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Be on the wave or under it™

The News – 07/08/02

In this Issue:

Recommended Reading

I realize this is the only newsletter you’ll ever need, but if you want more in-depth detail, check out:

Stan Hustad’s
The Coaching Connection

Management Signature's
The Express Read

Mapping Mobile Commerce

SNS welcomes its first guest columnist, Nick Stanley, Principal of Lecoma International, Ltd., a business development consultant firm. Nick tackles the question of not only what to charge for new wireless services, but how network operators will actually capture usage and bill for new services. The following discussion is excerpted from his white paper entitled, Mapping Mobile Commerce to Network Support Systems Requirements – An Overview. To receive the full white paper, contact Nick at + 1 952 953 3174 or by email to

The mobile telecommunications industry is now making a vast bet on the future: that there exists compelling reasons for customers to use next generation mobile networks in ways that will produce revenue streams well above those for voice. While revenue in and of itself is good, the carriers also look to next generation services to decrease churn by making users more dependent on the carrier’s services above and beyond generic voice. Reducing churn and pushing more content through the system’s infrastructure are both vital to the bottom line.

While early indications for 2.5G and 3G are mostly a product of speculation in the trade press, less attention has been directed to the task of “monetizing” customer behavior – that is the means to translate consumer use of services to cash flow.

Both the popular and trade press are frequently populated by articles on next generation services: some are optimistic to the point of hype; while others forecast financial melt-down. The future’s unknown, certainly the most optimistic models are based on wistful thinking but do have a basis in fact: mobile services have historically vastly exceeded expectations (in the early days of cellular radio, the total number of cellular phones in the USA was expected to be less than one million). The cynics can point to massive failures of business models still shaking the industry (Excite@home being one).

Nonetheless, a few facts put things in perspective.

  • Consumers find ways to do new things. Witness SMS. Originally almost an afterthought in the GSM model, estimates are that over 200 billion SMS messages will be sent this year[1]. If the carriers capture just US$0.01 (or even €0.01) for each message, that is US$2billion or just under that in Euros. Quite a nice bit of cash.

  • Things unique to mobiles become lifestyle component. Ring Tones, which can use either existing SMS type technology or new 2.5/3G systems, are expected to bring in about US$300million in Europe in 2002[2] and at about US$1 / €1 each, that’s a lot of beeps and burps.

  • New services start in one segment and move outward. One doesn’t have to repeat here the success story of i-Mode in Japan, where DoCoMo is reaping the benefits of the attraction of mobile content to demographics far beyond the original teenaged early adopters.
  • The fixed Internet provides a guide, but perhaps not a roadmap. Mobile Content as a whole (which includes ring tones, multimedia alerts, electronic greeting cards, etc.) is predicted to catch on as SMS has done and using projections from the Internet use of ‘push’ and ‘pull’ technologies, may reach significant levels as next generation services are rolled out.

Many, many other examples can be pulled from the media. The purpose here is not to establish the credibility of the argument that new services will mean new revenue streams…that much is given. What is not so clear, however, is how much of that cash flow is going to be applied to the amortization of the capital investment in the infrastructure that makes the revenue possible. It’s not beyond the realm of possibility that the carriers could find that their Business Support Systems (BSS) are unable to cope with rapidly emerging services. Those services, by definition, are in high demand by consumers and somebody will find a way to deliver them. If the carrier’s BSS cannot capture some part of the value for particular transactions, the remaining cash flows from other services must pick up the load on the marginal costs involved.

The old paradigm was “If you can’t bill it, kill it.” The implication was that the carrier had a choice in the matter. No longer. The carrier may not have that luxury.

Now, the challenge for the carriers is to find a means to evolve their billing systems in such a way to capture as much revenue as possible from the flow of next-generation services and content delivery. Sophisticated and complex models for partnership settlement, revenue sharing, and so forth are spun out. Complex software tools are being developed and intensively marketed. While certainly far from trivial, such a picture misses the point.

Consumers are becoming heterogeneous and no matter how comprehensive the BSS system becomes, it is fated to be only one component of several. The diversification of the consumer base brings with it a strong need for the carrier to support personalization of service offerings. Every customer will have a slightly different selection to fit his / her preferences. While the aggregate choices may be fairly uniform with a customer segment, carriers must take it as a given that no “one size fits all” billing model can exist.

We postulate here that in the next generation of mobile services, consumers will decide for themselves how they wish to pay. Just as they do now in a store, they will demand flexibility and the degree will depend on the value of the transaction relative to the relationship the consumer has with the carrier. We have, somewhat simplistically, divided consumers into four segments:

  • Lifestyle consumers. The prototype is the Gen-X young consumer, using a mobile as an integral part of a fashionable lifestyle. Voice, images, ring tones, ‘texting’, whatever is new and innovative, they try it. New ways of communicating are found, the carriers and service provides may find themselves being led not leading. How do they pay for all this? Whatever it is, it has to be simple. And affordable.

  • Convenience consumers. This group uses mobile services that provide a function or a feature to them that just makes life easier. The soccer mom getting directions to a new school for a meet, the business traveler checking for flight information in the taxi, maybe getting the occasional alert from her stockbroker. The dominant theme is using the unique capability of mobile access to information, but on a demand basis. Spend a bit more? Sure, it’s worth it.

  • Deliberate consumers. A more intense blend of the lifestyle and convenience consumer segment. The deliberate consumer has built mobility into his or her profession. Examples abound. The road warrior with regular access to his email and voice mail via integrated messaging. The real estate broker who is also an active day trader, so she requires real time quotation and access to trading. The deliberate consumer makes conscious, rationale choices on what services they need and how much to pay – and how to take the money from their pockets.

  • Enterprise consumers. This class has received remarkably little attention in the trade press regarding their impact on 2.5G and 3G networks, perhaps because it’s far less glamorous. But it’s far more lucrative. An enterprise consumer is an individual that uses mobile services but has no personal connection to the payment process, although they may be aware of the costs. Examples here are employees using mobile services under a company account for voice, access to enterprise information (either via a mobile portal or the Internet), specialized information services. An enterprise customer can also be a deliberate or even convenience customer. For example, getting road directions while on a sales call. Personal use outside of business is almost a given and would be hard to prevent and thus the implications are many.

Consumer Payment Model – Money Makes The Map

We now come to the exercise of mapping the consumers onto payment models. Note that we have not mentioned the type of network used….2.5G, 3G, i-Mode, W-LAN. The underlying network infrastructure is, at this point, almost irrelevant. The driving choices here are: Is the consumer aware of the cost of the services and, if so, what are their likely choices for settling their bills? And, given those choices, which ones are likely to dominate? Given these choices, the implications for the BSS systems within the carriers are starting to take shape.

Likely Choices

Figure 1 shows a projected range of payment models. Note that we have not assigned any particular customer segment to the choices. The Figure is presented in the form of a decision tree, with the branches determined by what choices the customer would have to make. The end points of each branch are the possible payment models. Each model has certain implications for the carrier BSS, some overlap as indicated.

The payment choices defined in Figure 1 are somewhat arbitrary for the sake of simplicity. While ultimately true that each and every transaction must find its way to the end of a decision tree, we’ll stick to the most obvious choices.

  • Enterprise charging is a direct billing of services from a carrier to an enterprise, which in turn allows members to use the carrier’s services under some type of contractual, negotiated term. An enterprise can be a company, a non-profit, a government entity, etc.

  • The Inclusive/Package payment branch is similar to existing ‘bucket’ plans in which consumers can buy voice minutes. In this case, perhaps a bucket of voice minutes comes with 200 SMS messages and 5 ringtones a month. Anything over that goes down the next path.

  • The Carrier Billed / IN Wallet path is for transaction payment where the carrier’s own systems handle the financial settlements, either by adding a line item to a recurring bill for a subscription, or by decrementing a store of value within the carrier’s network. Prepaid services fall into this category if the prepaid services can be charged at a discretionary level by the consumer specifically for transactions, not just voice.

  • If the carrier has arranged with a third party clearing or financial settlement house to charge consumers for the services via an external mechanism, typically a credit card in the USA or bank debit in Europe, then the transaction takes the next branch. Here, we differentiate between a 3rd party system in which each and every transaction is billed vs. one in which charges are aggregated then billed to the external payment system at some period (every month) or at some value (every $25).

Figure 1 can be read as follows, reading left to right, top to bottom.

  • Branch #1: If a consumer is not aware of the payment/settlement for the services, then either those services are included as part of a package (i.e., 100 free SMS a month, hard limited; access to a carrier’s location service is part of a premium package) or the consumer is an enterprise customer and the bill is settled by their employer.
  • Branch #2: Here the consumer does have a choice. The two fundamental choices are: 1.) have the carrier do the billing via a subscription (charges appear on the monthly bill) or via some type of stored value in the network (this would apply also to pre-paid); or, 2.) have a third party payment system.

  • Branch #2, sub-branch. If a third party is involved, they may be either for single, one-off transactions of presumably higher value, or may be an aggregator that collects a number of smaller monetary charges and then takes payment from the consumer at some future time based on a commercial scheme (monthly, or when the collected charges hit a set amount.).

The key point for Figure 1 is simple: Every consumer / customer for a carrier will follow a decision tree of similar format. The decision points will be determined by their personal preferences and may change over time. Also, the flow down the decision tree may be different for different individual transactions. For example, a subscriber may have text SMS subscribed but pays via a consolidated 3rd party for stock quotes. However, it’s likely that a given segment will show a strong affinity for certain choices. Therefore, the implications on BSS systems can be driven from consumer segment behavior.

The implications on the carrier’s BSS system are shown in the boxes on the right. These are hardly inclusive and each box could be deconstructed in a complete analysis far beyond the limits of this paper. The concept, however, remains. The cash flows from each end point are distributed amongst multiple entities. The sum of the cash flows for the carrier are what will drive the carrier’s revenue for content and services and thus are the only source of amortization for the infrastructure investments.

Lecoma International

Briefly Noted

  • Shameless Self-Promotion Dept.: Two CTOMentor white papers, Peer-to-Peer Computing and Business Networks: More Than Meets the Ear, and You Can Take It With You: Business Applications of Personal Wireless Devices are now featured on eBizQ's site. eBizQ is the insider's guide to e-business.

    Other titles in the Wireless Future white paper series will include:

    • Wireless Insecurity: Can Wireless Networks Be Made Secure?

    • Islands Make the Net: Wireless Networking and the Evolving Mesh
    • Taking Your Business On the Road: The Car As Wireless Office

    • Standards, Standards Everywhere: A Business Guide to Wireless Standards

    • M-Commerce: Are We There Yet?

    • Wherever You Go, There You Are: Mobile Location-Based Wireless Services

    • The Wireless Last Mile: Fixed Wireless Broadband Services

    • Beyond Keyboards, Beyond Wires: Voice Activated Wireless Services

    • Information, Entertainment, and Access At Your Fingertips: Interactive Wireless Information Services

      These white papers will be released over the coming months. To be notified when a new white paper is released, send an email to or check

  • Chalk Up Another Network: You may be familiar with the concept of “war driving.” The practice involves driving around an area with a laptop, a Wi-Fi wireless card, and possibly an antenna made with a Pringles can, trying to find unsecured wireless networks. The name of this practice is derived from an earlier term, war dialing, in which you set your computer to dial hundreds or thousands of phone numbers, looking for modem signals. The name comes from the seminal hacker movie, War Games, in which Matthew Broderick almost starts World War III.

    Now there’s a new term to add to this bunch: “war chalking.” It seems that “war walkers” in London and elsewhere in Europe have taken to identifying the locations of Wi-Fi networks by marking the adjacent sidewalks with chalk. They use one of three symbols: two back-to-back semicircles indicating an open node, a circle indicating a closed node and a circle around a “W” indicating a WEP (Wireless Equivalent Protocol) protected node. I wonder what happens when it rains?

  • Free Security Software: The Center for Internet Security, a non-profit computer-security think-tank, has released free software tools that find network vulnerabilities and common security holes in various operating systems, routers, and other equipment. The Center claims that these tools embody agreed upon security configuration specifications that represent a prudent level of due care for computers connected to the Internet. Tools are now available for Solaris, Linux, HP-UX, CISCO IOS Router, Windows 2000, Windows 2000 Professional, Windows NT. The Center is working on developing tools for AIX, Apache Web Server, Cisco PIX Firewall, Windows IIS Web Server, Check Point FW-1/VPN-1, Cisco CAT Switches

  • CyberInsecurity Act: An important section of the Cyber Security Enhancement Act (H.R.3482) currently in the House dramatically extends the right of the government to invade citizens’ privacy. The section is known as Emergency Disclosure Exception and it concerns the disclosure of private information.

    According to Anita Ramasastry, Assistant Professor of Law at the University of Washington School of Law in Seattle and the Associate Director of the Shidler Center for Law, Commerce & Technology, “If the Act is passed in its current form, agencies will have the authority to obtain email or electronic communications without even having to establish ‘probable cause’ that a crime has occurred or is about to occur.” This authority is not reserved for law enforcement, but extends to all government agencies. “A high school principal, tax assessor, or a local public utility might be able to request sensitive customer data from an Internet Service Provider,” according to Ramasastry.

    Certainly, in an emergency we want to eliminate red tape. But the lack of a probable cause requirement or any real definition of emergency cause real concerns. As Ben Franklin said, “They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety.”

Just the Right Stuff™

If you subscribed to CTOMentor’s Just the Right Stuff™ newsletter, over the past few months, you’d have received news nuggets like the following, along with expanded analysis. Your personalized Information Needs Profile would determine which of these items you’d receive. For more information, check out CTOMentor.

  • Online Virus Generator Causes Concern: Instant Macro Virus Maker v1.2 is a Web site capable of generating Microsoft Word macro viruses.

  • Way Too Much Video: Video-On-Demand (VOD), currently available for about seven million households in the US, would require tremendous amounts of storage. The US produces more than 360 hours of new video content per day, or 130,000 hours a year. Add in global output and the tremendous backlog of 50 years of television and you’ve got an information management problem.

  • Microsoft To Add Wi-Fi Security To Windows 2000: Microsoft announced that it will add 802.1x security measures (currently found in Windows XP) to Windows 2000 by August.

  • ASPs Have Weak Security: IDC states that 25 percent of the 50 ASPs it examined lack fundamental security procedures.

  • Is 802.1x the Wireless Security Answer? The Wi-Fi or 802.11b standard provides weak station authentication and no real data integrity. Will IEEE 802.1x solve the security problem?
    TISC Insight

  • News Corp. Hacked Digital TV Smart Cards: Canal Plus filed a lawsuit against NDS Group, claiming that the UK-based company broke the security code behind Canal+'s digital TV smart card. The smart card code was then published on the Internet, and the market was flooded with counterfeit cards.
    Action On eCanal Plus

  • BlackBerry Vulnerable: You can download freeware, visit Radio Shack and then eavesdrop on BlackBerry emails. The attack does not work on the BlackBerry Enterprise Edition, which uses Triple Data Encryption Standard encryption.

  • The Hacker Grid: It had to happen. Hackers are using grid computing, which combines the power of many computers, to crack passwords.

  • NAS Suggests Software Liability: The National Academy of Sciences suggests legislation that would end software companies' protection from product liability lawsuits.
    Business Week (registration required)

  • Mickey Cries Foul: Michael Eisner, Walt Disney Company chairman, told the Senate Commerce Committee that PC manufacturers had failed to develop adequate protection for digital media because piracy helps sell computers. We’re not too paranoid, are we?
    New York Times (registration required plus fee for back article)

Get this Stuff as it happens. Subscribe to CTOMentor today.

[1] Brad Smith, “Proponents: There’s Hope for SMS”, Wireless Week, 8 October 2001

[2] Allyson Vaughn, “Mobile Music to Their Ears”, Wireless Week, 8 October 2001

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