subscription model for the forthcoming GPRS services – initially at least.

Charging by the minute, with a portion of the revenues going to the content provider, seems logical enough, and mirrors the early online information services that predated the mass growth of the Internet. It has an added advantage, in that it makes niche services economically feasible.

Pricing models will have to take into account variables such as location, value of the service and the mobile devices in use. Charging dubious amounts for a data service will only hinder the adaptation of the service. It is crucial to have a good marketing mindset while designing the pricing models – revenue must intensify.

Wendy M. Grossman is a freelance writer based in London, and author of net.wars .