Direct carrier billing could help operators to capture consumer spending on mobile content and apps

© Analysys Mason Limited 2013

Direct carrier billing could help operators to capture consumer spending on mobile content and apps

Research Report

Direct carrier billing could help operators to capture

consumer spending on mobile content and apps

June 2013

John Abraham, Justin van der Lande and Ronan de Renesse



Contents [1]

5. Executive summary

6. Executive summary [1]

7. Executive summary [2]

8. Recommendations

9. Recommendations [1]

10. Recommendations [2]

11. Market definition

12. Direct carrier billing is only one of many mobile payment options but

offers the best opportunity for operators to generate mobile revenue

13. Direct carrier billing provides another payment option at checkout

14. Process flow between the entities involved in direct carrier billing

15. DCB has to support a multi-channel delivery ecosystem that is changing

rapidly driven by technology, economics and regulations

16. Business environment

17. The business environment in 2013 is encouraging mobile operators to

develop new value-added service revenue

18. Mobile payments are set to grow as the world continues to move to

mobile devices – 400 million European users will pay for mobile content

in 2016

19. In developed markets, operator revenue from voice and messaging is

declining, as is their share of revenue from mobile content and apps

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20. The potential market for DCB addresses not only the ‘unbanked’, but all

users of smartphones worldwide

21. Half of respondents aged 18–34 spend money on apps, of which 28%

spend more than LCU5 per month

22. Operators should initially target contract customers because they are

more likely to have smartphones and margins are better

23. More than half of respondents with a smartphone have never bought an

app

24. DCB has much lower drop-out rates than other payment methods, so

although settlement rates are lower, overall revenue can be higher

25. Direct carrier billing opportunity outlook

26. Unlike traditional payment methods, DCB allows operators to capture a

proportion of customer spend

27. Different national regulations present challenges to DCB implementation

28. Operators’ DCB revenue will grow significantly during the next 10 years

and will replace PSMS as the payment option for operators

29. Market drivers and inhibitors

30. Slow growth in mobile revenue increases the need for operators to

access OTT markets – and DCB can help

31. DCB alleviates consumers’ concerns about the security of payment

systems, while addressing their preference for a single bill

Slide no. Slide no.



Contents [2]

32. Difficult economic conditions, the prevalence of credit cards and online

banking, and the limitations of DCB offerings hinder growth …

33. … as do the cost, lack of awareness among consumers, lack of

standardisation, and policy and legal challenges

34. Use cases

35. Virgin Media offers direct carrier billing as a means to pay for digital

content

36. SFR implements direct carrier billing as a means to generate revenue

from the burgeoning mobile apps market

37. Non-operators such as Facebook and Skype also offer direct carrier

billing as a payment option

38. About the authors and Analysys Mason

39. About the authors

40. About Analysys Mason

41. Research from Analysys Mason

42. Consulting from Analysys Mason

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Slide no.



List of figures

Figure 1: Operator revenue for direct carrier billing, worldwide, 2012–2023

Figure 2: The mobile payment ecosystem

Figure 3: Segmenting mobile money

Figure 4: The entities involved in DCB process flow

Figure 5: Typical DCB process flow

Figure 6: DCB ecosystem relationship

Figure 7: Mobile handset content and apps subscribers by region, Europe,

2011–2016

Figure 8: Messaging revenue by type and its share of total mobile revenue,

Western Europe, 2009–2017

Figure 9: Monthly app spend and number of apps bought per respondent by

age group

Figure 10: Smartphone ownership by pricing model

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Figure 11: Monthly app spend

Figure 12: Share of respondents who purchased an app, by level of monthly

spend

Figure 13: Publisher revenue, credits cards versus direct carrier billing

Figure 14: Revenue splits for direct carrier billing

Figure 15: Revenue splits for traditional payment methods

Figure 16: Operator revenue for direct carrier billing, worldwide, 2012–2023

Figure 17a: Direct carrier billing market drivers

Figure 17b: Direct carrier billing market drivers

Figure 18a: Direct carrier billing market inhibitors

Figure 28b: Direct carrier billing market inhibitors



Direct carrier billing provides another payment option at checkout

In order to better understand the mobile money market, we

have split it into three segments according to customer points

of sale, types of payment interfaces encountered and

methods of payment.

The customer point of sale is the environment encountered at

the time of making the payment through a mobile device.

Payment interfaces are the entities that the customer

interacts or communicates with at the time of making a

mobile payment.

The payment methods are the different means through which

a consumer can make mobile payments. DCB is a payment

method.

Premium SMS has been around for quite a while as a form of

making payments through carrier billing. In this report, we

have excluded premium SMS from DCB. The main reason

for this is that premium SMS is a large market with significant

worldwide revenue and dwarfs the nascent but steadily

growing DCB market.

Figure 3: Segmenting mobile money [Source: Analysys Mason, 2013]

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Customer point of sale

Apps

Application stores

Near-field communication

(NFC)

Web portal

Payment interface Mobile wallet

Application stores

Web portal

Payment method

SMS

Mobile wallet

Direct banking

Credit and debit cards

Direct carrier billing (DCB)

In-app


Direct carrier billing could help operators to capture consumer spending on mobile content and apps 30

Driver Description Effect Timeframe

Slow growth in mobile revenue The slowing growth in revenue from the core

mobile services and falling margins thanks to

competitive pricing pressures have made

operators look beyond traditional service

offerings to generate additional revenue.

Operators are increasingly interested

in using their advantages to be part of

the value chain in smartphone

ecosystems.

Experiments since 2011, significant

revenue generation is expected from

2014 onwards.

Access to OTT markets DCB enables operators to access the OTT

market.

Opportunity to offset falling revenue

and margins.

Ramping up from 2012 onwards

Support from handset

manufacturers

Handset manufacturers’ application stores

that offer DCB are helping to promote the

service, which is beneficial to operators.

Helps build greater awareness for

DCB.

Significant value from 2014 onwards.

Access to unbanked members of

the population

Segments of the population that traditional

payment methods cannot reach such as

teenagers and people in poor regions of the

world represent significant revenue

opportunities.

Huge revenue potential. Policy challenges remain. DCB is

expected to generate value in

emerging markets from 2014.

Proliferation of mobile devices The world is moving to mobile connected

devices, smartphones and tablets, providing

increasing demand for mobile payments.

DCB will offer huge revenue potential

when it is mature.

Wider adoption is expected during the

next 2–3 years.

Slow growth in mobile revenue increases the need for operators to

access OTT markets – and DCB can help

Figure 17a: Direct carrier billing market drivers [Source: Analysys Mason, 2013]


Direct carrier billing could help operators to capture consumer spending on mobile content and apps 38

Executive summary

Recommendations

Market definition

Business environment

Direct carrier billing opportunity outlook

Use cases

About the authors and Analysys Mason



About the authors

John Abraham (Analyst) is a member of Analysys Mason’s Telecoms Software Research team and contributes to

the Revenue Management, Service Fulfilment and Customer Care programmes. He has more than 5 years’

experience in the telecoms industry. He has worked for a global OSS vendor and implemented revenue

management solutions for Tier 1 telecoms operators in Europe, India and the Middle East. John joined Analysys

Mason in early 2012. He holds a bachelors degree in computer science from Anna University (India) and an MBA

from Bradford University School of Management (UK).

Justin van der Lande (Senior analyst) leads the Revenue Management programme (formerly Billing), which is part

of Analysys Mason’s Telecoms Software research stream. He specialises in business intelligence and analytics

tools, the functionality of which cuts across all of the research programmes in this area. He also provides project

management for large-scale projects within our Telecoms Software research. Justin has more than 20 years’

experience in the communications industry in software development, marketing and research. He has held senior

positions at NCR/AT&T, Micromuse (IBM), Granite Systems (Telcordia) and at the TM Forum. Justin holds a BSc in

Management Science and Computer Studies from the University of Wales.

Ronan de Renesse (Principal Analyst) is the lead analyst for Analysys Mason’s Mobile Content and Applications

and Mobile Broadband and Devices programmes. His primary areas of specialisation include rich media

applications and services on mobile, application store forecasting, mobile broadband, tablets and smartphone

adoption. Ronan has been analysing the telecoms and media industry since 2003. Prior to joining Analysys Mason,

Ronan was a Senior Analyst and the Head of Mobile at IHS Screen Digest, where he had overall responsibility for

the Mobile Media Intelligence service and all related activities. For the past 5 years, Ronan has led the conception

and development of various mobile media and technology forecasts, including those for mobile video, mobile music,

mobile games, mobile apps, mobile broadband and smartphones. Before becoming an industry analyst, Ronan was

an academic researcher at the Centre for Telecommunications Research at King's College London. He holds a PhD

in Telecommunications from King's College London.

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Direct carrier billing could help operators to capture consumer spending on mobile content and apps