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Why 2.5G Providers Can't Wait (For "Value" Pricing)

Customer expectation has locked existing ISPs into flat-rate pricing, which they have long tried to break away from. Now cellular network operators, with their new 2.5 capabilities and third-party application provider partners, have the opportunity to bill for new data services based on "value" rather than simply by the minute or the bit. Still, most early 2.5G services are being offered flat rate.

"Flat rate is a problem because once the user goes to it, it's hard to ever get away from it," says Rick Findlay, director of wireless industry solutions for Convergys Corp., which provides call center, billing and customer care solutions.

While Sprint Corp. does some limited value-based pricing for ring tones, as one example, many 2.5G service providers have gone flat rate, Findlay says, because they have inflexible billing systems, which may not allow for applications-based billing. He says Convergys's Atlys end-to-end billing and customer care product for mobile operators and Geneva convergent rating and billing module can support any rate plan.

"Flat-rate or subscription-based pricing is definitely more the norm today," adds Darren McKinney, director of product marketing for Amdocs Ltd. Still, some providers like Mobilkom Austria AG & Co. offer application-centric services, such as the ability for subscribers to buy train tickets and charge them to their Mobilkom bill. But allowing wireless subscribers to purchase tickets, goods or applications like games also creates problems, McKinney adds.

"If people can charge $100 train tickets to their cell bills, there's a credit risk," he says. "One way of avoiding risk is to offer certain services only prepaid." It's also attractive on the subscriber side because it makes spending more predictable, helping avoid sticker shock when individuals receive their bills, McKinney says.

Milind Gadekar, vice president of marketing at programmable network element vendor P-Cube Inc., notes the prepaid model for wireless services has already been a success in Europe. "Sixty to 80 percent of voice traffic in Europe uses prepaid," he says. "So [service providers] want to offer prepaid data services too." However, offering a prepaid option for data services has its unique challenges, says Gadekar. He says most prepaid systems report a user's purse of prepaid downloads, bandwidth or minutes is empty only after the end of a download. "That results in a tremendous amount of revenue leakage because of lag time," he says. "If it's a 200kbps -- or worse a 200mbps -- [download], the probe will only report at the end of that flow. So the user might get a two-hour movie for free." He says that P-Cube's system alerts the network and the user the minute subscribers hit their limit, and can be programmed to ask users at that point if they want to add value to their account.

McKinney says Amdocs is moving forward with the concept called Nowpaid, which at the time of purchase gives the subscriber the option of paying with a credit card, postpaid account or prepaid account.

"If I'm using a mobile phone on postpaid services, I might want to try to use some next-gen services that are available only prepaid," says McKinney. "So the service provider needs a system that will support service regardless of the service payment."

P-Cube's Gadekar says he expects 2.5G wireless operators to move to more applications-specific pricing at the end of this year or the first half of 2004. "We've seen RFPs talking about that," he says.

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