August 2003

Aligning The Back Office For Success With IP-Based Services

BY ALICE BARTRAM

It�s a question that telecommunications carriers and industry pundits alike have asked for years -- what�s the �killer application� that will convince American consumers to adopt new mobile technologies while increasing profits for carriers? The U.S. market has seen text messaging starting to take off and during an hour of network television, you�re likely to see at least three ads for services such as mobile gaming, downloading photos, and even watching short multimedia clips all on a mobile phone. Carriers are experimenting with these different services in pursuit of consumer adoption, but perhaps it�s not only the services, but also the way they are priced, billed, and paid that will drive the market.

Established vendors and startups alike have touted the benefits of usage and content-based billing, especially as carriers use IP-based networks to deliver new service options, the ability to deliver personalized services and bill based on value of the service to the consumer becomes possible. For example, if a mobile consumer will pay a fee to have stock updates delivered to their mobile phone at closing bell, a carrier can see more profit from content-based billing than a flat-rate billing structure. The big challenge is to not only figure out what consumers really want and will pay for, but to tackle the technological complexity that comes from trying to align the back-office (billing and OSS) infrastructure to support usage-based revenue and business models.


CHANGING CONSUMER AND CARRIER MINDSETS
Traditional flat rate and time-based pricing are ingrained in both consumer and carrier cultures. But these methods limit the ways in which carriers can market new services to consumers and leave little opportunity to exploit the true flexibility of IP-based services. Operators are looking for revenue from data and other value-added services based on new IP technologies to improve margins and provide competitive differentiation. If operators solely rely on flat rate or time-based pricing, little opportunity exists for diversification within a market segment.

Another issue is figuring out what the consumer wants. Capturing the value of IP-based services is difficult work. Operators must give serious consideration to evaluating their costs, target customers, competitors, and strategic objectives in formulating pricing strategy. Price is often a key deciding factor for consumers seeking a new service.

An operator could charge more for a ring tone of a Top 40 hit than for an old disco song, or for instant college football highlights versus the ability to download video clips later in the day.

Another example is an operator offering a customer ten minutes of access to its network. During that ten minutes, the customer uses 50MB of capacity and accesses their e-mail. The operator could bill the customer by duration, by megabytes of capacity used, or by number of e-mails downloaded. In addition, the operator could charge an extra fee for high bandwidth usage if a high-bandwidth user is degrading service for other consumers. Or it could charge by e-mail downloaded regardless of file size.

The marketing and pricing options are nearly endless. Content or time-based charging ability would permit carriers to be more flexible and innovative in their marketing approach and provide greater revenue opportunity and profitability.

So with all its benefits, why is usage-based billing for IP services not yet widespread among carriers? There�s the concern of whether consumers are willing to accept new billing arrangements and if carriers can incorporate usage-based revenue into business models. In addition, technological confusion coupled with the complexity of implementing an IP strategy has significantly slowed the process.


CONFRONTING TECHNOLOGICAL COMPLEXITY
Usage-based billing for IP traffic is a considerably more complex process than for PSTN traffic. With a voice call in a traditional circuit switched environment, the central office switch can provide Authentication, Authorization, and Accounting (AAA), generate a Call Detail Record (CDR) and provide a single interface to other support systems. An IP network, however, is composed of many different network elements. Each information source has a proprietary log file format, Event Record format, and access protocol. By themselves, the basic transaction records generated by each network element are not sufficient for billing.

The missing information exists in other information sources and, in most cases, must be correlated at the time of the event because of the dynamic nature of the reference data. For example, IP addresses are often allocated dynamically and network paths can vary depending on network load and availability. To generate a meaningful billing record, a mediation system must first collect data associated with various events from several network elements and then carefully correlate the usage records. Especially for prepaid customers, event-based records must be processed in real-time so that the customer doesn�t exceed his or her account limits.

Once the mediation system has correlated all the pieces of a consumer transaction, the aggregated billing record can be rated and billed to either prepaid or postpaid accounts, depending on the customer�s payment plan.

In addition, delivering content over IP networks often increases the need for an automated revenue sharing process between service providers and content partners. As providers deliver content from multiple sources, keeping track of how revenues will be split can become an overwhelming task if done through a manual process. An integrated content and revenue settlement solution can automate this process, allowing providers to focus on core business objectives. If the revenue settlements, mediation, and other solutions are pre-integrated with the billing engine, providers can reduce the costs associated with updating the technology infrastructure to manage IP-based transactions.


IP MEDIATION
Deploying IP mediation is a crucial first step in a usage-based billing business model. IP mediation can overcome the challenge that in an IP network, there is no single point for mediation systems to capture information. Data exists in many network devices and application servers such as routers, IP switches, firewalls, mail, and Web servers, IP telephony gateways, and QoS facilitators. Additional complexity is added by the fact that most carrier environments contain a mixture of circuit and IP services and many customers subscribe to multiple services.

There are several options for deploying an IP mediation system. One option for carriers with a hybrid circuit and packet-switched environment would be to run two different mediation platforms: one to handle traditional voice traffic and the other for IP and other non-circuit traffic. However, this non-integrated solution creates too many interfaces into the billing system. A better solution is to have a single mediation platform collecting, correlating, and delivering data from all types of service events. After an IP mediation system collects, correlates, and formats usage data, the information can be useful to a number of front and back-end systems. Although billing is the most obvious beneficiary of this data, other functions also benefit, including business support tools, market analysis, and fraud.

In addition to the ability to collect and correlate IP-based usage records, the uptime of a mediation system processing IP transactions becomes critical. A mediation application that must gather and process transactions as the event happens and feed the information to downstream systems on a continuing basis, must have the reliability and scalability to capture every transaction. If the system goes down, depending on customer traffic at the time, a carrier risks losing significant amount of profit.

BUSINESS MODELS
In addition to putting the best technology in place, carriers need to devise a business model for usage-based billing that perpetuates long-term growth and generates consumer acceptance. Implementing the wrong model can choke off demand or under-price services, even lead to unprofitable business. As more market data is gathered, service providers will start to implement various strategies, either in production or trial. Business models will change rapidly to adjust to new services and changes in market dynamics.

Some service providers have implemented volume-based pricing to prevent abuse of network resources so consumers who are heavy on downloads will pay more to use more bandwidth than an average consumer. This process is expensive to track and poorly understood by the users. For example, the average mobile user doesn�t necessarily understand how many megabytes they just downloaded, but they would understand a pricing model based on cost per download. Service providers moving toward event-based pricing, or cost per MMS message for example, will be better able to market their services to consumers.

One of the greatest benefits of implementing IP mediation is that the analysis and profiling of the data allows carriers to view, customer by customer, how much a service is actually used and which services are profitable. This information could be invaluable to help carriers understand their customer usage patterns and help them design usage plans that will be more readily accepted.


DELIVERING ON THE PROMISE
What a carrier needs most to deliver on this promise is true flexibility to generate competitive pricing schemes and business strategies. Robust rating, billing, mediation, and content settlement capabilities can empower the operator to price voice and data services based on a variety of factors including content, volume, flat rate, or per transaction. As such, the price can then vary based on quality of service, time of day, bundled discounts, or a variety of other measures. With these systems in place, a mobile operator can �re-train� the customer to accept pricing plans that are based on volume, usage, and are application sensitive, creating the ability to change pricing schemes quickly and nimbly enough to act offensively and defensively in the market.

Alice Bartram is the director of product management for billing products in CSG Systems� global software and services group, responsible for strategic product direction of billing and rating platforms. CSG is a leader in next-generation billing and customer care solutions for the cable television, direct broadcast satellite, advanced IP services, next generation mobile, and fixed wireline markets. For more information, visit www.csgsystems.com.

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