|Latin America IV 1998
|Calling Party Pays: Is it Really Necessary?
|Director, Cellular and PCS
|Strategis Group, USA
The US wireless market has been slow in many ways to adopt new types of pricing. This was true with prepaid wireless and is certainly true for Calling Party Pays (CPP). To a certain extent, CPP goes against the grain of consumers because when they make phone calls from a landline phone, they would not be expected to be billed for that call. Unless the technical challenges are addressed, CPP will have a difficult time making a splash in the US wireless market. Besides, declining service pricing and schemes such as free in-bound minutes may in due course, completely obviate the need for CPP.
In many areas concerning wireless services, the US lags behind. This is especially true in the area of Calling Party Pays (CPP). CPP essentially means that the person placing a wireless phone call incurs the cost of that call and not the wireless subscriber. It has been enormously successful throughout the world, but in the US, it is still an open question as to whether we need it or not. CPP is a standard billing model for most telecommunications markets throughout the world except for the US. The argument in support of implementing CPP is that wireless usage can be stimulated and the ratio of outgoing versus incoming calls can be balanced if subscribers know that someone else is paying for the call. Consequently, users may be more inclined to give out their phone numbers. In markets where CPP has been introduced, this has materialised. For example, prior to Israel’s Pele-Phone Communications introduced CPP in 1994, average monthly minutes of use was approximately 450, and 75% of the voice traffic was out-bound. When CPP was introduced, average minutes of use increased to over 550 per month and inbound and outbound traffic nearly equalled. Brazil, Italy, Sweden, Germany, and the UK have experienced similar boosts in usage and equalisation of network traffic after launching CPP. Support for CPP In Latin American and European countries where CPP is the standard billing procedure, wireline-wireless calls are nearly as common as the other way around. In the US, the typical number is that only 20% of calls that involve wireless customers originate on a wireline network. This number has been on the rise, though not from CPP. For the moment, the issue of CPP is still in abeyance in the US and it is unknown exactly if or when it will be fully implemented. There is support for it in the hope that it will replicate the success of the international markets in the US wireless market. There are however, many hurdles ahead that could prove a long wait for CPP. Fundamentally, the concept of CPP is a sound strategy to boost airtime and subsequently, revenue. The limited presence that CPP has had in this country could hardly be described as a success. For instance, regional wireless carrier, BellSouth Cellular, offered CPP in Hawaii, which had at its peak less than 100 subscribers. As for achieving an equal balance of incoming traffic on its network, this failed to materialise with BellSouth after implementing CPP and no significant increase in voice traffic was recorded. Two years ago, the service was discontinued with only 10 subscribers. There are other carriers who have offered CPP in selected markets, namely Ameritech, GTE Wireless, and Bell Atlantic. None of these carriers heavily promote this service, however. Technical Challenges CPP faces some enormous technical challenges to become widely available in the US and may be impossible to resolve. Notification of Additional Charges One of the key issues is that callers to CPP mobiles must be notified that they will be billed additional charges. This notification can be in the number dialled, a recorded message, or possibly, an interactive menu allowing the caller to either accept or deny the charges. Calling parties do not want the unwanted surprise of incurring unwanted wireless charges so it would be essential that they be given the choice to make or not make the call. Such a notification scheme would almost have to be deployed nationwide to accommodate inter-state travelling subscribers and the cost burden to the carrier would be highly significant, though still unknown at this point. Because requirements differ from state to state, a national standard would be mandatory. The question becomes at what cost to the carriers in terms of revamping their billing systems to support what may not be huge revenue potential in the first place. Leakage The other significant impediment to CPP concerns the issue of what is known as ‘leakage’. Leakage refers to the inability of the local exchange carrier being able to trace a call back from a payphone or a hotel phone to the correct home phone bill. With the introduction of CPP, leakage could pose a serious problem and it could take years to develop an intelligent network that is sophisticated enough to bill the call properly. In order to be able charge incoming calls to the calling party, the wireless carrier would need access to billing collection information for the calling party. If this information is unavailable, the result could be lost revenues for the wireless carrier. If leakage can not be eliminated, it would at the very least need to be detected so that the incoming calls can be diverted or denied. The other possibility would be to have a message flashed on the wireless subscriber’s phone indicating that they will be charged for the call when leakage is found. Solving the leakage problem is a daunting task and must be fully addressed prior to the advent of CPP. Principal Motivation Behind CPP To a certain extent, CPP may be made irrelevant by the strategies of the wireless carriers. In 1995, the first US Personal Communications Services (PCS) carrier, Sprint Spectrum in Washington, D.C., introduced a new pricing scheme where the first inbound minute was provided at no charge. This plan was enormously successful and as a result, inbound and outbound traffic nearly equalised on Sprint Spectrum’s PCS network. This scheme has become standard fare for many wireless carriers in the US in connection with their digital offerings. The Strategis Group regularly conducts consumer surveys of wireless users and in our most recent analysis, we found that 24% of those surveyed would give out their phone number to more people if they were not charged for the first minute of incoming calls. To the wireless consumer, the principal motivation behind CPP is that he or she does not want to pay for incoming calls. When CPP had its limited tenure in the US, this would be an important consideration. However, wireless pricing has dropped significantly in the past four years, and wireless carriers have been giving away huge surpluses of free airtime. In some cases, this is as much as 1,200 minutes per month, bringing down average per minute pricing below the US$0.10 mark. Since competition began in the US wireless market, average wireless pricing has fallen by as much as 65%, depending upon usage levels. What is beginning to emerge is that wireless is becoming a commodity and, in time to come, the pricing will have fallen so dramatically, that users will not be concerned about having to pay for incoming calls. The fact is that they may be free of charge anyway. Conclusion The US wireless market has been slow in many ways to adopt new types of pricing. This was true with prepaid wireless and is certainly true for CPP. The difficulty with CPP is that consumers are not accustomed to having to pay for phone calls unlike that of our Latin American and European friends. To a certain extent, CPP goes against the grain of consumers because when they make phone calls from a landline phone, they would not expect to be billed for that call. Unless there is a uniform notification system and all the leaks are plugged up, CPP will have a difficult time making a splash in the US wireless market. Declining service pricing and schemes such as free in-bound minutes may in due course, completely obviate the need for CPP.