Telcos stand to gain from third-party billing

Angel Dobardziev/Ovum
25 May 2011

There was a rapid rise in billing partnerships between mobile operators and handset and platform vendor app stores in the last five months. There is a strong market need for greater flexibility, and consumer convenience and inclusion in paying for app downloads; in both mature, and particularly in emerging, markets.

Such deals will benefit all parties, with content and app developers set to gain most from this trend. By supporting greater choice and more convenience in payment options for applications, telco billing will aid faster growth in paid-for application downloads, particularly in the emerging markets.

Telcos will get a nice, if not a large, revenue boost from these partnerships. But the move will add to the pressure on telco’s own app store strategies, by making other’s app stores far more attractive than they are today. In effect, third party billing may be counter-productive to realizing telcos own content provider dreams – yet it may well be more profitable upside on the pure ‘bit pipe’ nightmare.

Third party billing a good development move

In the last five months there has been a wave of billing partnerships between device and/or platform vendor app stores and telcos – both in mature and emerging markets. Examples include RIM/Blackberry (with Vodafone), Microsoft (Orange), Nokia (Reliance, UK operators), Google/Android (AT&T).

Many others (for example Opera and Samsung) have publicly announced their intentions to form billing partnerships with operators in multiple markets to support their respective app store strategies. Many telcos harbor strong mobile content ambitions via their own applications stores, so why are telcos making steps that appear to aid competing app store platforms, seemingly at the expense of their own?

The key driver behind this trend is the strong market need for greater consumer convenience and inclusion, which is essential for device and platform vendor app stores. Insisting on credit card payment for apps purchases is a clean, and relatively low cost method. But that leaves out millions of people in the mature markets, and billions in the emerging countries, that don’t have access to a card (or more recently, mobile) payment alternatives. Moreover, some card-owning consumers either have concerns with security, or find the credit card payment process cumbersome. Operator billing, whether postpaid or prepaid, is often an easier and more trusted charging mechanism for consumers. Telco billing can also make the currently holy grails of one-click and in-application charging much more convenient for the consumer.

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