Clinching the Sale
By Peggy Anne Salz, Mon Jun 13 08:00:00 GMT 2005

Most operators charge for mobile data by volume, while a few use time-based charging. However, a model that charges for content according to its value in the eyes of consumers could make more sense -- and money -- in the long run.

Operators may like to see themselves as content retailers, but they have a lot to learn. Shops, for example, have a good idea what their customers like because they monitor sales on an item level at the checkout. They don't only know that soap sells -- they know the brands that are hot and cut deals with these suppliers to make sure there's plenty more on the shelves.

Shops also delight their customers with prices they understand and offers they can appreciate. They don't expect consumers to make a purchase if they don't know the price first, and they don't price day-old bread the same as bread fresh out of the bakery.

Content, like food in a grocery store, has a shelf life. Operators can justifiably charge a premium for a videoclip of a winning goal, for instance, shortly after it happens. Its value then diminishes over time.

So, to run more profitable networks, operators must stop treating mobile data as if all services were equal and replace volume-charging with new content-centric strategies based around technology that can view and assess traffic streams in real-time and then use that information to make data services as profitable as possible.

Close, But No Cigar

Sensing that volume-based charging is on the way out, operators such as Vodafone and T-Mobile have recently introduced time-based charging for their 3G services. Arguably, billing users by the hour and adding a charge for each additional minute may be an improvement over confusing volume-based tariffs, but it still doesn't allow operators to bill for the value of the data.

Indeed, unpublished research from Tarifica shows time-based billing is hardly a bargain. It can actually be more expensive for users since gaps in UMTS or EV-DO coverage will often require them to download data over much slower GPRS or 1xRTT networks.

"The 'all-you-can-eat' billing schemes popular in the fixed Internet will inevitably gain traction in the mobile Internet -- and bring with them a new urgency to price data services according to a new paradigm," says analyst Margrit Sessions. But a flat-rate charge for data increases the importance of being able to deploy adaptable solutions that charge for content according to the value to the individual user.

Making Data Pay

To this end, operators must overhaul their systems -- built to bill for voice -- to monitor their users' data sessions. It's a nightmare but necessary task.

Current systems are typically limited to charging for data by the number of packets, regardless of the value of the content. They systems sit at the core of the network and are interconnected with a myriad of network elements. As one engineer at a European operator put it: fine-tuning them to be content-ware is like playing a game of Mikado pick-up sticks. One change could trigger an avalanche of unexpected problems.

That's why a handful of start-ups including Megisto Systems, Volubill and NetSpira Networks (which was snapped up this month by Ericsson) are chalking up operator contracts at a staggering speed. Their products, which sit at the edge of the network where system complexity is less of an issue, inspect packets of data before delivery and provide systems at the core with information they can bill against.

"MP3 files cost $0.99 cents on the Internet, so if you're a mobile operator charging more, you're going to lose money," explains Andy Capener, a director at Starent Networks, an infrastructure developer that uses NetSpira's advanced charging capabilities. Content-aware charging can "see" that the file is an MP3 file, not just a packet of data, and allow the operator to adjust the price accordingly. So if the traffic charges exceeded that 99-cent threshold, they could be adjusted down.

Control Freaks

Content-aware charging, which essentially examines data traffic in minute detail, clearly provides operators with valuable business intelligence that will ultimately allow them -- and the content developers they share it with -- to better target user tastes and trends.

But, just as absolute power can corrupt absolutely, providing operators the means to monitor and inspect data traffic may ultimately give them too much control over what users consume.

Indeed, content-charging is seen by an increasing number of operators as a kind of secret weapon in the battle against P2P services and VOIP services such as Skype. Already some operators are flexing their muscles in this direction -- and it probably won't be long until more mobile operators make similar moves.

"Increasingly, mobile operators want to control voice over IP, and, in some cases, block it," explains Alain Lefebvre, a Volubill VP. "Operators can either be a bit pipe, or they can fight back."

Many operators regard content-aware charging schemes as a sure-fire way to enforce DRM and plan to implement it to do just that. In a scenario where users are exchanging a music file over a P2P network, for example, the operator could use content-aware charging technology to inspect the integrity of the file's DRM and block the transfer if it suspects piracy.

While the added functionality associated with content-aware charging can assist operators as they seek to develop more flexible pricing models for the masses, they should nonetheless be careful about exercising too much control over individual users.

Rather than delighting the customer, schemes that threaten to pull the plug on P2P or block services like Skype are bound to alienate users and increase churn in the long run. A much smarter use of this technology would be to monitor the services users prefer and use this business intelligence to cut a deal with these companies to provide the hottest services before their competitors do.