Billing woes hobble ‘off-deck’ mobile business

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, 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, Bango.net 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.

Bango, based in the U.K., wants to give content developers an alternative to SMS ordering and charging while still getting on the carrier’s bill.

Bangobuttons work like Web links, except that clicking on them lets the Web user have featured content sent to their phone, said Bango’s Anderson. Anyone who designs a Web page can embed a Bangobutton next to a picture, MP3 file, or other content on the site. Visitors who want that item on their phones click on the button and receive a link in a text message that they can click on to retrieve the item (They have to type in a brief code the first time they use the system.). Bango’s software checks a database of handsets and delivers the content in a form and size that the user’s phone can handle, he said.

The buttons can be used for free, user-generated content — except in the U.S. because of carriers’ content restrictions. But they can also be used by vendors that want to offer content from their Web sites, and Bango can add a payment step to the transaction. For many users, Bango can make the charges appear on the customer’s phone bill because it has relationships with most major carriers in Europe and with Sprint Nextel and AT&T in the U.S., Anderson said.

Bangobuttons are more reliable than SMS ordering and payment in part because the buyer sees a preview of the content on the phone and approves it before it’s delivered, he said. And the technology is designed to make it easy for content providers to make items available and compatible with various phones.

OpenMarket, a division of Amdocs that is based in Seattle, wants to take elements of credit-card billing systems and create a new platform for off-deck purchases. The system would be more reliable than SMS, so there would be fewer customer complaints, leading to lower costs, general manager Shivers said. The idea is to make the carrier bill, where customers want the charges to appear anyway, into a more efficient payment platform. That platform will develop in steps, and OpenMarket 2.0 software, introduced last month, provides a foundation on which other pieces can be built, he said.

The business model is one impediment to providing off-deck content, but the biggest problem — one that affects on-deck and off-deck providers alike — is the wide array of handset platforms that carriers have to develop for, Forrester’s Golvin said. Content providers and carriers also acknowledged the problem.

“If you had a really easily addressable market, you’d see more innovation on the part of the developers,” Golvin said.

Although the Android platform Google introduced this month promises openness, in the short term, it will only make things worse by adding yet another system to support, most observers said.

Android may help to simplify developers’ lives if it gains the traction Google hopes for, but even then the result wouldn’t be seen for more than five years, Golvin said.