The Dark Side of charge-through models

Wireless carriers have recognized for some time that mobile content consumption is an important additional revenue stream. This predates mobile Internet, as content owners would provide content via SMS, but it has become larger with the advent of mobile data over the last decade.

Content providers particularly like the business model. Sure, they use the carriers as distribution channels, but the part they really like is using the carriers as billing mechanisms. Content providers simply inform the carrier that subscriber number +1-xxx-xxx-xxxx has $2, $20 or $200 of content billed this month. The carrier gets a cut for providing the service, and the charge shows up on the subscriber’s next monthly invoice. From the content provider’s perspective, this has two distinct advantages:

  1. Reduced overhead: Billing, invoicing, collections, all of this is a messy backoffice function which is much more easily handled opposite a few dozen carriers versus a few million or billion individual consumers. In this respect, it is a win-win.
  2. Bundling: Because the $20 of content is bundled with the carrier’s monthly bill, the probability of charge rejection is dramatically reduced. First, the subscriber is far less likely to even notice the additional charge, even a small $2 one, if it is buried in a larger mobile service bill. Second, even if they do, they cannot simply reject it as a single charge, using their credit card company, as they could with a separate charge. They would have to reject the entire bill, which would mean possibly losing their mobile phone and Internet service, something most subscribers are reluctant to do.

Bundling with the carrier’s bill is the dark, seamy underside of the content providing business using charge through models. Because of the far reduced likelihood of charge rejections even for illegitimate charges, the business has drawn more than its usual share of unsavory actors. Any business with a credit card chargeback rate higher than acceptable will quickly be blacklisted by the various credit processors, essentially putting it out of business. This is a key method for keeping such players out of abusing the system. Content providers who, on their own, would normally get blacklisted, manage to stay in business by piggybacking on the wireless carriers. Any business mechanism that allows otherwise blocked players to whitewash will, by its nature, attract the least desirables.

I do not know the statistics of what percentage of content providers using charge-through carrier billing receive pushback via their carriers, or how many are unsavory. But anecdotal evidence I have seen has indicated, unsurprisingly, that the numbers are unusually high.

The more interesting question is, what should the carriers do? They feel stuck between a rock and a hard place. Many content providers are, indeed, legitimate; many want the first advantage, efficient billing procedures, without the second, and would be acceptable on their own.

I believe carriers should agree to accept content providers, and provide billing, but bill it as a second monthly charge to subscribers, with a separate subsidiary providing the charge, e.g. ATT*ProviderA, a charge that can be contested without affecting the core subscription bill. The entire risk of chargeback should fall upon the content provider (ProviderA in this case), relieving the carrier (ATT in this case) of the burden and best serving its customer, the subscriber.

Carriers need to remember that they are there to serve their customers; if bringing content to them at a reduced cost via efficient invoicing does so, all the better, but without laundering the provider’s behaviour, and without putting the customer on the hook. It can only hurt the carrier in the end.

About Avi Deitcher

Avi Deitcher is a technology business consultant who lives to dramatically improve fast-moving and fast-growing companies. He writes regularly on this blog, and can be reached via Facebook, Twitter and avi@atomicinc.com.
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