Coming to a Mobile Plan Near You: Pay Just for E-Mail or Facebook

Photograph by George Frey/Bloomberg

Mobile carriers now want customers to manage their megabyte usage, but a startup is pushing a different approach.

It sounds like a high-school math problem: You have 250 megabytes of data left on your smartphone plan. For the rest of the month, you plan to spend four hours a day checking Facebook, e-mail and YouTube. At that rate, will you have to pay overage fees?

Unfortunately, this tricky question is very real for those who try to manage their mobile data usage. A possible solution? ItsOn, a Redwood City, California-based startup, is working on an alternative to the metered data plans that have become standard for most smartphones.

ItsOn’s technology could allow mobile subscribers to tailor their data plans according to the services they use.  For example, rather than monitoring how many megabytes you’re using watching Netflix, a carrier could offer a flat monthly rate just for video streaming. The same could be done just for e-mail or social networking.

With the ItsOn app, customers can manage which types of services they’re subscribed to, and the requests would go into effect immediately. That type of granular control could unlock many more billing options that aren’t possible within the current wireless infrastructure.

“Today’s mobile networks are incredible feats of engineering because they were built in a world of calling and dumb feature phones,” said Marc Andreessen, whose venture capital firm Andreessen Horowitz led a $15.5 million funding round in ItsOn that closed this month. ”The current ways that mobile phones are provisioned in price is sort of a blunt instrument approach. You have aggregate buckets of bits.”

Ron Conway’s SV Angel and others also contributed to the round. Earlier investors included Best Buy, as well as Verizon and Vodafone, which together operate the largest U.S. mobile carrier Verizon Wireless. In total, the company has raised $27.9 million from investors. Bloomberg LP, which owns Bloomberg News, is an investor in Andreessen Horowitz.

The jury is out on whether people would rather get nickel and dimed on each type of app they want to use, as ItsOn’s system could enable. But the current billing setup clearly has room for improvement. About one-third of mobile subscribers are confused by their carriers’ data plans, according to a study released this month by consulting firm Ernst & Young.

ItsOn was started four years ago by Greg Raleigh, who funded it early on with his own money and investments from friends. A longtime telecom entrepreneur, Raleigh sold Clarity Wireless to Cisco in 1998 for $157 million and Airgo Networks to Qualcomm in 2006 for an undisclosed amount.

The advantage of separating the fees for each app or class of apps, Raleigh said, is the flexibility it brings. Companies could pay for their staff’s business-related applications, while the employees pay for their bandwidth related to recreational apps, such as Hulu video streaming and online games. The system also allows for operators to sell advertisements, so that, say, a sportswear maker could provide three hours of free video streaming during a football game.

“In the old world, these things are impossible because it takes so long to build them into the hardwired network,” Raleigh said in an interview. “It’s profitable for the carrier because it presents some new opportunities.”

ItsOn recently conducted a five-month trial with a European operator, Raleigh said. Early next year, a major U.S. carrier will roll out the service to its customers, which will support one smartphone operating system to start, he said. Raleigh declined to provide any other details.

Andreessen is particularly optimistic about this pricing model working well in emerging markets, where customers could choose inexpensive plans that only include basic services such as maps and messaging.

“If you go into the developing world, and you go into countries like India, there are billions of people who want smartphones, and they cannot possibly afford them,” Andreessen said. “What they’re solving is actually the central problem in how mobile networks are going to operate in the next five to ten years.”

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