How much am I spending?
October 19, 2006
GSM>3G Africa Daily
By Bohdan Zabawskyj, Redknee
Wireless networks are driving dramatic growth in offerings beyond traditional voice and SMS-oriented services with the introduction of wireless data and IMS technologies. However, with new services come new challenges. Network operators require a flexible infrastructure to introduce innovative pricing plans that reflect the social and economic realities of individual geographic regions. Service differentiation is also of paramount concern in today’s increasingly competitive environment. Mobile carriers must be able to attract new customers and retain existing customers with differentiated services and relevant pricing plans. Finally, network operators must be able to properly correlate value-based pricing to distinct mobile services.
Postpaid rating mechanisms have provided the traditional means of rating events in a telecommunications environment. Various rate-structures have been introduced in an attempt to address the needs of consumers and enterprise clients by providing bundles of air-time packages such as 100 minutes of local airtime per month.
Prepaid rating mechanisms were introduced in the mid 1990s in order to serve un-banked subscribers or subscribers who would have difficulty acquiring a post-paid account based on credit rating requirements. Prepaid accounts have also been the choice of mobile subscribers who require cost control. The success of prepaid services has surpassed expectations and constitutes the majority of wireless accounts worldwide, including as much as 80-90 percent of the current mobile market in many African nations. However, the number of services has not grown with the popularity of prepaid. Restrictions associated with legacy platforms have limited most prepaid offerings to voice and SMS services that are offered at a higher ‘per unit’ price point relative to post-paid services.
Compromise solutions such as ‘hot billing’ where event records are processed periodically have been used to extend value added services to cost-sensitive markets. However, since hot billing solutions process records in a batches, these solutions inherently cause significant revenue leakage as accounts can be active even though the entire balance has been consumed. Additionally, hot billing solutions are normally ‘bolted on’ to pre-existing legacy postpaid billing solutions, resulting in significant and ongoing operating expenses to maintain both the hot-billing component and the pre-existing postpaid billing solution.
With either prepaid or postpaid rating methodologies, usage-based pricing methods such as time and volume pricing are used. For example, $0.05 per minute, $0.10 per SMS message, or $1.00 per Mb of data. While usage-based pricing models are adequate for traditional voice-based services and SMS-based services, usage-based billing does not provide the best approach for rating and charging new wireless data services. An analogy could be a newsstand that charges customers based on the number of pages in a magazine rather than a pre-determined value-based price. In the same way, it makes no sense to a subscriber to charge for the Mb of data downloaded for a given MP3 song.
In a physical retail environment, the price of a product or service changes over time and may be influenced by a number of factors. This situation also applies to many new mobile data services where it is important to advise the subscriber of the charge for the requested service. Subscribers want to know how much they are spending, at any given time, with full visibility prior to purchase. Real-time rating and balance management enables subscribers to take advantage of up-to-date information in order to make informed decisions about their usage and expenditures.
From the viewpoint of the wireless subscriber, other attributes such as time, location and the relative match of the service to the subscriber’s pre-defined preferences has value. For example, the few bytes associated with a real-time SMS-based update on the highest price for a specific crop may have greater value to a farmer than a generic streamed news broadcast.
For these reasons, traditional usage-based models for rating and charging are increasingly becoming less relevant in the evolving wireless value-based environment. As wireless data networks expand to enable many different types of new services, network operators require the flexibility to price according to content type, novelty, location, traffic type, time of day and delivered quality of service. Next generation value added services must focus on ‘value based’ pricing methodologies and the delivery costs associated with traditional time and volume-based ‘usage fees’ will be embedded into the price of the value-driven service.
Consumers will accept pricing models that are clear and intuitive and reflect the value of the rendered service. Mobile carriers who offer services that charge based on the value of transaction-oriented content and services, as opposed to usage-based charges will meet the subscribers’ needs. Operators must understand that subscribers are not willing to accept a reduced suite of services in order to achieve cost control normally associated with prepaid accounts. At the same time, postpaid subscribers realise that they need better and timelier information to manage their spending on new services.
The implementation of a reliable, real-time transaction-oriented rating platform is critical to the long-term viability and success of wireless services. A real-time rating solution is essential, not only for the obvious reason that it enables real-time rating of transactions but also and more importantly, because it helps to create a competitive advantage in the development and implementation of emerging data services. A real-time rating platform provides network operators with a foundation for creating new revenue streams with unique and flexible rating plans that reflect the pricing requirements of the market and specific market segments.
Prepaid and postpaid rating methodologies will necessarily converge with the introduction of ‘real-time’ rating solutions providing the underlying framework for the delivery of wireless voice, messaging, and data services. A convergent real-time rating environment enables operators to offer the cost-containment and control features of a classic ‘prepaid’ environment while providing subscribers access to the full spectrum of services previously unavailable in a prepaid environment due the constraints of legacy billing systems.
In addition to providing more versatile rating and charging capabilities, real-time billing solutions create financial benefits to network operators. Customer care costs often decrease by as much as 25 percent when subscribers use real-time USSD, SMS, or web-based access to their account information. Carriers typically reduce their ongoing operating expenses by 75 percent when they remove multiple legacy billing systems, and decrease capital expenditures by 25 percent through the use of use of a modular, extensible architecture that employs off-the-shelf servers. These significant financial savings can be passed through to subscribers via a wider range of wireless services to a larger addressable market.
A real-time converged billing solution allows network operators to verify usage limits and view account balance status in real-time before authorizing services and deploying point-of-service pricing. These solutions enable carriers to offer services such as providing instant notification of depleted account balances and encouraging users to top up their accounts before they are completely out of funds, which result in stronger relationships with subscribers. There is a strong and latent demand for real-time subscriber-centric CRM tools that complement real-time rating and charging solutions. For example Safaricom in Kenya realised a tenfold increase in traffic in one year with Redknee’s USSD-based subscriber portal.
Certain value-based services such as MP3 downloads and streaming video may include costs that are too expensive for certain subscribers. However, it is important to note that new business models for these services will emerge that will either subsidise or reallocate costs through advertising or other promotional models. With this in mind, network operators must provide the framework and interfaces to third party content providers to create an effective service delivery environment.
The role of network operators will necessarily evolve to facilitate an intermediary function between subscribers, content providers, advertisers and even financial institutions. In order to remain competitive, mobile carriers must be able to differentiate their service offerings by delivering compelling features such as the subscriber’s location rating based on delivered quality service and capabilities, such as access to groups of subscribers who share a given characteristic, quickly and efficiently. Mobile service providers that are able to deliver the best convenience and value, and create the most efficient delivery mechanisms will attract the best content providers and the most loyal and profitable customers.
A real-time converged billing solution addresses the issues faced by operators today. In order to meet new customer demands, expanded service offerings and increased competition, a real-time converged rating and charging solution provides a customer-centric, end-to-end billing solution that can be utilized to promptly jumpstart an operator’s growth strategies and create operational competitive advantages. Operators face complex challenges, but a real-time billing solution allows them to cost-effectively grow and monetise their subscriber base to:
- achieve and sustain operational efficiency through a converged billing and CRM platform for customer and self-care
- dramatically reduce both capital and operating expenditures
- Rapidly offer more competitive voice and data bundles
Bohdan Zabawskyj is CTO of Redknee whose infrastructure software delivers value-added services and content to over 207 million subscribers. The company’s converged revenue engine enables operators to quickly bring to market personalized voice, messaging and content services in real-time. www.redknee.com
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