Ericsson cracks U.S. mobile payment market

The mobile content delivery market has experienced a wave of consolidation in the last year, exemplified by VeriSign's purchase of m-Qube and Amdocs' acquisition of Qpass. But just as the market started to calm down, a new player has suddenly jumped into the market — or an old one, depending on your perspective.

After years of testing its chops in Europe and Asia, Ericsson is bringing its mobile content payment business to the U.S., announcing a deal with BringItOn to power the interactive mobile messaging services for the launch of its TV show “Play Us.”

A reality TV show that features an all-girl group of Swedes challenging players worldwide to video game contests, “Play Us” doesn't exactly sound like a big content win. But the TV show is apparently hotly anticipated in the U.S. market and is expected to draw text voting and other service revenues, much like its homegrown reality counterparts. Ericsson, however, has much bigger ambitions for its mobile payment aggregator, Internet Payment Exchange, or IPX.

“We've been hesitant to enter the U.S. market because it was premature,” said Fredrik Ruben, head of sales for IPX in North America. “Now you can't watch TV or read a magazine without seeing short-code-advertised content.”

Ericsson brings several advantages to the country. It has an established international presence and relationships with many of the world's major carriers. Most significantly, it has an installed base of infrastructure with several U.S. carriers (many Tier 2 operators even have Ericsson host their messaging services), making it easy for IPX to integrate with their systems. mBlox, m-Qube and Qpass and a host of other aggregators, however, have announced numerous content partnerships powering the mobile delivery of ringtones, games and other content for the major entertainment companies. According to Ruben, though, those deals are paltry compared with the potential size of the market, particularly in the U.S., where third-party mobile transactions have been slow to gain acceptance.

Content accessed through short codes and premium short message services (SMSs) is a growing and lucrative business for carriers worldwide. Amdocs last week reported that its recently acquired mobile commerce subsidiary, Qpass, has processed more than $1.5 billion in premium content transactions since 2003, representing 590 million individual downloads and sessions. According to Amdocs, 54% of those transactions in the first half of 2006 have involved the mainstay of mobile data applications, ringtones, but a growing percentage of those sales have gone to other content: 19% were for mobile games, and 12% were graphics such as wallpapers. That shift, particularly toward games, has driven the average retail price of a premium SMS payment from $2.54 a year ago to $3.17 in the second quarter, Amdocs said.

The U.S., however, has been a much more cautious market than most, in part because of carriers' tight control over the entire customer purchasing chain, from handset to data download. Carriers have adopted walled-garden approaches to mobile data, where all content is marketed and sold from a carrier's content deck. Although almost all data services were originally run this way, the trend in most markets outside of the U.S. has been toward third-party transactions where customers access content through short code or Web transactions using carrier's pipes to upload the content. Carriers, in turn, bill the transaction and take a share of the revenues, but a much smaller share than they would for an on-deck content sale.

Qpass said in 2004 that only 1% of total content revenues came from off-portal transactions, but in the first half of 2006, the number had risen to 32%. In some markets, the shift to third-party content has been extreme, with analysts estimating the U.K. sees 80% of all transactions off-deck. The U.S. is at the opposite end of the spectrum with less than 20% of transactions for third-party content, but that might soon be changing.

Although the premium SMS business has been focused on ringtones and other entertainment applications, Ruben said, there are a host of new enterprise applications emerging off of which carriers stand to make sizable revenues, if not run the services themselves. American Express delivering charge notifications, airlines delivering flight confirmations and banks delivering replacement PIN codes, all by text message, could be an enormous business, Ruben said.

“All of these things can be replaced with SMS,” Ruben said.