Device operating systems

Are Carrier Fees Killing LBS?

CHICAGO -- Wireless data transport doesn’t come cheap, but some location-based services (LBS) providers believe it should at least be cheaper.

At the People Tracking and Location conference in Chicago today, things got heated when an attendee asked a panel how developers can make money when carriers, specifically Verizon Wireless by virtue of it being the lone carrier represented, charge them one, large flat fee for data.

“Your minimum data plan is 1Meg, but your average device uses 200MB,” James Artimez, executive vice president of LBS vendor Traxxitt, told Verizon exec Ira Gorelick, referring to Verizon’s retail business. “There’s no flexibility to buy a pool of data and parse it how I want.”

This is a complaint that Gorelick, a senior manager of business development for Verizon Wireless’s Open Development initiative, is used to hearing. He doesn’t handle pricing at Verizon, but he knows that LBS providers want a lower cost for data. His response is that lower-cost plans do exist, but they are on the wholesale, not retail, side of the business.

“We do have wholesale plans. Come to me and I can structure a plan to give you very inexpensive monthly data,” he said.

Gorelick said that wholesale allows LBS app makers to buy bulk minutes inexpensively, but what they are griping about is wanting cheaper retail plans. Going retail with Verizon requires paying the transport fee, but it allows them to offer apps with a recurring revenue stream through the carrier.

He cited the Kindle as a wholesale example. The price of the data is bundled into the price of a book purchase, something most consumers don’t realize. The LBS provider knows about how many books people read and how large those files would be -- they know how much data they need.

For smartphones on the other hand, there is no fixed amount of data you can have, Gorelick said. “If you bring to me a dedicated fixed location app, I can give you a very low price for that,” he said. For Verizon, it is a matter of that LBS provider having enough volume.

“I don’t have the luxury of buying a half- or quarter-meg plan or a pool of data to spruce up,” Artimez continued. “I’m stuck. You say if I can come up with an application, I can come up with a plan, but that’s not true. Anyone at Verizon will say you can’t do pools. That monthly charge turns out to be the minimum 1Meg plan, plus having to make money on the other side.”

Gorelick’s counterpoint to this was that transport is only one aspect of the entire process. Developers should be making apps that people want and looking at the total package -- they can’t just blame the carriers.

“The implication was that if transport was less expensive, everyone would want these services,” he said. “Transport is only one piece of the puzzle. I’m not convinced that transport is the gating factor, negating factor, the hurdle that is preventing usage. It’s the whole model preventing usage.”

Simon Buckingham, CEO of Zoombak and former Vodafone UK employee, came to Verizon’s defense, saying operators historically have been inflexible in pricing, but that the US is a very different market. With the way the industry is trending and improvements in billing, the flexibility is now there to try and win business and compete. If a developer can bring a genuinely good app with a good customer base to a carrier in the US, the carrier will work with the developer to get a plan that works for it, he said.

Both said that volume is the key, but that's hard to come by in today's nascent, competitive LBS market.

“We’re stuck with [expensive plans] because everyone is jockeying for a position to become an industry leader, but there is no one voice yet,” Artimez responded. “To come to carriers and say, 'We bring you half a million clients to throw up on your map when you are doing your billion-dollar commercials' -- we don’t have that voice yet, so we’re being slapped around, not just by Verizon, but by any carrier.”

— Sarah Reedy, Senior Reporter, Light Reading Mobile

joelg 12/5/2012 | 4:31:29 PM
re: Are Carrier Fees Killing LBS?

Great article, Sarah, thanks for raising the issue. As a Location Aggregator, our Universal Location Service provides developers with a way to locate over 180M devices across Tier 1 carriers in the US with a single web services API (smart phones and feature phones, no download required). We do this by connecting directly to carrier networks.

The business challenge that we're currently facing goes beyond just data-carrying fees: in our space, carriers charge a large per-locate fee, which we then have to pass on to our Developer Partners. In some cases, the developer partners have healthy, proven business models and can cover the costs for this valuable service. Of course, these tend to be enterprise developers.

The scenarios that get hurt are the higher risk (and often incredibly innovative and interesting) consumer scenarios. These are fascinating services that users love, but for which the business model is still developing. LBS Advertising / Marketing is a classic example; LBS social networking is another.

We're working with our carrier partners to launch pricing structures that involve more risk-sharing, more flexilibility, and more opportunity for developing markets, particularly in the consumer space. The carriers legitimately WANT to participate here and support these models: they can see, just like everyone else, the overwhelming demand that we're getting for our Geofence SDK for iPhone/Android devices and other platforms for which there is no per-locate cost. They don't want to be left out.

LBS is an exciting space and one that is rapidly evolving and I hope to be able to announce some more flexible pricing structures in partnership with the carriers in the coming months, as well as more tools for developers that prefer to stick with smart phone platforms.


Joel Grossman, Location Labs


sarahthomas1011 12/5/2012 | 4:31:19 PM
re: Are Carrier Fees Killing LBS?

Hi Joel,

Thanks for the comment. WaveMarket's cross-carrier aggregation service is certainly an important one to helping location take off. The idea of "universal location" and the importance of extending location beyond one network was also raised at the conference.

The cost issue is an interesting. Seems a bit like a chicken-and-egg problem. Carriers say "bring us volume," but developers can't do that when carrier fees are prohibitively high.

That's great that carriers are willing to work with developers too, but it seemed to me that that was only on the wholesale side of things. Is the case different on the retail side? How important is going the retail route instead of wholesale to developers?

Thanks again,


joelg 12/5/2012 | 4:31:18 PM
re: Are Carrier Fees Killing LBS?

There is huge overhead in carriers working directly with a large number of developers, so that's not the preferred way to create the market. They're depending on Aggregators like Location Labs (http://www.location-labs.com/) to help make the market. In addition to providing access to location infrastructure, we provide developer tools, privacy cotnrols, rapid certification, and other features.

I give this background because it means that, at least for location access, we're trying to erase the wholesale/retail divide. The price to Aggregators today could be called "wholesale" but, as I mentioned at the conference, that price is so high that if I want to create a market, that's essentially the same price that I sell it at (meaning that the retail price today IS the wholesale price).

Our strategy is to do whatever it takes to create the market and build our own business with valuable optional add-on services for developers. Vanilla location access is going to become a commodity and I don't plan on making a profit just reselling a commodity (if that were my strategy, I'd go grow corn). My challenge today, though, is that it's tricky to build the market because the WHOLESALE price to Aggregators continues to be too high: as I mentioned below, my costs price out certain developers.



Joel Grossman

Location Labs (www.location-labs.com)

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