Reverse the charges: Despite its obstacles, calling party pays is gaining enthusiasts

It's not so much what was said as who said it. AT&T's plans to implement a nationwide calling party pays program later this year for its wireless services is not a first-to-market move. It might not even get off the ground on time because standards issues are not yet settled.

It is, however, what the wireless industry may need to change consumers' attitudes about untethered communications.

The average U.S. wireless subscriber uses about 100 minutes a month but may talk on a wireline phone for 1500 minutes a month.

Most wireless subscribers-unless they are business users whose companies pay the bills-are not in the habit of giving out or having their phone numbers published. That's because current marketing plans dictate that they must pay for both incoming and outgoing calls, plus any roaming and long-distance fees accrued.

The American way of doing things-the subscriber pays for everything-is radically different from how the European and Asian wireless communities reconcile their bills. Calling party pays (CPP) has been the norm in those countries. In some areas, wireless phones are used as much as wireline, and many times as a substitute (Table 1).

Until recently, U.S. carriers have balked at major CPP changeover, but they now back such a move with certain safeguards in place. AT&T says it will test its CPP plan this summer and hopes for a complete rollout by the end of the year.

Besides making callers to wireless phones bear the brunt of airtime and long-distance charges, AT&T promises a 100-hour battery this spring and a 200-hour battery by the end of the year. It hopes wireless customers will be willing to release their wireless phone numbers more often, spend more time on their incoming calls and leave their phones on to receive calls.

"There's a huge disparity between incoming and outgoing call volumes in wireless networks," says Jordan Roderick, vice president of national operations for AT&T Wireless Services. "We think this is because most users turn off their phones."

The carrier plans to implement CPP to try to stimulate wireless use, although details are not yet forthcoming. "We are, for the moment, not talking about how we're going to do that," Roderick says.

Only a few U.S. cellular and PCS markets offer subscribers a CPP option, but the industry is backing a regulatory move toward this program, partly to improve revenues and partly to diminish the distinction between wireless and wireline telephony.

However, because standards covering technical and business aspects of CPP nationwide have not been formulated or approved, no significant rollout is expected until 1999-even for AT&T.

First step: making it known The media spotlighted new AT&T Chairman C. Michael Armstrong's remarks about the carrier's proposed streamlining of operations and plans to enhance its bottom line-CPP being among them.

"The significance of [Armstrong's] announcement goes beyond CPP," an AT&T spokesman says. "In the market environment today, margins are becoming tight, and it's hard to make a buck. CPP and other new technologies, like phones with extended battery life, give you the elements of how to change the way people use wireless phones."

Pointing out that 90% of wireless calls are outbound, CPP would give customers flexibility and carriers a way to drive minutes of use, the spokesman says.

Argentina is one example of how these trends are being reversed. In that country, 70% of calls are incoming and 30% are outbound because Argentina adopted a CPP strategy, according to Robert Choi, who follows foreign CPP plans for The Strategis Group, Washington.

CPP customers in Argentina account for more than double the billable minutes compared with U.S. wireless subscribers, and the balance between wireline and wireless calling is about even, a recent Salomon Brothers report indicates.

Americans, however, will resist the change because they are so used to not seeing wireless charges on their home or business phone bills. Business customers probably will be the easiest to convince.

AT&T's stature in the market influenced its high-profile media coverage, even though other carriers, including Bell Atlantic, AirTouch and Ameritech, have been offering CPP commercially in several markets for some time.

And at least one carrier is skeptical of AT&T's timeline for CPP introduction.

"First they come in with CPP, and then they announce a 100- and 200-hour battery, which we've called the backpack because that's what they would need to power a time division multiple access phone," says a spokesman for Bell Atlantic Mobile.

"We'll move forward faster once standards are in place on how to collect revenues," he says.

Bell Atlantic offers a commercial CPP program as an option in its Phoenix market, and most subscribers have chosen it. Callers to mobile phones are notified via a canned message that there will be extra charges if the call is completed, and they can choose to hang up.

Although he could not release hard numbers, the spokesman says that Bell Atlantic has logged an increase in billable minutes of use in that area, and that has not occurred in other Bell Atlantic markets.

The spokesman says he is surprised that AT&T has promised wide-area CPP within the year because the FCC is considering how to regulate the service, and standard-setting bodies won't vote on technical oversight until late this year.

"And we know of no interconnection agreements between AT&T and the local exchange carriers to facilitate CPP as yet," he says. On the plus side, however, AT&T turned what otherwise was an obscure regulatory matter into a front-page business issue, the spokesman says.

Next step: plugging the leaks Telecommunications analysts agree that CPP will be a good thing for both carriers and subscribers, pointing to CPP's offshore success. While only 17% of the U.S. population has signed up for wireless service of some type, an estimated 30% of European and Pacific Rim customers use mobile phones.

The trick is to get the mainstream carrier community to come on board.

"The biggest sticking point right now for CPP in the United States is getting the major carriers to agree to a ubiquitous system of billing and collection," says Jerry O'Brien, senior director of legal and regulatory affairs for Omnipoint. "They already handle the billing for interexchange carriers, [competitive] LECs and other wireless carriers, but many are saying that CPP is different."

Today's intelligent networks should be able to capture all the information associated with call origination and destination so that billing issues can be reconciled for CPP just like other billing issues, O'Brien says.

"AT&T has the potential to influence this issue in the markets and with the [LECs and CLECs]," says Mark Lowenstein, vice president for wireless research and consulting at The Yankee Group, Boston. "AT&T wants to see the regime change to wireless for overall use. The bandwagon will include three or four notable carriers that will lead the charge toward CPP."

According to Yankee Group research, 76% of CPP survey respondents said they would give out their cell phone numbers more often. Likewise, wireline callers said they would be more discerning when making calls to wireless units.

Before CPP proliferates, regulatory and technical hurdles must be cleared, and billing systems must be revamped to handle multiple scenarios, Lowenstein says.

Not only will callers have to be primed to pay up to 30 cents a minute for a call to a wireless device (plus local access and long-distance fees), but billing systems also will need to be devised to block "leakage"-calls made from pay phones, hotel phones and other untrackable venues.

Leakage can account for up to 25% of a carrier's lost revenues. This is where new treaties among wireless, wireline and IXCs must converge, and that process won't be easy.

Other countries have had great success plugging leakage only because carriers are usually dealing with monopoly landline providers that own most phone sources, including pay phones and hotel phone systems. However, CPP calls cannot be billed from country to country.

The Cellular Telecommunications Industry Association, one of the staunchest proponents of getting the CPP show on the road, has been working with the FCC and other organizations to answer the important operations questions. The group expects the commission to act this year on its CPP notice of proposed rulemaking, and it expects technical standards to be adopted (Table 2).

"If the FCC is for the promotion of competition in the marketplace, it has to approve CPP," says CTIA President Tom Wheeler. "You'll never have parity between wireless and wireline without it."

To inch the FCC closer toward closure, the association has crafted both a white paper on the topic and a proposal that forms the basis of the commission's set of CPP questions that commenters answered in December.

The white paper points out that CPP in the United States has been limited in area because of unbillable calls from pay phones, hotel phones, other wireless phones, other phone networks, long-distance networks and calling cards. However, such leakage could be lessened if 1+ dialing or distinct NXX codes could be assigned to CPP subscribers, along with distinctive beeping and caller notification.

Bell Atlantic Mobile uses its Advanced Intelligent Network setup to instruct callers about their payment choices, and it is working on other schemes to collect revenues from calls made from leakage-prone venues.

Until such advanced billing and collection means can be refined, Bell Atlantic will not venture further than Phoenix and El Paso, Texas, in its CPP offerings. The CTIA identified other players besides AT&T, Ameritech, AirTouch and Bell Atlantic Mobile that have been offering some sort of CPP. They include GTE, U S West and Cincinnati Bell, which has options throughout the state of Ohio.

U S West may have CPP offerings in Arizona, Colorado, Idaho, Nebraska, New Mexico, Utah and Washington state, the report says. Wireless customers are given a special phone number and phones must be reprogrammed to handle CPP.

Callers were paying 35 cents a minute peak and 24 cents a minute off-peak as of July 1997, and subscribers were being billed $3.95 a month for the option.

On the PCS side, the practice is to offer the first minute of an inbound call free so subscribers can terminate unwanted or frivolous calls quickly at no charge. However, PCS carriers are just as anxious to adopt CPP programs as their cellular competitors.

The 1998 road to widespread CPP will not be smooth, despite announcements made by deep-pocketed players with a marketplace agenda.

And if making money is AT&T's Armstrong's No. 1 priority, as he hinted in a recent published report, he will have to speed the CPP plow with his competitors to make sure business, marketing and technology plans are nailed down. AT&T's good name alone won't do it.