Carriers still struggle with third-party content providers: Legal, billing issues remain at crux of problem

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Carriers are beginning to use carrot-and-stick strategies to bring their third-party content partners to heel. And both the carrot and the stick are made of cash.
Sprint Nextel Corp. earlier this year became the first U.S. carrier to formally tie revenue shares to business practices, warning that partners who repeatedly violate Mobile Marketing Association guidelines – by incurring high refund rates, for instance, or not reporting billing errors to the carrier – can forfeit every dime and lose their short codes.
“Non-compliant short code campaigns will receive penalties up to and including program termination from Sprint Nextel Boost networks,” the carrier said in a confidential five-page memo. “Conversely, revenue-share incentives may be applied for programs performing will on policy compliance.”
Other U.S. carriers are quietly following in Sprint Nextel’s footsteps, according to Jay Emmet, general manager of the Amdocs subsidiary OpenMarket, which distributed Sprint Nextel’s memo and handles billing issues for the carrier.
“What we’re seeing is the carriers getting more sophisticated – they want to reward the content providers” who market their wares honestly and deliver them efficiently, said Emmet, who recently left mBlox to join OpenMarket. “And they want to financially incent the ones who don’t.”

Legal issues
The moves to keep content providers in line comes amid a rash of lawsuits from consumers and advocacy groups targeting carriers and content-subscription service providers like Buongiorno Ltd. and Jamster (which does business abroad as Jamba). Lawsuits over off-deck content are pending against Verizon Wireless, Sprint Nextel, T-Mobile USA Inc. and Alltel Communications L.L.C., a separate class-action lawsuit was recently filed in a Mississippi federal court.
And the operators’ risks in off-deck content go well beyond the courtroom, where PR nightmares and million-dollar judgments lurk. Deceptive or flat-out incompetent efforts from third-party providers produce unhappy customers – potentially increasing churn – and often result in costly calls to the carriers’ customer-service centers.
“If I’m running my ringtone company, and it doesn’t get a lot of calls or produce a lot of problems – which generate a lot of costs for the carriers – they want to incent me,” Emmet explained. “If I’m the opposite of that guy, it’s only reasonable” to sacrifice some revenues to the carrier.
Of course, it’s not just rogue content partners that often leave a bad taste in the mouths of consumers. The space is rife with leakage, from games and ringtones that simply don’t get delivered to refunds and charge-backs that often get lost in an ill-suited system. Which is why operators are increasingly looking to the wireless Web instead of the convoluted world of premium SMS to deliver content and consummate transactions.
“To be honest with you, (premium SMS) is a relatively clunky process, it’s not a particularly good user experience, and it’s really built on a platform that wasn’t designed for billing hundreds of billions of dollars with huge volumes of transactions,” said Adam Kerr, VP of Web sales for Bango, an off-deck billing firm.

Simplified billing
And while direct-to-consumer content players have been dealing with slimming margins for years, cleaning up the inefficiencies will result in substantially higher revenues, likely increasing revenue shares for third-party providers. That’s the case in the United Kingdom, Kerr claimed, where a move to WAP billing has decreased costs and encouraged them to carve out larger shares for their partners.
The next big step in the evolution of the off-deck world? Some believe it may be a standardized mobile payment platform like PayForIt, which every major U.K. carrier adopted last year. The scheme provides a consistent user interface for mobile transactions of $20 or less – regardless of carrier – and identifies users via the network connection, eliminating the need for consumers to enter a phone number or credit card information. While establishing such a system here would require an enormous effort – including, perhaps, unprecedented cooperation between service providers – it might help iron out many of the wrinkles that plague the m-commerce space at large.
“There are always market opportunities around additional payment methods,” Emmet said of the British mobile payment system. “Do I think a system like that will come to the U.S. someday? Yes. Am I planning on it next quarter? No.”

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