Small Change

Cashing in on wireless web micropayments

Today, services and content are usually offered for free on the wireless Web in the U.S., mostly because the suppliers and the operators havent set up the mechanisms to charge users. But thats about to change.

Different models are popping up by which content and services providers can charge wireless Web users. One thing is clear: The operator wants to be in the middle of that equation, hoping to skim some revenue from each transaction.

"Its clear to us that the model of charging on behalf of other people is one we need to participate in," says Jeff Hallock, director of consumer marketing at Sprint PCS.

And operators know that they could get trumped if they dont move quickly. "If they arent seen as a facilitator, somebody else will do it," says Iain Gillott, analyst and principal at iGillott Research.

Many operators in the U.S. hope to follow a model similar to that of Japans NTT DoCoMo, which charges content providers for the ser-vice of billing the customer, usually for low-cost items.

In the spotlight these days are the small-ticket items, usually content such as ring tones or games, paid for in micropayments. "We could see new revenue from potentially trillions of such transactions," says Hans Snook, advisor and former CEO of Orange, the U.K. mobile operator.

Sprint PCS knows that there is a plethora of companies that want to offer services and content to wireless users and, Hallock says, users will be inter- ested in paying for such services. "Weve come to the realization that weve got a great advantage in that we have a relationship with the customer and can leverage that to solve customer and partner needs," he says.

Cingular Wireless recently introduced one of the first micropayment capabilities in the U.S., allowing customers to buy ring tones for 99 cents each. "We decided to start with ring tones because its a new concept. Well let customers get a feel for it before we start bombarding them with content," says Dahna Hull, director of mobile commerce development at Cingular.

Some believe that wireless operators are better suited for handling micropayments than existing banks or credit-card companies. In fact, most credit-card companies arent willing to take on micropayments. "From the credit-card point of view, the reason they dont want small payments, its not the transaction volume but the exceptions," Gillott says. When a customer disputes a charge, it costs credit-card companies $35 to $40. That cost simply isnt worth it on an item that only costs $1, like many wireless content and services will.

But carriers will have to iron out a few kinks before they start seeing revenue from micropayments, including setting price limits and deciding how much of the process will be outsourced.

Operators dont want to allow customers to buy big-ticket items and charge them to their phone bills. "Lets say I dont pay at the end of the month. Now the debt rating of those carriers have gone through the roof and thats the last thing they want," Gillott says.

Bruno Perreault, vice president of strategic development at iPin, says European operators typically limit the cost of items theyre willing to charge for on a monthly bill to about $10. IPin offers Internet payment solutions and clearinghouse services for operators including France Télécom.

In addition to debt issues, operators want to at least begin by selling low-cost items for psychological reasons. "They want to be sure theres the opportunity for consumers to buy often and, if its going to be billed to a prepaid account or a phone bill, there are both financial and psychological limits on how much users want to spend," Perreault says.

Cingular has set a $20-per-month cap on the amount users can spend on ring tones. "Its easy to get sucked into downloading a lot. We want to help customers control their spending and get used to it," Hull says.

France Télécom doesnt want users to get their wireless bills and be surprised by what theyve bought during the month. "Most people have a budget in their head and the operator is trying to get the bulk of that without making people feel they shouldnt use their phone," Perreault says.

IPin is working with British Telecom to enable customers to have two accounts, one for mobile airtime and another for purchases made via the wireless phone.

Most operators dont want to actually handle the settlement between end user and service or content provider. So clearinghouses, which will settle payments between the end user, the content provider and the operator, have popped up to help do that. These companies include iPin, Shopnlists Snaz Commerce Solutions, Telecommunications Services Inc. and Wmode.

In addition to earning revenue for operators, the clearinghouse arrangement helps content providers. "People who create applications need an incentive to do so," Hallock says. Getting paid is a good incentive and Sprint PCS can ensure that they do. "We are doing two things with this: one is enabling new services, the other is providing a reason for existing applications to get better."

It also helps content players get a foot in the door with the operators. "Theyre not getting paid now or theyre fighting for attention," says Bert Bertolin, vice president of marketing and sales at Wmode.

Clearinghouses make it easier for operators to deliver services from countless content and application providers. "Its an innovative market," says Vikram Chachra, chief strategy officer and co-founder of Snaz, a company that provides mobile wallets. "Every few months somebody new comes along. They dont want to keep integrating with each one."

Instead of an operator building unique relationships with each content provider that has a service to sell to users, the operator can just deal with the clearinghouse, which in turn handles the myriad relationships, says Ann Holmes, manager of business development at TSI.

The clearinghouse concept may also get a boost because each content provider may require a different type of payment schedule or may have several types of payment options for users. Some may charge on a per-use basis or they may allow customers to access their service for a specified period of time, like a day, or the content provider could charge different rates for the speed the user requires.