Analysis: OTT players dangling huge carrot; carriers need to grab it -- and bill it

Carrier billing is logical a step towards mobile operators insinuating themselves deeply into the mobile commerce (m-commerce) value chain. Better yet, it is being actively encouraged by the likes of Google, Research in Motion (RIM) and Nokia.

While mobile payments will ultimately include credit and debit cards, bank accounts, alternative payments and non-operator stored value accounts as well, the carrier billing opportunity is staring carriers in the face. Developing these functionalities will bring more revenue opportunities for mobile telcos by building upon existing billing relationships with customers.

The definition of m-commerce, according to the 35 mobile telcos interviewed recently by Informa Telecoms and Media, on behalf of Vesta Corporation, includes local payments (including NFC), remote payments for physical goods and services, mobile money transfers, mobile top-up and mobile banking. Physical goods and services is top of the survey at 86%, with digital good close behind at 80%.

The global market for m-commerce in terms of customer revenues was worth approximately $5.6 billion in 2010 and is expected to grow to $22.5 billion by 2014, according to Informa. A significant part of this was generated from sales of mobile apps in 2010, amounting to $4 billion in revenues.

One barrier to carrier billing is the fact that the fees are still too high, averaging 30% of the transaction. This leaves the door open for credit card providers, which are used to operating on thinner margins, to step into the void.

However, with Nokia’s Ovi Store and Microsoft’s Windows Marketplace enabled with carrier billing in a number of markets, and Google wanting to link Android Market with carriers’ billing systems, the opportunity has come knocking. Nokia alone has billing agreements with 112 mobile telcos in 36 markets.

The Vesta-sponsored paper is cautious on the NFC opportunity, saying that mobile telcos must look more carefully at the real economics before investing in NFC services. NFC will require large upfront investment and take at least three to four years to reach a critical mass of users and transactions.

The other challenge for true take up of NFC is that many different players are involved and all must move in the same direction. Informa believes that a 20% share of handsets – used by customers, not just with NFC functionality – is needed before the technology can become mainstream.

Given that, the current situation represents an open door for telcos. Over the top players are looking to telcos to provide the billing for their customers, and there is an empty chair in the value chain for them to fill. With a trend towards personalization and true customer focus, this position in the value chain can only get stronger – as long as telcos focus on customers rather than court-rooms.