IP-Based Content Forces Changes in LEC Billing

Posted: 12/2000

IP-Based Content Forces Changes in LEC Billing
By Chris Garifo

It's a wonder Bob Dylan isn't adding a verse about LEC billing to his old song, "The Times They Are A-Changin'."

With dial tone gravitating toward commodity status, service providers are looking to value-added services to provide the revenue streams that will give them the profitability Wall Street and the capital investment community demands.

Depending on whether you're in the circuit-switched arena or in the IP-based arena, an evolution or a revolution is under way within the industry. Service providers are rushing to bring IP-based services to market, while billers try to meet the growing demand for applications that allow for content-based billing.

"The biggest challenge [for billers] is keeping up with the demand because everybody needs those kinds of systems," says Rich Aroian, vice president of marketing for ADC Telecommunication Inc. (www.adc.com) software systems division.

CLECs are undergoing growing pains and are being forced to adjust to marketplace changes that require them to prove they can remain competitive and profitable.

Service providers are finding that price alone won't separate them from the pack, so they are being forced to charter new areas to attract consumers.

"Anything you can do to differentiate and to get more stuff on your network--which gets into applications that include content--would be beneficial to [CLECs]," says Deborah Strong, a principal of BusinessEdge Solutions Inc., a New York-based industry consulting firm.

That effort includes value-added services available through IP coupled with converged billing in which local, long distance, Internet access and even cable television apear on a single bill.

Providers have to be able to bill for value-added services, which may require a fundamental shift in billing from flat-rate and usage based to content-based.

"They can't do it right now," says Michelle Nowak, vice president of product management for New York-based billing solutions provider Info Directions Inc. (www.infodirections.com). "You just can't start billing content."

Nowak explains that service providers might enhance their current systems to recognize the new call records that are needed for content-based billing.

"That could be the biggest stumbling block or the biggest hurdle that they're going to have to get through, because if it's not a usage-based event, a standard call record, they're not going to know what to do with it," Nowak says.

ADC's Aroian adds content represents a whole new ballgame for the traditional circuit-switched voice billing systems that have been used. For one thing, traditional billing systems lack the flexibility necessary for content-based billing.

Regardless, providers don't have many options when it comes to content-based billing if they're going to remain competitive in a marketplace that sees LECs and ISPs on a collision course, Aroian says.

When it comes to their billing systems, then LECs will be left with three options: scrap their legacy system entirely, add functionality to their legacy system, or implement a new billing system that supports a new line of business.

Citing ADC's experiences, Aroian says most companies combine the latter two options.

Billing is the tail end of the move toward content-based billing, says Anil Uberoi, vice president of marketing for XACCT Technologies Inc. (www.xacct.com).

The first priorities should be to provide the infrastructure necessary to handle content, Uberoi adds. For the most part, that infrastructure has been geared toward voice. So, providers will either make huge investments in infrastructure, or they'll need to partner, merge or acquire companies that already have invested in the infrastructure needed for content.

"There is a lot of physical stuff they want to make sure is in place," Uberoi says.

In addition to infrastructure, new OSS elements will be needed that can deal with content. The investment community knows a robust, highly functional back office is critical, and service providers will need to have a quality back office in place.

A third critical element is to ensure network performance doesn't degrade by adding content-based services, Uberoi says.

"Best effort delivery is not an acceptable scenario when you're offering content," Uberoi warns.

Jack Boyle, vice president at American Management Systems Inc. (www.amsinc.com), says billing isn't as much of a problem as the pricing.

"The back end of the process of actually presenting a bill to the user is less of a challenge because you can do one of two things: have a separate billing system to do the content billing, or you can have some sort of billing consolidator that takes the announced price of content and consolidates it on a merged bill," Boyle explains.

Pricing traditionally has been rather simple. It has been flat-rate or metered. Content-based services represent a major shift, as it brings a host of attributes into play. QoS and the amount of bandwidth used are among those considerations.

Boyle adds that another factor is the content's value.

"Not all content is created equal," Boyle says. "Certainly one of the critical criteria involved in the pricing of the content would be [its] value."

As a result, Boyle suggests, the industry is going into a cycle of experimentation.

"No one knows what the user will pay," Boyle says, adding that a lot of different pricing plans and algorithms will be created during this period.

"So the service provider will need to have applications that allow him to manipulate those prices in a very quick time-to-market situation," Boyle says.

Providers must be prepared to deal with customers who may suffer sticker shock when they receive their converged bill, because they may never have calculated what they are spending for all the various services.

"There are times when convergent service and pricing doesn't necessarily mean that every customer is going to want a convergent bill," says Marc Price, senior principal in new media and communications for AMS. "For many customers, including business customers, the convenience of having those charges aggregated is extremely valuable, and that is a more overriding factor than the sticker shock factor. But for a typical residential customer, sticker shock is an issue, which means that for those customers ,what providers have to do is prove the value of providing a convergent bill."

One way providers may prepare customers is through a discount that illustrates the value they add to the company and the loyalty they show by subscribing to the services, Price says.

"That's going to be the challenge to overcome the sticker shock," Price says. "If the company can convince their customers that the loyalty factor is actually saving them money overall, then maybe that will help them mitigate that a little bit."

Jason Briggs, a senior analyst for the billing and payment strategies group of the Boston-based industry analyst firm the Yankee Group (www.yankeegroup.com), says discounted access can bridge the gap between flat rate andcontent-based billing.

"You want to get your customers accustomed to paying for these [services] on a per-use basis or some other basis other than per minute or flat rate," Briggs explains. "In order to do that, offer some sort of incentive ... off of your flat monthly fee to start to use it, and then use these services to generate revenue."

Over time, Briggs says, the revenue model from access will decline, and carriers will drop their reliance on simple access. Eventually, access simply will be seen as a facilitator to get into content.

"The notion of per-minute charges is going to change to per-unit charges, and that unit is intentionally left vague because you don't know how you're going to be able to charge for this in the future, and then what units you're going to need to charge for in the future," Briggs says. He adds, "I don't think it's going to happen in the next five years, but we'll start to see the steps over the next five years go in that direction."

Industry analysts agree that, in the short term, newer companies, such as Portal Software Inc. (www.portal.com) and Apogee Networks Inc. (www.apogeenetworks.com), will be the winners in the switch to content-based billing. That is because these are companies that already specialize in providing billing solutions to ISPs. However, in the long run, the major telecom billers such as ADC and Lucent Technologies Inc. (www.lucent.com) probably will maintain their prominence.

"The traditional billing systems like a Lucent or an ADC that are in the CLECs right now do have the advantage in that they've got

the ability to bill for voice," Briggs says. "Right now, [voice] is the pervasive service that's out there, and that's a service that unfortunately the data and content providers say they have the ability to bill for, but I haven't seen a lot of it in implementations of their products."

Briggs points to Portal's Infranet ICP, which he describes as a platform specifically for CLECs.

"Traditionally they were looking more at the ISP market and data market," Briggs says. "This is kind of their step back to look at more of the CLEC market as well."

Portal executives, however, view their introduction of Infranet ICP as an acknowledgement of the overall direction the telecommunications industry is taking toward more IP-based services.

"The voice LEC industry has certainly been diversifying outside of the pure switched-voice area," says Bart Manning, Portal senior manager of market development. "They've done that in a number of ways, in many cases simple ISP service offerings targeting customers. ... [At the same time], traditional IP service providers have been stepping up the value chain and adding more valuable services on top of access. These things are both kind of happening at the same time and the lines are getting kind of blurry ... between those two market sectors."

Chris Garifo is operations systems editor for PHONE+ magazine.