Billing woes hobble 'off-deck' mobile business

Stephen Lawson
PC World
Monday, November 19, 2007; 12:19 AM

Mobile infrastructure companies are trying to make it easier to sell content and applications that aren't featured on the interface carriers provide on their phones in the U.S., but don't expect a flood of new offerings overnight.

Providers of ringtones, games, wallpaper and other products can sell to subscribers without being featured on the so-called "deck," and still get paid through the consumer's monthly bill. But generally they have to use SMS (Short Message Service), a technology that wasn't designed for commerce and causes problems for both carriers and content providers. The challenge is greatest in the U.S., where carriers have assumed responsibility for all the transactions on their networks.

Two vendors are now moving in the short and long terms to solve these problems. On Thursday, announced Bangobuttons, a tool for mobile users to have content on Web sites sent to their phones. The mobile infrastructure company will give away the software and also let vendors use it for paid content. In the longer term, OpenMarket is developing a system for mobile content and application purchases that is similar to the credit-card system today.

To get paid through SMS, mobile vendors need to get a numeric "short code" from a mobile operator for customers to text-message to a phone number. After the customer sends the message, what they bought typically shows up directly on the phone. A charge appears on the subscriber's next bill, and then the content provider gets paid.

But the process is full of holes, according to content providers and analysts.

"The financial integrity of premium SMS billing is abysmal," said Steve Shivers, general manager of OpenMarket.

For one thing, the third parties selling products can't tell whether the mobile user is qualified to receive it or pay for it, Shivers said. In the case of a one-time transaction, carriers make the content provider deliver the product before getting paid, he said. The provider also can't tell what kind of phone the customer has, so sometimes the product can't be delivered in a usable form, said Bango CEO Ray Anderson.

There are frequent complaints about off-deck content, often because the third party has inadvertently sold something to a minor using the phone, Shivers said. When customers complain, the carrier's hands are tied because it doesn't have access to the third-party provider's records, so the carrier often just refunds the money, he said. The cost of fielding those complaints is passed on to content providers in the form of carrier transaction fees of 35 percent to 40 percent, according to Shivers and others. By contrast, the average charge for using the services of a credit-card company is less than 5 percent.

The two biggest U.S. carriers said they are strict about business practices and content from third parties because consumers expect it. For example, AT&T doesn't allow adult material, hate speech or gambling services, spokesman Mark Siegel said. The content providers also need to have a "double opt-in" requirement and other mechanisms to protect consumers, he said.

"If this content provider wants us to bill on behalf of their company, they have to meet certain standards," Siegel said. But the carriers' reviews delay new services, some content providers complained.

Third parties can bypass the carriers completely by using other payment methods, such as credit cards or PayPal. However, consumers are reluctant to enter credit-card numbers on their phones because of security concerns, and making them use a PC Web browser defeats the purpose of mobile commerce, said Forrester Research analyst Charles Golvin. And some carriers actually take steps to prevent sales that don't go on their bill, some in the industry allege. Carriers tolerate very small operations that use separate billing, but a merchant doing thousands of transactions per month that way may be blocked from delivering content over the network, Shivers said.

For their part, AT&T and rival Verizon Wireless say their networks are very open. Through its billing system, AT&T works with more than a dozen aggregators that provide content from more than 500 sources, Siegel said. AT&T doesn't block anyone from delivering purchased content over its network, he said. Verizon Wireless tries to make available the widest possible variety of content its customers desire as long as it abides by the carrier's decency standards and doesn't break the law, according to spokesman Jeffrey Nelson.

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