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Slow but sure on Micropayments

by sue marek
January 7, 2002

Starting small and building slowly isn't a strategy often used in the fast-paced wireless industry where fleet-footed players are rewarded for their ability to expand at lightning speed. But when it comes to mobile commerce, a slow, steady approach just may be the winning proposal.

That seems to be the case in the use of customer micropayments, whereby carriers can charge relatively small amounts for cheap digital applications or services that customers select on an á la carte basis.

Cingular Wireless is banking on microbilling and micropayments and has been ringing up sales thanks to its DirectBill service that debuted in June. Initially, Cingular offered subscribers the chance to buy downloadable ring tones for $1 each. Since then, the wireless operator has added games and trivia to its portfolio.

When a Cingular customer selects a downloadable ring tone or another small-ticket item, DirectBill transfers the charges to the customer's monthly wireless phone bill. Cingular currently caps those charges at $20 per month.

Part of the logic behind the cap is that it provides the customer and the carrier with a safeguard. Carriers don't want to be like credit card companies, carrying debt racked up by wireless customers. And if customers who are accustomed to a certain average monthly phone expense suddenly find extensive micropay-ment charges piled onto their bill, they may balk at the service.

Though the DirectBill system has been in place only about six months, Cingular officials say customers are flocking to the micro-payment system. "As far as ring tones, usage has exceeded our expectations," says Dahna Hull, director of consumer product development at Cingular.

Hull says one of the goals of the service is to make people more familiar with using their devices for things other than voice. Apparently that strategy is working. The company is encouraged by the number of repeat customers and says that once subscribers use the service, they want more.

Cingular has enjoyed great success with tones that are seasonal or related to current events. Hull says that after the Sept. 11 tragedy, the "Star-Spangled Banner" became the No. 1 ring tone. Likewise, during the holidays, "Frosty the Snowman" was a popular choice.

But the service does have some limitations. For now, subscribers must own certain Nokia phones that offer downloading capabilities to get the ring tones. "Manufacturers are working on making the smart mes-saging capability available, but right now it's just Nokia," Hull says.

Cingular may have been the first U.S. carrier to offer micropayments, but the trend certainly is building. Vodafone plc announced in December that it plans to launch a mass-market micropayment system, enabling the carrier's 12.8 million customers to make small transactions via mobile phone.

Vodafone plans to offer downloadable ring tones and is considering expanding the service to include payments for physical purchases such as soft drinks from vending machines.

Researchers say other carriers likely will follow the micropayment route. The Yankee Group estimates that by 2002, 50 million U.S. mobile phone users will use wireless devices to buy content and goods. The research firm also predicts carriers will use micropayments as a starting point to expand their networks and migrate to more sophisticated m-commerce methods. [WIM]

Sue Marek is senior editor at Wireless Week and a regular contrib-utor to Wireless Internet Magazine's Big Ideas, taking a hard look at solutions and applications. She can be reached at smarek@cahners.com.