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When it comes to paying for m-commerce purchases, customers may want to go to a model from yesteryear.

There was a time when such trust existed between merchants and consumers that tabs were commonplace. Times have changed, however, and these days, bars are one of the few places where customers still can run a tab. Soon, though, wireless carriers may find that their subscribers want to run in-commerce tabs.

According to the Boston Consulting Group's (BCG) (www.bcg.com) report, Mobile Commerce: Winning the On-Air Consumer, 40% to 50% of wireless subscribers would like their in-commerce purchases to appear on their phone bills. In Australia and Japan, that acceptance rate peaks at 60% and 79%, respectively.

The idea is simple. Rather than giving out a credit-card number to pay for flowers, an MP3 file or theater tickets, the expense would appear on the subscriber's next phone bill. The execution of that idea, however, is not so simple. Challenges in implementation and security abound. And with global m-commerce revenues projected to reach $100 billion by 2003 (see Figure 1 on page 36), carriers could have a plethora of transactions, with a fortune in expenses, to handle through their bills.

That doesn't mean carriers aren't gearing up to run tabs. Joe Gardner, Alltel (www.alltel.com) staff manager, wireless data services, said the carrier is aggressively pursuing this billing model. Greg Santoro, Nextel (www.nextel.com) vice president of Internet and wireless services, said he'd be surprised to hear that any carrier hasn't considered the model.

In Finland, carrier m-commerce billing is already in place. Car-wash, juke-box and vending-machine services are charged to users' phone bills from Radiolinja (www.radiolinja.com) and Sonera (www.sonera.com). Don't expect to see this billing model in the immediate future; as usual, North American carriers are a few laps behind their overseas counterparts. That's OK, though, given local challenges. North American carriers are going to need the development time.

One Bill to Unite Them

North America's competing-network technologies present the strongest hindrance to implementing carrier m-commerce billing, said Alltel's Gardner. Here, the fray includes analog, CDMA, GSM, iDEN and TDMA, whereas European and Asian carriers strictly use GSM networks. The proliferation of prepaid in foreign markets is another advantage. Simply debiting m-commerce purchases from a customer's prepaid account decreases initial credit risks carriers might face.

The recent trend of growth via acquisition throws one more monkey wrench into carrier m-commerce billing. Revenues and subscriber numbers easily mix when carriers unite. Billing architectures, however, don't come together quite so nicely. Imagine the billing systems' diagram when Verizon Wireless was formed.

"You do see some pretty weird diagrams of (how those work)," said Chris Merrick, Geneva market strategy (www.genevatechnology.com) manager for wireless. "From the Outside, you think everyone has a similar architecture. (But) when you get into it, there are some pretty weird things that have evolved over the years."

North American carriers also must deal with the capacity issue. Transactions that would take up a sizable portion of bandwidth, such as downloading large files, could strain capacity enough to drop voice calls. With that risk, carriers might levy an extra charge on the file download, according to Idar Voldnes, Geneva president.

"Now you just generated some extra revenue, and you at least assured yourself that you didn't forgo any revenue because of this file being transferred," he said.

Better Be Bulletproof

Today on the wireless Internet, when a subscriber buys a book from Amazon.com, that transaction moves over Amazon's server. That process would have to change with carrier m-commerce billing, said Nextel's Santoro.

"The information about the transaction has to be captured and go through a server that we would have, and then link in with all the merchant partners that would be supported," he said.

Removing credit cards from the equation makes the settlement process a daunting challenge, especially across a large number of merchant partners. Santoro said this would keep carrier m-commerce billing from appearing anytime soon. The solution is to create a standard mechanism for all carriers to use to settle m-commerce transactions with merchants. A standard method will be critical, as carriers will need a system that's open to hundreds, if not thousands, of commerce and content partners, Geneva's Merrick said.

Nextel's Santoro concurred, saying that if each carrier approached the top 100 retailers in the country and said "interconnect with us our way," m-commerce would be a nightmare of mixed technologies and multiple implementations.

Fraud also is likely to rear its ugly head with m-commerce tabs. Carla Schneidermann, Light-bridge vice president of marketing (www.lightbridge.com), acknowledged the strong potential for fraud with carrier m-commerce billing. Alltel's Gardner said carriers would need a bulletproof system to ward off fraud and other security concerns.

"That includes a secure connection from both client to server, with no holes in the encryption, like exists now in some form with (secure-socket layer)," he said.

With impenetrable armor around carrier m-commerce billing, the simple idea of m-commerce purchases expensed on the phone bill might be the perfect remedy to consumers' security worries.

Making M-Commerce Comfortable

It's no secret that consumers have privacy and security concerns when it comes to m-commerce. The BCG report says, "Consumers are sensitive about the safety of payments and transactions. A high percentage of people in all countries (74% in the United States) say they would avoid sending credit-card numbers over a mobile device. Such concerns call for more advanced payment systems to win consumers' trust."

Carrier m-commerce billing comes to the rescue as it removes credit cards from the equation. Furthermore, subscribers are comfortable with their phone bills. A tab model might be the perfect way to get consumers to trust m-commerce.

Alltel's Gardner said carrier m-commerce billing absolutely would be a way to ease consumers' security fears. M-commerce adoption forecasts already look good (see Figure 2 on page 40), but if carriers minimize security concerns and improve coverage and interfaces, m-commerce's future will look like summertime in California.

Where's the Dough?

With all these challenges, you're probably wondering, "What's in it for me?" First and foremost, there's meeting consumer demand, driving the adoption of m-commerce and increasing customer loyalty. But the language of business speaks in dollar signs and zeros. Carrier m-commerce billing has plenty to offer in that respect.

"The exciting part of this is there are revenues to be had," said Geneva's Voldnes. "Rather than give that business away to the credit cards or the competing portals out there, there is an opportunity for the ones that are interested in attacking it as a completely new revenue stream.

Exactly how the revenue stream will flow remains unclear, according to James Darcey, Alltel staff manager of portal development. Darcey is quick to point out, however, that European carriers are taking a cut of the transaction.

"So instead of buying a Coke for 50[cts.], you'd pay 75[cts.] and the carrier would get 25[cts.]," he said.

Whether American carriers get a cut of the profit or levy a billing-on-behalf-of charge, Nextel is confident that there are revenue opportunities.

"To the extent that we're offering a service on behalf of the merchant, that reduces their risk, and the fact that there's a bill that gets sent for them -- clearly we'd want a reasonable return on that," Santoro said.

As far as getting a cut of the expense, that comes down to whether or not carriers would be managing credit risk. Today, credit-card companies get a slice of a transaction's value for that reason. It follows, then, that carriers should as well.

"You've got to get some compensation for it because that's a significant cost," Santoro said. "Even just the addition to provide the base billing service and the collection service. Clearly there would have to be compensation there."

All this talk of bad debt doesn't have Santoro worried about Nextel becoming a wireless carrier/creditor.

"We manage credit risk all the time," he said. "It's part of our business."

Alltel's Darcey believes that carriers could expand beyond their core competency.

"It's possible that the carriers turn out to be a bank in the long run, i.e. a creditor, (where) we would actually pay Amazon," he said. "Or it's possible that Amazon just carries the loan until we actually get paid, and we pass it on."

Perhaps the most important reason for carriers to implement m-commerce billing is that if they don't, someone else will.