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MasterCard versus Telecoms ... the Billing Battleground

  • Some important leaders in Telecommunications have been heard to say that their real business is managing customers. Forget voice, network, value added services, content. Those are nothing more than “candy” that attracts customers – that forges the long term relationship. 

    Though I won’t say I totally agree, I would say that plenty of analogies exist. Disneyland makes money on the hotels and food concession – not on the rides. Visa makes more money from merchant fees than on the annual fees it charges credit card holders.

    But how do Telcos make money on the relationship they have with customers? The end to end relationship is expensive– from the network to billing to the call center CAPEX and OPEX are extraordinary. The thought has been that money to pay for everything would come from the Telcos as Retailers – making margin on reselling electronic content across their network. The new thinking that some operators are whispering is that it must come from the customer relationship. But how?  
    The obvious answer is that Telcos charge customers a flat fee for the privilege of being their customers  - for managing their bills, providing call centers and guaranteeing them a unique telephone number.   If Visa relied on the same, which by analogy would make sense (it provides bills, call centers and “unique” credit cards) , its business model would collapse. Visa needs to make money by providing payment services to merchants and banks - services to the customer is just the channel.
    So the obvious way for Telcos to exploit their relationship with their customers is to be the same – by becoming a billing and payment provider.  Instead of the credit card with chip ‘n’ pin – they have the Phone Number + SIM.  
    The obvious difference:  telecommunications providers have a monopoly with the end customer – while Visa has competition “in the wallet” with most people having multiple credit cards. But this little monopoly is an illusion – if a customer does not like the way they are treated, number portability makes it easy to move on.
    In fact, I think the biggest difference between Visa and a Telco is how they perceive merchants. Visa provides them a payments management service. Telecommunications providers see themselves as retailers – the merchant a supplier. 
    The Telco as retailer has always been problematic (though I admit being a vocal proponent for years). Closed gardens provided too little shelf space at too high a price. Open gardens allowed the entry of competing retailers (the current manifestation being the application stores).   The content providers have been grumbling for years about the poor revenue share and payment terms the Telcos offer them.
    If we go back to the premise that a Telco is really a customer and billing manager – then the model would be much closer to Visa – where Merchants are customers – users of payment services. The fact that Telcos can bundle in voice, data and SIM identity services into the mix should be a way to differentiate from credit card vendors: opportunities to exploit. 
    From a systems point of view – where Telco enterprise systems are primarily seen as automating retail or wholesale business models – there needs to be some serious re-thinking.  Being a billing provider/partner is a whole different game.
    From a strategic point of view, one should ask why doesn’t MasterCard take on the large global GSM providers and become a provider itself. A provider that sees its primary role as a billing and payment provider…. I am sure the Apples and Nokias of the world will go… hmmmm.
    Douglas Zone
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