Network Infrastructure

The Search for Value: A Short History of Charging Evolution

By TMCnet Special Guest
Jonathon Gordon
  |  June 10, 2013

There was a time, before mobile, when things seemed stark and simple. Your telephone, if you had one, lived in the hall, or at the foot of the stairs. It did not ring very often. There were waiting lists for telephones and there were complaints departments. It was a time of monopolies, a time when, in many countries, the government owned the telephone company. Customers were called subscribers, and they paid their bills. That seems stark in today’s context, but owning a telephone, like a TV, was a status symbol and something of great value.

Pricing was designed to control subscribers, to stop them from overloading the network in busy times. As a result, in the U.K. for example, it was more expensive to use the telephone in the morning. It cost money to make local calls and much more to make long-distance calls. International calls were prohibitively expensive, but in an emergency or on an important occasion invaluable.

Competition, Liberation and Some Problems for IT

In the 1980s there were rumblings of competition. The sale of telephone companies or the de-regulation of the phone market raised huge sums of money and opened the door to competition – and opportunity.

Competition arrived at different speeds, depending on where you were. In the U.K., it arrived with a polite, Jeeves-like cough. Mercury Communications wondered if “Sir” might like to consider saving some money on long-distance calls. “Sir” said thank you, but he was quite happy with the established phone company. In the U.S, competition arrived overnight, with a range of exciting and enticing offers of cheap long-distance calls. In Sweden, the introduction of competition was so successful that the incumbent lost half its customers in a week.

Competition brought price wars, opportunity and benefits for all. Operators and customers – liberated by not being called subscribers anymore – realized that it actually cost about the same to deliver a phone call 1,000 miles as it did five. Prices plummeted. With the price wars came a stark truth for incumbents. The systems that were running pricing were largely mainframes. They were no match for the new breed of Unix-based billing systems of the mid 1990s. In these, prices could be changed within weeks. In the mainframe world a price change might take up to six months, and such a change could cost as much as one of the new-fangled systems. The result was that competitors and startups had the advantage of innovating on price. Flexible pricing plans emerged and with them a new era of marketing lead pricing.

The price of the new billing systems was in the hundreds of thousands at the entry level, but this did not stop companies from buying them every time they wanted to launch a new product or service. The fear that a new product would bring chaos to existing systems was not worth the risk of building it into an old system.

The Mobile Revolution (News - Alert)

While competition was shaking up the fixed line world, the mobile phenomenon was just taking off. Early brick phones gave way to car phones, and these gave way to handsets. In an office in a grey building just outside Nice, a small group of engineers were designing a standard for a new generation of mobiles. It was called "groupe speciale mobile" or GSM for short. It was the early 1990s. After an initial, slightly nervous, launch period the new standard began to take off in Europe. The brainchild of this small group, GSM was to be the standard that took on CDMA, prevalent in the U.S. and Japan, and ultimately catapulted digital mobile into global ubiquity.

The Convergence (News - Alert) Conundrum

The rise of mobile brought with it the concept of convergence, as operators began to converge fixed and mobile networks and back office systems. Convergence began to mean many things – including divergence. Companies experimented with offering one billing and pricing experience for a host of different services, from telecom to water, gas and electricity. Utility companies played with the idea of offering telecom services, and telecom companies, briefly, toyed with the idea of offering utility services.

Having launched hundreds of products and invested in hundreds of systems and having lost sight of the customer, the 2000s ushered in a period of consolidation. This was driven as much by the need to regain a single view of a customer as by the pressures of the worst recession in the industry’s history. The cover of Time magazine declared that the telecom industry had “flushed” $6 trillion on the basis that “if we build it they will come”.

A year before the recession, the telecom industry had begun to talk about an interesting development, the possibility of offering content, data, stuff, to customers. Still rich and solid institutions, telcos began to eye other industries, particularly finance and media. They began to wonder if they could deliver content and charge for it too. At the same time, another phenomenon was adding to the huge growth in mobile – prepaid. Initially launched as a way of making mobile available to all, it introduced a concept that the industry had been debating for a decade – real time. It would, however, be some time before real time, post paid and content would converge to create the environment that would usher in value-based charging.

Billing for Stuff

Conferences sprang up around value-added services. The mobile Internet became more than a distant dream, and terms such as 3G and UMTS arrived in our dictionaries. How to charge for content became a focus of discussion during the early and mid 2000s. Sadly, the straitened times for telcos showed no signs of improvement, and no one was able to launch innovative new content-based services.

The mid 2000s saw the first tentative investments in 2.5G and the first BlackBerry (News - Alert) devices meant that e-mail became available on a phone. Sadly, the discussions on value-based charging were too far ahead of the technology, and operators went for a flat-rate approach. There was skepticism in the industry about charging for packets or bytes. Some joked that even if they could charge for them, their grandmother would not understand that the phone company had lost her packets and instead of accepting more she would probably demand them back.

A Smorgasbord

For a single price you could have anything you wanted. Operators tried to control the initial riot of usage by keeping customers in a walled garden so that they would only use their content. They failed. Give a customer – say, a teenager – a glimpse of greener grass, and he is over the wall before you can say “What if I gave you some free texts too”.

The advent of data and the surge of SMS allowed phone companies to experiment with bundles. Offering customers a mix and match of services seemed to work for a while and seemed to help with the problem of customer churn, the only back office issue that made it to the desk of the CEO. The advent of data also brought back to the conversation the concept of real-time advice of charge. If operators could deliver real-time charging to customers it would enable an altogether better service, providing control over usage for operators, and control over spending for customers.

Mobile broadband rolled out and mobile data became increasingly popular. Enter Apple’s iPhone, and usage went crazy. Networks were overloaded within months. So the phone companies decided that they should charge for usage. They would cap customers’ capacity. They would charge for over-using the network. That would, they thought, fix the problem. But companies such as Google, Apple, Facebook (News - Alert), Skype and a host of other over-the-top players were using huge amounts of network capacity, offering compelling products and pushing phone companies into a dangerous corner where margins were razor thin and competition was intense. Phone companies were being forced out of the value chain.

The Impact of Bill Shock

The rise of data, especially mobile, the phone companies’ dropping voice revenues and the need to charge for volume produced a reaction. Bill shock became an epidemic. Roaming has always induced bill shock, but finding data roaming horror stories, or tales of children accidentally racking up tens of thousands of dollars in data charges, became a new game for journalists. Telcos were, briefly, implementing policies that were more network focused than customer focused.

On the face of it, this Policy Management 2.0 looked a lot like Policy Management 1.0. Then something changed. Operators realized that they had the tools to work with customers, while at the same time managing what was happening on the network.

Policy Management + Customer Care = Value

Value-based charging is finally gaining traction. Fewer operators are imposing curbs, bans and hard limits on data consumption. The number of operators charging a fee for overage has dropped from 70 percent to 61 percent in the last few months. Using the tools that are available allows operators to make offers that benefit both them and their customers. Happy hours – an incentive to get customers to use network capacity at off-peak times – are now offered by 11 percent of operators. The culture is now very different, and there is a partnership, a trust, developing between operators and customers. This is producing a win-win situation.

Many have seen that fighting against Skype (News - Alert) or Facebook makes no sense. That is where their customers want to go. As a result, over a third of operators are now offering zero-rated Facebook plans and over a quarter are putting revenue sharing models in place. As the tools for operators become more sophisticated and, more importantly, their use spreads across the business and away from IT, we see real innovation in value-based charging. With video already accounting for 42 percent of mobile traffic, the networks will always now be under pressure, and there will be a continual investment needed to cope with the capacity problem. But the customer is king again. Operators are moving to offer them things that they really want. The recent shared data plans from Verizon and AT&T are just the beginning. Toll-free data is becoming possible and real-time help, advice and guidance online is now a distinct possibility.

Until toll-free data arrives, there is a growing sophistication in the help that operators are able to provide their customers. “I see you are almost at your limit, need a boost for an hour?” “An extra gigabyte until Thursday? No problem, just click here.” Direct operator billing is now emerging as the most intuitive way for customers to pay, and it puts the operators right back in the game. The possibilities for communications networks to become the platform for a smarter world are now real.

Operators are in a unique position with their customers. They can be trusted partners online. Trusted access, trusted payment options, trusted and timely management of preferences and limits are all valuable. No OTT player has this ability or knowledge – and they know it. Many are turning to operators to help them improve relationships with their customers. And they are prepared to pay.

If direct operator billing is the simplest and most intuitive option, Facebook will go for it. If SMS provides the ideal vehicle for precision, location-based marketing, Coca Cola will pay for it. If customers of an online travel agency are complaining about data roaming issues, the site will work with the operator and fund it.

New models, ideas and collaboration will render toothless the current perceived threat from OTT players. Now everyone can applaud OTT player WhatsApp as it passes the 10 billion messages in a day mark. The fact that messaging is still growing exponentially means everyone wins. In short, operators are now able to leverage their unique relationships, customer knowledge and billing abilities.

Jonathon Gordon is the director of marketing at Allot Communications (www.allot.com).




Edited by Stefania Viscusi

INTERNET TELEPHONY Newsletter

Sign up for our free weekly Internet Telephony Newsletter!

Get the latest expert news, reviews & resources. Tailored specifically for VoIP and IP Communications.