Telefónica's entry in the ‘direct carrier billing' market will increase interest and activity in this space.
Telefónica has announced plans to use its billing relationships with customers worldwide in order to monetise mobile content. A key part of this strategy is 'direct carrier billing' - that is, enabling consumers to pay for digital goods or services through a mobile phone account.
Mobile payments have been a hot topic for a while; several firms offering a variety of products and services have entered this space in the past couple of years. Most of these products and services involve a combination of new technologies such as near-field communication (NFC), third-party payment platforms from organisations such as MasterCard or VISA, and/or specific hardware such as PayPal Here and Square). All these services are OTT and relegate the CSP's role to that of a dumb pipe.
Direct carrier billing involves payments that the mobile operators can credit to customers' monthly phone bills (in the case of postpaid subscribers) or debit from their prepaid balances. Purchases are mostly limited to digital goods and services such as mobile games, movies, music and in-app purchases etc. Direct carrier payments are limited to low-value purchases, but the service has the potential to take off in countries where credit card penetration is low. These countries include most emerging markets as found in regions such as Africa, Asia and Latin America, as well as developed countries such as Germany where the population has been slow to adopt credit cards. Direct carrier billing is not new; a recent press report suggested that more than a third of European smartphone users have made purchases through direct carrier billing at some time.
Telefónica has framework agreements in place to offer direct carrier billing for digital apps and content with Facebook, Google, Microsoft and Research In Motion (RIM). This is noteworthy because each of these companies has its own app store (Facebook is rolling out its app store internationally) and cumulatively account for several million downloads every month. While details about revenue split are unclear, the economics of offering a direct carrier billing service to Telefónica's more than 300 million customers can be compelling.
Telefónica has started to roll out the capability in Germany and plans to have it live in 14 of its operating businesses worldwide by the end of the year. Telefónica (through Telefónica Digital) has invested in BOKU, which provides a service that enables consumers to use mobile phones in order to make purchases. BOKU has made significant progress in the direct carrier payments space and is present in more than 60 countries and has partnerships with more than 240 CSPs. Being an investor and a partner, Telefónica stands to benefit from BOKU's expertise and experience in direct carrier billing as it seeks to expand revenue opportunities in this space.
Telefónica's venture into the mobile payments market through direct carrier billing places it in a powerful position, enabling it to become part of the purchase process and take advantage of new revenue streams. While such services are still in their infancy and potentially have several hurdles to overcome, they hold significant promise for CSPs. Analysys Mason will explore direct carrier billing in greater depth in a report that will be published later this year.