Settling Up

How would you bill and pay hundreds of content partners every month?

Content probably will be to the wireless Internet what hot bands are to the music industry. The bands' charms induce fans to pay high prices to attend concerts that last only two or three hours. In the wireless world, carriers would be the promoters who'd take a cut of the action and make sure other business associates got paid based on the number of seats sold.

All eyes appear to be on NTT DoCoMo (www.nttdocomo.com), the king of wireless content, as an example of how to promote the wireless Internet. In little more than two years, DoCoMo has increased its number of information-content providers from 67 to 828. Also, DoCoMo now has about 1,480 official i-mode Web sites.

Although DoCoMo is far ahead of other carriers in the content race, other companies are building a stable of content partners.

For example, Sonera Zed (www.sonerazed.com) offers its customers access to 160 content partners. North American carriers also are continuing to add partners. Bell Mobility (www.mobility.com) and Sprint PCS (www.sprintpcs.com) each have about 80 content partners.

North American carriers need to negotiate a lot more partnerships to catch up with DoCoMo. But those that want to follow in the Japanese carrier's footsteps also should start considering how they'll handle financial settlements with large numbers of content partners.

Birth of the Clearinghouses

Traditional vendors such as Convergys (www.convergys.com) and TSI (www.tsiconnections.com) have been providing financial-settlement services for roaming partners. Now, these vendors also are addressing what they perceive as an emerging need for financial-settlement services between carriers and content providers.

As more carriers extend their services to enable customers to access the Internet with wireless devices, being able to bill and mediate for the data services will be important, said Shirley Evans, Convergys director of common applications marketing. Convergys has added to its content billing capabilities with the recent acquisition of Geneva Technology (www.gtl.com), a vendor that has systems capable of content billing and partnership management.

“Some of (the need) stems from the wired side of the Internet,” said Ann Holmes, TSI manager of business development and strategy. “If you talk to content providers today, their buzzword is ‘monetize’ the customer.”

The executives at TSI think profiting from Internet subscriptions will be even more important for wireless carriers because they need to recoup money invested in spectrum licenses and network infrastructure.

At TSI, when a subscriber accesses a Web site with a wireless device, the process is known as virtual roaming because the wireless carrier cannot see what the subscriber is doing in the IP network, Holmes said. The lack of visibility into the IP network prompted TSI to offer mediation services that would illuminate subscribers' activities while on the wireless Internet.

TSI plans to launch the content clearinghouse in August. At first, the company just will provide financial-settlement services to carriers and content providers with current negotiated agreements. However, after TSI builds relationships with a large number of content providers, it will expand its content-settlement services to include arranging agreements between carriers and content providers, according to Holmes.

Unlike TSI and Convergys, Wmode (www.wmode.com) is a new company founded in 2000. The company's founders observed the birth and success of i-mode and concluded that North American carriers trying to duplicate DoCoMo's success would soon need mediators to manage partnerships with content providers.

“It's no coincidence that our name is Wmode,” said Dennis Woronuk, Wmode president & CEO. “Although a year ago, i-mode wasn't anywhere near the success it is today, you saw that there was a trend developing.”

Woronuk said he observed that a lot of wireless carriers wanted access to clearing and settlement services, but the services weren't available at the time.

“We saw that there was no revenue stream going back to content providers,” Woronuk said. “Lots of discussions have taken place as to what made i-mode successful, but one of the key things we believe is that content providers had a way to get paid for content that consumers were willing to pay for.”

Emanuel Bertolin, Wmode vice president of marketing and sales, said that the fragmentation of the North American wireless industry is another factor driving the need for content clearinghouses. By contrast, DoCoMo reportedly owned a 57.4% share of the Japanese market in 2000.

“There are quite a large number of carriers in North America. If each carrier has to make agreements with different content providers, it would turn into quite a rat's nest,” Bertolin said.

Woronuk agreed, saying that content providers potentially would have 140 specific interfaces if they wanted to have access to all carriers. By providing one interface, clearinghouses solve the content providers' problem.

In-House Vs. Outsourced Settlement

Both Bell Mobility and Verizon Wireless (www.verizonwireless.com) handle financial settlements with content providers internally. Neither carrier would reveal its plans for the future. However, as North American carriers gain more content partners, they'll need to decide whether they'll outsource settlement functions or keep them in-house.

Several billing-system vendors are building partnership-management functions into their systems for carriers that want to manage some or all of the partnerships in-house.

Apogee Networks enables the corporations to monitor individual users' Internet charges and bill the users' departments for the services consumed (www.apogeenetworks.com).

When Apogee's executives observed that Internet providers were moving away from the free-content model, they developed a usage-based billing system that could be used to mediate and bill for wireless and wired Internet use.

“We also watched the Napster lawsuit with great interest, because it pointed out that the copyright regime was going to impose itself on the Internet,” said Andrew Burroughs, Apogee Networks chief marketing officer and general manager. “So the Internet would require a revenue-sharing system because once content is put on the Internet and delivered, the people who created (the content) have to be compensated.”

According to Burroughs, Apogee's billing system can track and manage data from thousands of partnerships between content providers and wireless carriers.

Regarding future carrier customers, Burroughs said they would likely do one of two things: They would replace their current billing systems or overlay a new system on top of their legacy systems. Most will do the latter, he said, because they have big billing systems that do many things, and they don't want to get rid of them just for content.

Although Apogee's system has partnership-management capabilities, Burroughs said most carriers probably will choose to outsource to content aggregators or clearinghouses, which would negotiate contracts with content providers and handle settlement.

TSI's Holmes said that building and maintaining the infrastructure to support financial settlements with content partners presents a big challenge for carriers.

“It's very labor-intensive, as well as requiring enhancements to their legacy systems,” she said.

An additional burden for carriers, according to Holmes, is the need to upgrade internal billing systems every time there is a change in any of the standards used in the mediation and settlement of content transactions. Examples include the TAP, IPDR or CIBER standards.

Convergys' Evans said that deciding whether to outsource settlement functions involves the same kinds of choices involved in deciding whether to outsource any business function. She said that carriers considering the decision should ask themselves the following questions:

• Do I have the employees to manage settlements in-house?

• If so, are these employees knowledgeable about settlement functions?

• Do I want settlements with content partners to be a core competency?

• If I outsource the settlement function, will I still be able to gain access to customer data that indicates usage trends?

If a carrier were to do this in-house, it would need to manage a number of relationships, Wmode's Bertolin said. Managing those relationships would include setting up real-time billing exchanges with content providers, continuing to recruit new content providers and negotiating legal agreements with the content providers.

DoCoMo Vs. U.S.

The wireless markets in the United States and Japan are radically different. DoCoMo holds a large share of the Japanese market while the largest U.S. carriers hold much smaller shares of the U.S. market.

Carrier	Subscribers	Market Share
NTT DoCoMo*	29,356,000	57.4%
Verizon Wireless	27,505,000	26.22%
Cingular	19,681,000	18.76%
AT&T Wireless	15,163,000	14.46%
Sprint PCS	9,543,000	9.1%
Nextel	6,680,000	6.37%
Alltel	6,300,000	6.01%
VoiceStream	3,871,000	3.69%
The Strategis Group figures represent the U.S. markets during 4Q00, and the DoCoMo numbers represent annual calculations for 2000.
*Source: Telecommunications Carriers Association