Usage-Based Billing

Providers must revamp their billing strategies to incorporate IP billing.

The deployment of wireless e-commerce means providers must contemplate a new billing strategy. There is much to consider — bill by minute, by packet or offer a choice of rate plans. In order to deliver the greatest return and allow varied delivery and pricing, industry analysts say the standard for IP billing will be usage-based.

Sanjay Patel, Convergys director of IP marketing, said billing tactics on everything from gaming applications to wireless Internet access will be based more on the value of the data sent to subscribers than traditional flat-rate pricing models or tiered quality-of-service offerings. That means you can choose to bill by packet, bandwidth, service or minute, allowing for more control of your revenue.

Patel compared the new billing strategy to that used by overnight-delivery services vs. the postal service.

"People are willing to pay a premium for Federal Express because they want guaranteed delivery within a certain period of time," he said. "There's a significant premium for that."

Similar premiums can be charged for real-time delivery of information such as stock quotes, expanded bandwidth for streaming video or video conferencing, voice over IP, e-mail attachments and other high-priority, high-quality services.

"If you want to do video streaming, you have to be guaranteed some quality of service so you can watch the video," said Mary Thurber, Billing College master instructor. "In order for the ISP to guarantee you that bandwidth to get the video to you, you're going to have to pay a premium for that guarantee. If you're sending e-mail, and you don't care when it gets there, you're not going to pay a premium."

Mark Darrow, Spectrum Telecorp president & CEO, said the cable-TV industry provides a good example of how wireless-service providers would bill for usage in the near future.

Just as cable-TV companies charge their subscribers a premium for movie channels and even higher rates for pay-per-view events, so, too, will wireless providers begin charging premium prices for services such as streaming audio and video and real-time information, he said.

"You should be able to bill for that based on the value of the application or the actual usage of it," Darrow said. "Customers don't mind paying for value."

Being able to download new Pokemon graphic characters easily into a portable device for wireless gaming, for instance, can be billed per character, not on the number of kilobytes actually downloaded.

"Assuming the value of a character exceeds the cost of transport, then you can charge based on the uniqueness of the content," explained James Morehead, Portal Software senior manager for wireless Internet market development.

"Today in the wireless voice world, you have no control over the content," he added. "The only thing you have is the amount of time people spend talking. It's very hard to differentiate pricing. There are only so many services you can layer on voice."

"Flat-rate pricing for wireless Internet access is not a viable option for the foreseeable future," he added.

The challenge for service providers is to figure out how to implement a realistic usage-based billing plan.

"We know they recognize the need to go to usage-rate billing, but they don't know how to get there," Darrow said. "With new IP-based services coming online every day, the need for an effective usage-based IP billing system has become a business imperative."

Some providers, such as Powertel, are embracing the idea of charging additional fees for enhanced services.

Powertel offers such fee-enhanced services as allowing a subscriber to receive a fax on a handset with the ability to download it to a fax machine. The company also offers Internet access through a PDA or computer as well as SMS with the ability to send about 24 words from one Powertel handset to another.

Joe Patterson, Powertel director of corporate public relations, said other GSM providers are offering their subscribers similar enhanced services.

"As handsets move from being telephones to more like a personal computer, I think you'll see more of this enhanced billing," he said.

Rather than moving overnight from a flat-rate to a usage-based model, however, Spectrum Telecorp's Darrow suggested that providers gradually augment their flat rates with enhanced services for additional revenues.

Billing College's Thurber said that was a move that is starting to take place already.

"We're seeing a clear move in the billing industry toward being able to do more differentiation of billing for Internet providers," she said.

What's At Stake?
Over the next 12 months, according to Computerworld, the number of people using wireless phones for wireless data — such as e-mail and news — will jump from 3% of the online population to 78%.

"The wireless-device industry is undergoing a major transformation," said Cynthia Hswe, Strategis Group analyst.

The Strategis Group reports there will be more than 9.5 million 2.5/3G mobile high-speed-data subscribers by 2005; approximately 6.8 million will be business subscribers and 2.8 million residential subscribers.

In a Strategis Group survey of current wireless phone users, more than one-third said they would be interested in a wireless phone that can access the Internet. Even among non-users of wireless phones, the survey showed 20% would be interested in a wireless phone with the ability to access the Internet.

Patel said the market would be spurred to premium pricing with the advent of such ubiquitous products and networks.

"Once the devices are out, the network will start to get clogged," he said. "The moment the network gets clogged, people are going to be willing to pay a premium for essentially what I call the 'Fed-Xing' of packets through the network. It may be such things as a stock quote in real time or a video call with guaranteed quality."

In the meantime, companies such as Portal, Convergys, edocs and Ormandy, which offer IP-billing software and specialized IP-billing services, are positioning themselves to meet new market billing challenges.

Single-system usage-based IP billing solutions are the latest services being introduced to this burgeoning business.

For example Portal's Infranet is a collaboration of Motorola's Aspira architecture vision and Portal's customer-management and billing solution. The two joined forces to create a single-system IP-based solution for convergent communications.

Leading the Way
The new billing strategies will continue to be carried out over the Internet, Rob Orgel, edocs vice president of business development, said.

"There are a number of folks who will never live in a paper world," he said.

Alltel, AT&T, Powertel and Sprint are just a few of the wireless-service providers that offer electronic bill presentment and payment (EBPP).

As a matter of fact, today's wireline subscribers also may see an increasing shift away from traditional paper bills to e-billing, thanks to the wireless industry's adoption of EBPP. The number of non-wireless consumers who are turning to the Internet instead of their checkbooks is predicted to increase.

International Data estimates that by 2004, transaction-fee-based online payment processing will be a $1 billion market. Likewise, the Gartner Group predicted that within two years, some 15 million U.S. households will be paying most of their bills online.

In Europe, a dramatic change to electronic delivery for billing and statement delivery for both consumers and businesses is being reported.

A study by Killen & Associates forecasts that by 2005, some 70% to 80% of all bill and statement presentments there will take place electronically.

"European industries such as utilities, telcos, financial services, retail and government agencies are leading the way in electronic bill and invoice delivery," said Michael Killen, founder and chairman of Killen & Associates.

Killen said the driving forces for companies to embrace EBPP are customer loyalty, reduced costs, more effective cash management and faster processes.

At the Billing College, Thurber said American telcos are either going to EBPP or are seriously considering it.

Heller (pjheller@west.net) is a freelance writer based in Santa Barbara, CA.