Reality Bytes, For Now

The data is in: Few people without a degree in computer science know how much information makes a kilobyte. Almost no one knows, or even cares for that matter, how many 50-word e-mails it takes to reach 40 kilobytes. And hardly a soul can figure out if a high-resolution family photo is about a megabyte, more than that, or less. But early users of mobile data services know this much: Their service providers only offer them pricing packages that charge by multiple kilobytes or megabytes.

“Charging a price per bit is a bit obscene,” said Carol Politi, vice president of marketing and co-founder of Megisto Systems, one of the vendors now pushing alternative pricing solutions.

Despite the fact that charging by the byte really does bite, most carriers sell two or three different packages featuring different thresholds of bytes for different dollar amounts. Having options is nice, but flat-rate pricing has proved in other markets to eventually ignite pricing wars. Also, choosing a bucket of kilobytes is bound to produce the same conditions that persist in the voice market, where users buy buckets of minutes. Even the most anal-retentive customers are likely to come in under — or go way over — their allotted amount of bytes on a month-to-month basis.

But while voice doesn't present many other options for how to price services, data does. Users could be charged by the e-mail, by the photo, or by the number of ringtones they download on a monthly basis. They could be charged by general content type — data text, audio or video — and conceivably could be charged less for simple content like short messaging, and more for complex content like video. Short messaging service, which is not as widely used in the U.S. as it is elsewhere in the world, follows this model, but it has not translated to the rest of the data realm. All the industry needs to change the situation is a little content awareness.

Vendors such as Megisto and business system software provider Qpass already provide the platforms to make that happen. Megisto, a content delivery platform developer based in Germantown, Md., features a content-aware charging solution as part of its Mobile Services Delivery System.

“Charging per event based on what the content is makes it easier for users,” Politi said. “But network operators previously haven't been able to figure out what type of content was on their networks, or where it was going.”

Politi co-founded Megisto with President and CEO Gordon Saussy after the pair spent several years as co-workers at Torrent Network Technologies, later collaborating as members of Ericsson's IP Infrastructure Division after Ericsson acquired Torrent. As the Internet evolved to a flat-rate access medium based on available bandwidth, the colleagues realized that the success of IP services would require more flexible content service delivery than voice ever did, as well as more attentive subscriber management. In addition, pricing for a broader variety of IP-based data services would eventually have to more directly reflect the type of content packets being transported, and not the duration of calls.

Companies such as Cisco Systems have heavily promoted usage-based pricing for IP services in the wireline world, but in their sputtering, slow-paced adoption of data services, mobile carriers haven't seen fit to follow the model. Politi and Saussy didn't see other companies trying to bring the model to wireless, so they founded Megisto with that aim in May 2000.

Megisto's solution can act as an access control point in a mobile network: It recognizes different traffic types, and interfaces to billing and mediation systems so that these systems can price the traffic content accordingly. The company has partnered with Hewlett-Packard and demonstrated interoperability with HP's OpenView Internet Usage Manager mediation system. Megisto is now looking for other partners, Politi said, but in the meantime, HP is marketing the system to carriers that already use OpenView.

This relationship is an important step for Megisto and content-aware billing. As of late May, no carrier wins had been announced, but Politi said Megisto developed its solution with input from carriers that are using HP OpenView to manage user data accounts.

Still, content-aware billing may have a long road ahead before the mobile data pricing paradigm completely moves away from flat-rate models. The concept will require support from at least one carrier or a handful of carriers set on differentiating themselves from the competitive pack based on their pricing model. And, for a few bold carriers to do that, they will require more demand for new pricing schemes from their customers. For all the sound logic that content-based billing implies, that demand is not so apparent.

“Right now, there doesn't seem to be a lot of incentive for carriers to move to content-based pricing because users haven't spoken out en masse for it,” said Tom Trinneer, vice president of products at Qpass. “Will we see pricing based on the service consumed, rather than charging for the transport space? Carriers will charge as long as they can for the transport for now, though maybe not forever.” Flat-rate pricing hasn't sparked a price war yet, he said, though increasing availability of handsets and better coverage could eventually affect pricing.

Trinneer — a former AT&T Wireless exec — said he sees more current support for value-based pricing, the idea of putting a premium on certain types of content while charging by the byte or bucket of bytes for others. Having a content-awareness solution such as Qpass' Prosperity Series platform also enables this. “It's really the [DoCoMo] i-mode model — setting a different value for downloading ringtones than other types of content,” Trinneer said.

Ultimately, greater content awareness and billing flexibility will make it easier for large corporate enterprise customers to track and classify data applications used by their own employees as business or personal expenses.

“Now, an employee could be using that data device paid for by the company to do corporate e-mail or send family photos, and there is really no way of knowing,” Trinneer said. He added that Qpass currently is working on that kind of enterprise module.

Still, in an industry trying to fight churn while encouraging use of new data and content services, Megisto's Politi foresees content-aware pricing as a critical way to engender subscriber growth and loyalty. “With [multimedia messaging service] on the way, the industry needs to get people thinking about mobile data as a lot of value-added services and events,” Politi said. “Charging per event makes it easier for customers to see what they are paying for — and they might be more inspired to use the network.”