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January 2000

Billing For Long-term Success In IP Telephony


The value of Internet telephony to service providers comes from the long-term benefits of a multiservice IP network and service portfolio. What will compel carriers to convert their primary service platforms from the safe, circuit-switched, Intelligent Network (IN) world to IP, and attract new service providers to Voice over IP (VoIP) is, quite simply, money. And money will flow to service providers when compelling new applications and services that make the communication experience richer for consumers and businesses are offered at affordable prices, and when operational efficiency gains compel them to do so. These are the applications that are either only feasible over IP, or are much more efficiently operated over IP.

So, from a user’s perspective, where are all of these “killer applications” that will drive IP telephony growth? Much has been made in IP telephony circles lately over the perceived lack of progress in the deployment of these added-value IP applications to complement the basic voice services that pioneered the industry. Several factors are held responsible for this. Among these is the need to improve voice quality and the need to reduce relative cost per port to the level of circuit switches. Equipment vendors are rapidly addressing both of these issues.

One key factor in the lack of progress that is often missed is the billing system. Quite simply, it is typically too costly and time consuming to build billing, customer care, and service management solutions to address these needs. Without being able to rapidly deploy and charge for new services, marketers fail to move business cases forward for these new applications. Innovation is choked. But why is this happening and what can current Internet telephony service providers (ITSPs) do to overcome this?

Today, IP telephony facilitates the bypass of established carrier routes with the associated fees and high monopoly rates, and remains largely unregulated. Rapidly improving voice quality is coupled with the inconvenience of two-stage dialing, making price the driver of IP telephony use. With ongoing erosion of this price advantage, there is currently no sustainable advantage over traditional calling.

Prepaid calling cards have been the distribution and billing method of choice in these early days of this market. What is “hot” in the IP telephony billing space, then, revolves around billing for prepaid calling card services, and to some extent wholesale international transport, and fax over IP. Calling cards and prepaid services are popular avenues for a number of reasons, including technical, financial, and established consumer behavior.

First, most phone-to-phone IP telephony requires two-stage calling to access the IP network via the PSTN. This is analogous to using regular calling cards from traditional providers that do not utilize the “0+” option. This is an accepted practice when using calling cards, and is readily adopted by consumers of IP telephony. Also driving the prepaid calling card approach is the fact that ITSPs are generally new entrants into the market with little established brand value. Their marketing objectives are typically not focused on building customer relationships and cross-selling other services or applications. Rather, they are focused on rapidly driving the number of minutes through their gateways and over their networks. Consequently, the service relationship is highly transactional — subscribers/users are transient and, in some cases, even anonymous to the biller (that is, they are typically just card or PIN numbers). This suits calling card, and prepaid, services very well. Furthermore, calling cards allow for easy retail branding and may expand sales channels and the addressable market through wholesale and private-label arrangements. This is ideal for providers with little or no brand equity trying to rapidly build minutes, manage costs, and improve margins.

In addition, value for the service is also very relevant today. As noted, voice quality is not yet up to circuit-switched standards, but it’s getting there. With little or no brand identity and very low rates, this is not a major consumer or provider issue at this stage of the market. Prepaid card users, particularly international callers, are conditioned to, or at least resigned to, lower quality in exchange for very low rates. Other reasons that prepaid is so hot include the credit and fraud issues typically associated with international calling. With its built-in authorization and authentication, and a prerequisite of money in the bank, prepaid services reduce the risk of toll fraud.

But underpinning all of this is the fundamental driver of lower rates. As deregulation of international telephony accelerates and the threat of regulation for IP looms larger, it is clear that this arbitrage will evaporate. Value-added applications, single-stage dialing, and higher voice quality must take over to drive IP telephony to its potential.

Equipment vendors are furiously working on solutions that address the latter two issues of quality and convenience, and significant progress is being made. New applications also abound — unified messaging, collaborative workgroups, distance learning, video on demand, Internet call handling, multimedia conferencing — all will serve to attract new users of IP telephony. But where are these applications in the market? How do I get them as a consumer, and from whom? One of the key reasons we do not see a proliferation of new and amazing services at the market level yet is the bottleneck of billing. The classic telco problem: We can build that service/feature/product, but we just can’t bill for it. This must change for IP telephony to close the immense gap, by sustaining or accelerating conversion rates.

This focus on prepaid calling cards has given rise to a familiar pattern in the evolution of service-specific billing solutions. That is, the “stovepipe” approach to building or buying infrastructure. This was also evident in traditional telephony and in the early years of IP in general to support the handful of new IP services. For each service, this approach served the purpose of getting service providers to market relatively quickly — that is, in a matter of a few months at a reasonable cost. It also allowed providers to tailor the infrastructure solution, including provisioning, subscriber management, billing, and distribution, to each specific service offering and specific customer segment — sometimes even to each specific pricing plan! So the corporate e-mail, residential dial, and SOHO Web hosting each had their own specific solution.

While the effective short-term potential of such a solution is great, this “stovepipe” approach serves as a major bottleneck to the growth of IP voice applications in the evolution of the new public network. Stovepipes make introducing new services or changing the billing approach or pricing plans cost- and time-prohibitive. As new service features become available to help differentiate the basic offering (for example, a new QoS metric), major projects are required to take advantage of the new service attributes that need to be exposed for billing, or to facilitate some kind of usage-based pricing. The new service feature is either given away or ignored, and the cycle to commodity status continues. New service introductions require new stovepipes to be built. As these new services count from three to 12 to 100 services, this approach becomes completely unfeasible. Projects take months and cost hundreds of thousands, if not millions of dollars, to complete. Scarce internal IT resources compound this problem, as new code is required for every change.

The proliferation of stovepipes — sometimes supporting the same basic network service but for multiple, different offerings or segments within the same service provider — is highly inefficient. The investment in the infrastructure yields no scale economies, impacting larger service providers most significantly. In addition, the bundling of services into attractive offerings tailored to suit the needs of various market segments or user niches is nearly impossible in a stovepipe approach. This makes service differentiation a further challenge.

Finally, the stovepipes are typically built or purchased as short-term solutions. The longer-term needs for scalability, availability, and performance are often not considered. Consequently, the stovepipes can not keep pace with the phenomenal subscriber growth, and are certain to be even more of a problem as IP voice applications mature.

By breaking down the stovepipes and introducing a single, layered, multiservice IP infrastructure, ITSPs can dramatically improve operating efficiencies, add new services quickly to increase the addressable market, and host multiple, branded resellers to more effectively target new segments. The layered model allows underlying value in the network to be commercialized in products and pricing plans, extracting the value from the network for improved margin and differentiated services.

This layered business model and multiservice capability is the key to the success of IP telephony and ITSPs in the longer-term evolution of the new public network. With ample bandwidth, inexpensive and innovative network applications, low-cost and rapid commercialization capabilities, and the ability to leverage any strong brand to target any market niche economically, the back-office function of billing is transformed into a core differentiator. Billing becomes the business operating system for rapidly deploying new voice and other IP applications, and for entering new market segments or channels. ITSPs are able to enter the market on the coattails of rate arbitrage, build their network, and rapidly drive marginal revenue by deploying complimentary voice and other IP applications. c

Michael Couture is product manager, IP telephony solutions, for Solect Technology Group. Solect has been immersed in the evolution of IP networks since the inception of the Web. Solect’s IAF Horizon is used by customers including GTE Data Services, Telecom Eireann, Saritel, and AT&T Canada. IAF (Internet Administration Frame-work) was developed working closely with industry leading partners, and incorporates the latest technology in a flexible, integrated framework that allows service providers to offer a diverse set of services. For more information, visit the company’s Web site at www.solect.com.

Carrier-Class VoIP Billing


The Internet telephony revolution has not skipped the billing world. As opposed to traditional telephony service that uses batch-billing methods based on CDRs, Voice-over-IP (VoIP) billing requires real-time call handling. Furthermore, the IP environment dictates that a real-time billing and customer care system resides at the heart of the network, managing and controlling the Internet services.

Prepaid calling cards and debit customer accounts are growing trends in the VoIP market. Indeed, the overwhelming majority of VoIP service providers intend to offer prepaid services — and prepaid service mandates real-time call handling. The VoIP billing system interacts, using a real-time protocol, with the gatekeeper/gateway (depending on the equipment vendor). The billing system must perform authentication, authorization, and accounting (AAA) in real time.

Customers making a call are authenticated according to the user ID and PIN or ANI. Authorization for the call is based on the account’s balance, customer’s dialing plan, and the desired call origin and destination. The call authorization is returned to the gateway with the maximum call duration. When the call is completed, the billing system will immediately update the billing database.

VoIP service volume is still not comparable to standard PSTN telephony service, and is not predicted to reach PSTN telephony service volume in the near future. While this assessment may be accurate, the volume of VoIP call traffic is growing at a rate that exceeds most predictions. There are increasing numbers of telecommunication companies that are entering the VoIP field and commercially testing the service. The need for real-time, carrier-grade billing is an actual one.

Service providers are looking for secure, reliable, and scalable carrier-grade VoIP billing. A reliable solution will support 7x24 service with minimum downtime. Scalability is required in order to manage millions of customers and thousands of simultaneous calls. The solution must also provide a secure way to transfer data between the billing system and the gatekeeper/gateway.

Carrier-grade VoIP billing is a mission-critical application. Service providers should not tolerate service downtime. The billing system must ensure high availability, 7x24 service. Redundancy assures that there is no single point of failure within the billing system architecture, and backup is required at every point in the system.

Security is mandatory, since VoIP networks are deploying services using the Internet. Database access should be secured as well, although typically the database resides behind the firewall. All database users must enter login and password information, and system privileges are defined for user groups in the system. The database access must also be secured. Irrespective of the fact that the database is typically located behind the firewall, it still needs to have restricted access.

The new VoIP technology is particularly dynamic and challenges billing providers to come up with solutions for new market needs. Service providers, competing for market share, deploy new services quickly. Billing and customer care solutions must be able to accommodate these changes at the same rate. Carrier-grade, real-time, flexible billing systems are required now and will be in even greater demand in the future. 

Zeev Braude is VP, product line management for MIND CTI Ltd. MIND, with headquarters in Yoqneam, Israel and a U.S. office in New Jersey, provides software solutions for billing, accounting, and management for Internet telephony, switches, and Internet-based data services. MIND’s systems are integrated with all major gateway and gatekeeper vendors and used by leading telcos such as China Telecom, Deutsche Telekom and Telia Light. For more information on MIND and its products visit the company’s Web site at www.mindcti.com.

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