One-Stop Shopping Different Things to Different People

Telecommunications carriers in the United States are engaged in a high stakes game of musical chairs. At some point during the next 12 to 18 months the music will stop, and we will have winners and losers. Some will have gained more in long distance revenues than they will have lost in local services, and vice versa. The task at hand is simple: Entice existing customers to stay while adding new services and attracting new customers with competitive offers. Achieving it is not. Carriers are almost unanimous in their proposed methods for achieving this success: one-stop shopping and bundled offers. This is the best way to leverage an existing customer base and meet a growing market desire for simplification. The question for the IT (information technology) professional becomes: What requirements will this place on customer care and billing systems? Major challenges include meeting the needs of each customer segment, providing marketing support and managing third-party usage.

First, let's consider the carrier of the future. Carriers are embracing an integrated marketing approach. Integrated marketing is nothing more than focusing the entire organization on working together to best serve the needs of the market and, in turn, maximize profit. In the past, some telecom companies would announce new offers and sign up customers before advising the IT staff of the required changes. "I would see one of our ads on TV and then I would know what I was doing for the next month," says one development manager. The new offer might generate tremendous sales, but faulty or late billing would mitigate its success in the market and the support costs might make it unprofitable.

Integrated marketing suggests that marketing begins with the initial product idea and ends with a satisfied customer paying for delivery of that product or service. Each part of the enterprise works together to deliver in the marketplace. In other words, don't sell it if you can't deliver it. Consumer products companies understand this. When you ask an IT manager at Nike what she does for a living, she will tell you that she sells shoes. Integrated marketing has arrived in telecom. Increasingly, we see carriers defining themselves in terms of the customers they serve instead of the types of service they provide.

The Customer is King

Data warehousing is a major initiative at most carriers today. Effectively segmenting and targeting customers is the primary driver for these expensive and time-consuming projects. To understand the OSS/BSS requirements for bundling and one-stop shopping, we need to understand the relative impact of one-stop shopping on the major carrier segments.

Small business may present the best opportunity for one-stop shopping. Carriers experience high acquisition costs, more than $500 per customer, in this segment and most carrier sales staffs can support a broadened service portfolio with a small amount of additional training.

The typical small business does not have any dedicated telecom staff, is cost-conscious but does not have time to actively manage its telecommunications, and expects a minimum level of service quality.

Among this group is a definite need for a bundled service that provides local (including centrex functionality), long distance, 800, cellular, conference calling, paging, messaging and computer networking. Many carriers, including Cable & Wireless and MCI, have most of the elements, but none offer it all. These businesses are increasingly multi-location if only due to home offices and telecommuting.

Billing requirements for this group include cross-service discounting (perhaps with a standard per minute rate across access types), term contracts and detailed cost allocation and reporting. In the past, carriers have viewed small business requirements as a subset of those of the large business. Large business offerings will not fit this group easily. As an example, large customers may not want paper reporting and analysis if the carrier will provide detail on CD-ROM. Most small businesses want their carrier to produce the paper reports, or at least provide a tool to manipulate data. The relative costs of CD-ROM detail differ between these segments: A 20-page bill is cheaper than a CD-ROM but a 2,000-page bill is not. In addition, these customers want "plain English" in a format that meets their needs. This is unlikely to meet the needs of other customer segments, dictating a process change for some incumbent LECs who try to maintain a "one format fits all" approach.

In this segment, IXCs have the advantages of an established direct sales force and bundled offers that can be upgraded to include additional services. Their current bill offerings are already close to what will be required in a deregulated environment. In addition, this segment has several vertical subsegments such as professional services and telemarketing that have special billing needs already being met by the IXCs. Law firms, for example, may use six digit account codes to rebill clients for long distance. Several IXCs can provide this feature along with customized reporting that puts page breaks between listings for each code. If you are looking for benchmarks, try the Cable and Wireless Intelligent Bill or Sprint's small business offerings. Consumers

The consumer markets will also see radical change during the next 12 to 18 months. Carriers are finding many methods to further segment this market into microsegments. However, most carriers will take a high level view that the overall market breaks down into two main subsegments: high value and low value. High value consumers spend more than low value consumers and are likely to generate higher revenues per line than low value consumers. The dividing line might be $75 per month in long distance spending, or use of two or more optional service features.

The logical focus is to provide bundled offers targeted at those consumers likely to buy additional services and generate high usage levels on usage-based services and features. Offers will include multiple service types and may include discounts based on customer longevity or some other measure of customer loyalty or value. "If you buy long distance from us, every minute will accrue toward your frequent dialer points total" is an example. Simplicity is also key in this segment. After years of competitive advantage based on exotic ratings, customers now want flat rates that are understandable, e.g., "dime a minute" however, providing this simplicity can be complex, especially when offers include more services.

In terms of bill presentation, high value customers may warrant an enhanced format tailored to their needs. This is a frightening prospect for LECs that have reduced cost per bill through rigid standardization and consolidation. However, taking a few customers out of the main billing process will be more cost effective than providing more comprehensive or enhanced bills for all consumers. Some carriers may even choose to outsource processing for specific sets of customers. In any case, streaming off customers may be the only short-term answer for large carriers.

Segmenting consumers also presents opportunity for cost savings. For example, providing a low-cost basic service billed once a quarter or a service that requires direct deposit for payment may be possible. An example in the wireless arena is the emergency cellular phone. In any case, we have seen the end of "one bill fits all" in the consumer markets.

Significantly, bundling and one-stop shopping will have a minimal impact on this lucrative segment. Feedback from customer surveys and interviews shows that these customers are already achieving maximum savings on their various services and that they have serious reservations about putting all of their services with a single vendor. Many plan to use deregulation as an opportunity to experiment, actually separating out small pieces of their business to give to niche players, resulting in "reverse" bundling. Another factor keeping large businesses from bundling is network performance. A recent TeleChoice Inc. survey of large end users found this was the single most important factor in selecting a carrier. Many large users fear that bundling with carriers acting as resellers for some service elements will make it harder to isolate and manage network troubles.

The Rise of the Telecom Retailer

Most products sold at Macy's, Bloomingdale's or even The Gap have been manufactured by third parties and carry third-party labels-because this is an efficient distribution model. It is simply not feasible for each clothing manufacturer to "retail" clothes in its own storefront. In the same way, it may not be feasible for the fourth or fifth wireless provider to enter a metropolitan market to retail its services, especially if customers can buy similar service from AT&T or MCI. For this reason and others, the trend will be for bundles to include services from multiple carriers and for carriers to organize according to retail and wholesale functions. Major carriers, such as the RBOCs, AT&T, Sprint and MCI, will function across segments as retailer and wholesaler. Other players, such as IXC Communications, will focus on wholeselling, selling bulk service to retail carriers.

In any case, most carriers have developed strategies with wholesale and retail elements. In turn, billing professionals will need to consider the requirements.

The wholesale operation. The wholesaler needs to make its service infrastructure attractive to the retail carrier. While most wholesale service competition will focus on price, the ease with which a retail carrier can interface with the wholesaler's support infrastructure will be a factor. The retailer is putting its brand on the wholesaler's service. If the bill is incorrect, it will negatively affect brand image. If usage "shows up" days late, the retailer may not pay for it.

Here is a summary of wholesaler billing requirements:
• Accuracy and Auditability. The wholesaler must perform well in the basic billing metrics and be able to prove it to the retailer's satisfaction.

• Electronic Bonding. Standard bodies such as the ATIS are defining standard data definitions and forms for data exchange, but gateway performance and support will depend on the individual carrier. • Contract Management. It is likely that wholesalers will form specific bilateral agreements requiring management of complex agreements with several forms of discounts and requirements.

Although the wholesale billing of 1997 and beyond will build on the carrier access billing and invoice ready (including long distance in the local bill) mechanisms of today, challenges remain. There seems to be a question about whether wholesale and retail billing can be efficiently processed by a single infrastructure, even one with a significant adjunct process for wholesale. It seems too early to answer this question in the long term. In the meantime, carriers will employ enhanced CABS (carrier access billing) solutions or adaptations of mainstream billing processes. In the end, carriers may choose to employ a single infrastructure for corporate and carrier segments given the growing similarities in their requirements.

Retail systems. These systems will have their own set of requirements. Most exist today but some new ones will spring from increasing intercarrier arrangements. Here are significant retail system requirements: • Ability to Accept Billing Data at Multiple Points: Retailers may be required to accept third-party data as raw detail, rated detail or invoice-ready images: Retailers will have to standardize interfaces.
• Information Translation: Records will have to be translated into system format and it may even be necessary to assemble billable events from multiple third-party records.

• Management of Complex A/R: Settlements will take many forms, with a requirement to track some settlements on an individual item basis. Systems will have to allocate partial payments across suppliers. • Vendor Certification Process: Carriers will have to develop standards and certify suppliers against those standards to satisfy audit requirements.

• Ability to Communicate Value: Retail billing will have to adequately break down charges and communicate the value of the bundle to the customer. Existing LEC formats will fall short.

• Ability to Support New Services: This is not limited to supporting new pricing; the bill must support features specific to a particular service or bundle. If a bundle is targeted toward Dallas Cowboys fans, the bill should show the Cowboys logo. In addition, retail systems have many other requirements dictated by a competitive marketplace.

Marketing Support

The discussion of retail requirements leads naturally toward the third challenge: marketing support. Marketing support breaks down into two separate areas: providing information for customer targeting, and delivery and communication of the offer.

In a way, the customer targeting process begins and ends with the billing system. The billing system and customer database provide some base information used to analyze customer preferences and needs. Anyone who has tried to extract useful information about customers and usage from legacy systems can tell you it is an excruciating process. Problems stem either from a lack of consistency of data across systems or from a limited window of opportunity because analysis is not the main function of a billing system. Data warehousing with data cleansing is the near-term answer for this function.

It is in executing the offer that billing systems will play the greater role. Obviously, bundling may be challenging to the pricing mechanisms of billing systems. If marketing wants to give people who use voice mail a free day of calling, that may be a difficult operation.

However, it is just as important that the system provide a facility to communicate this offer to the customer. This is a simple example, but increased bundling will put pressure on the system to at least explain the charges and, optimally, prove the worth of the product bundle.

It has often been said that the bill is the only regular communication a carrier has with most customers. However, this does not have to be the case. MCI's Proof Positive statements provide a quarterly review of service usage, a cost comparison against AT&T services, a summary of loyalty program standing and suggestions for service optimization. MCI has chosen to support a separate document production and delivery system instead of trying to communicate solely through the bill. This might be an alternative for carriers unable to upgrade systems to support the new higher level of customer communication.

Getting There

According to IBM research, most incumbent carriers have invested in major billing overhauls only to achieve about 60 percent success. It is unlikely that these players will be willing to pursue "big bang" development to tackle the problems presented by TA96. Instead, it is more likely and advisable that carriers pursue incremental improvement. Some may choose to focus on a particular customer set and develop a parallel support infrastructure. Many will choose to solve near-term needs with adjunct processing and post-processing (consolidating output from multiple systems). Others will focus on modular rehabilitation, taking a piece of the billing process, e.g., formatting and implementing improvements. In the very near-term, service bureaus and "packaged" applications are providing a way to "get into the game."

The requirements of bundling and service consolidation may depend on how far and how fast you want to go. It is possible to integrate disparate bill components via "electronic stapling," or integration of invoice-ready material in which various sets of charges are made to appear as a single bill. This method provides a single document but does not easily accommodate cross-service discounting. Cross-service discounting with automated accounts receivable requires increased system integration. However, taking interim steps may be necessary.

Right now, it is important to focus on what you absolutely need to compete with an eye towards what your company will look like when the dust from TA96 settles. For most carriers this will mean taking some steps backward, buying and adding "throw away" solutions, so that your company will still be around in 2001. Once you are sure you can support the near term needs of the business, focus can shift to a strategic plan for bringing things back together.

Michael G. Heideman is a Principal in the Telecommunications & Media Practice of the IBM Consulting Group. He can be reached at (770) 835-6223 or heideman@vnet.ibm.com.