Billing World Publisher's Letter Predicting Future Carrier Billing Opportunities

Since the passage of the Telecommunications Act of 1996, our industry has undergone a revolution. Predicting how the billing system requirements and products of carriers will evolve has never been more challenging. This article identifies ten changes in the telecommunications landscape that have occurred over the last two years and ten carrier types that will emerge in the 21st century, each requiring new billing system products.

1. Explosion in Network Capacity

Fiber is being installed everywhere, in the ground, under the ocean and into the corporate office buildings. Why? Because Wall Street investors are funding networks that they know will be bought out by the five RBOCs once they are allowed into long distance. There are five operational national networks and a dozen more planned. Picking a fiber capacity one-line zinger-'if you took the fourth largest national network, Qwest and subtracted out the sold dark fiber capacity to GTE, WorldCom and Frontier there would be enough capacity left to handle 100 percent of today's long distance voice calls.'

There is enough fiber in the ground today to handle calls from every single telephone and modem in the United States of America generating traffic 24 hours a day. Obviously new voice switches and routers would be needed. But the point is that dozens of carriers will be doing unthinkable things from a marketing perspective to fill these networks with traffic in the years ahead.

2. Falling Carrier Margins

One of the first consequences of excess capacity will be falling prices. What will a carrier (IXC, CLEC or ILEC) do when profit margins fall, and a fixed network is in place that must be paid for? Reduce operating costs by cutting staff and outsource support service requirements. For example, look what the newly hired CEO of AT&T did when he came on board. For starters, he made plans to reduce AT&T's staff by 15,000 and outsource more than $1 billion a year in customer care to CBIS.

3. Follow the Money and the Internet

The Internet is revolutionizing the telecommunications carrier business but not in the way the trade press is hyping it up. First, the thought that the "public Internet" is going to replace circuit switch voice technology anytime soon is ridiculous. The quality, reliability and cost savings are not there. It will take a decade or more before an Internet access device replaces the touch tone telephone in volume and LECs start fork-lifting/replacing Lucent 5Es or Nortel DMSs with IP switches.But if you follow the money you will see three opportunities appear in the immediate future. First, teen line replacement, (i.e., second loop to the home provided via IP telephony modems or xDSL devices), second, call centers and finally, Internet technology for closed user groups, such as segmented Intranets or Extranets, which will be discussed later. Big bucks will be spent on these opportunities.

4. Count the Money

If you continue to follow the money and ask what the impact has been on the IXCs you will find it has nothing to do with IP telephony but with 800 service-and it's only going to get a lot worse for the carriers. For example, Charles Schwab used to conduct the vast majority of its business via local and 800 calls, and carriers made money. Today over 50 percent of the transactions are done over the Internet, thereby causing a drastic reduction of revenue to carriers, particularly for 800 services. Also if NBC asked you to vote on what's going to happen to the President based on his latest scandal, most likely you wouldn't phone via a 800 or a 900 number, rather you would vote through its web site via the Internet.

Bottom line, the biggest impact the Internet will have on carriers is not increased revenues but decreased revenues, not to mention a lot of stranded plant. Money is moving fast so those looking for carrier product opportunities had better "Follow the money"!

Unfortunately, when following the money and the Internet, note that there is still no practical way to count the money! With voice or circuit switching, minutes are measured as terms of use, and call detail records are created. With packet transmission there are too many packets to count and bill for-the overhead would be overwhelming. So most carriers opt for the flat rate and provide unlimited use.

5. Increased Customer Churn

I'm not aware of any industry with less customer loyalty than telecom. Annual churn rates are unparalleled. Fifty percent of long distance customers who spend more than $50 a month are likely to leave their carriers within a year. Wireless carriers typically see a 30 percent churn rate and Internet providers see more than 50 percent annual churn. Local service has virtually no churn but competition looms on the horizon. Carrier executives talking about churn is like the average citizen talking about the weather, they talk about it all the time but they do nothing about it.

6. Building to Sell

Gather some accomplished carrier executives, create a CLEC business and select the right geographic market, and Wall Street will fund the operation. In fact, more than $14 billion has been raised for CLEC operations since February 1996. Why? Records from the last two years show that if you get a CLEC operation up with staff in place and a marketing presence, someone bigger will come along and buy it. I've never met a start-up CLEC executive who expected to see his or her logo in the marketplace by the year 2000. As such, being the first to market is key; maintaining operational efficiency is secondary to CLEC investors.

7. Change in the Standards Process

Before divestiture the Bell system set the standards in North America. If a company wanted to sell products to AT&T or the Bell operating companies it complied with their standards. Likewise, if the company wanted to compete with AT&T it applied the same standards so customer transition from AT&T was as effortless as possible.

Since 1991, however, three second generation wireless standards (TDMA/IS-136, GSM and TDMA see Billing World February 1998), have been established, and 101 flavors of ATM have appeared. Today however, North American equipment vendors and carriers are looking at the international markets for growth. Bottom line-International standards and systems selection will be more important to vendors and suppliers in the future. For billing and OSS vendors this means getting serious about Telecommunications Management Network (TMN) standards.

8. ILEC Unbundling

When Congress passed the Telecom Act calling for the unbundling of the ILEC network, dozens of new markets were created. Take three for starters. Local service number portability as required by the Telecom Act will inevitably lead to geographic portability. End users will not only take their number from local ILECs to CLECs but also give it to CLECs across the country if they move. Consumers may not get excited about this service but corporations will, especially ones wishing for a number more personal than one starting with 1-800.

Second loop unbundling: the concept and equipment for deriving more capacity than 4 kHz from a local loop has been around for a decade. Loop unbundling has forced the RBOCs to face up to the xDSL double-edged sword. If they don't offer xDSL then the cable companies will blow them away with cable modems (see Billing World July 1997). If the RBOCs offer it through the regulated telephone company, then they must make the same offer to the CLECs. Solution: offer the xDSLs through an unregulated separate subsidiary in hopes that you keep the CLECs away. It probably won't work. A lot of potential for joint venturing opportunities with RBOC-separate xDSL subsidiaries exists since they have no money, but also lots of CLEC opportunities as well.

Finally, with the mandated unbundling of OSS an industry or product market set has been created. All of a sudden OSS products are on the market and third party OSS gateway services are surfacing.

9. Lack of Qualified People

Just as many general jobs requiring computer skills go unfilled in corporate America, so do they in the telecommunications industry. It's easier to create a business plan and find the start-up funding than to find qualified people to execute the plan. This is evident from the shortage in RF engineers in the wireless industry to the shortage of switching technicians in the CLEC business. Note that it takes about five years of experience before a craftsperson is trusted to tinker with a central office switch. RBOC CEOs talk about how they could create a world class Internet if only the government would let them into long distance without a clue of where they would find a pool of technical people who understand TCP/IP to run such networks. Note that GTE was alert to this problem and bought BBN for more than $600 million. The problem is that there are no other companies with TCP/IP networking skills floating around.

10. WTO Telecom Pact

In 1996 the World Trade Organization (WTO) created a telecom pact to open the world's markets (at least WTO countries) to telecom investment. The pact is set to start on February 5, 1998, and a worldwide $675 billion industry (according to the U.S. Trade Representative's Office) is open. North American carriers cannot ignore this event.

So how do you gauge billing system requirements or opportunities while in the thick of a revolution in telecommunications? For starters take a page from Wayne Gretzky's book. When asked years ago by a sports reporter "why are you such a great hockey player? You are not physically stronger than other players and you don't even skate as fast as your teammates?" Gretzky replied, "I skate where the puck is going, not where the puck is."

So lets review the carrier playing field. There's transmission capacity galore, falling profit margins, Internet hype drawing everyone in to play, customer churn that will only get worse, CEOs positioning to merge networks, standards influenced by international business considerations, unbundling of the ILEC networks where anyone can be a competitor, a shortage of technical people to run the shop and everyone is thinking about global markets.

Ten Types of 21st Century Carriers!

So what's the carrier playing field going to look like or where's the puck going to go so my company can get one up on the competition regarding product development? Here's where I predict the carrier industry is headed and what they'll need when they arrive, as well as the new breed of carriers' future billing, customer care and OSS product and service needs.

1. Multinational Carriers

Multinational carriers like Global One, TeleGlobe, World Partners and Concert will survive in the 21st century because multinational corporations need them for a single point of contact for global networking. Multinational carriers will be expanding into partnership in foreign CLEC opportunities when these markets open up and most countries are moving to liberalized local competition.

Three new billing, customer care and OSS challenges for the multinational carriers will emerge in this new world. First, foreign CLEC operations will function as partnerships where network operations will have to be merged as opposed to today's interconnection where a voice gateway switch is installed, or a DCS is installed for private line interconnections and dedicated T-1 or E-1 for wholesale Internet access.

Second, when you get into foreign local service you enter a new world of taxes, billing regulations, bill presentation, OSS interfaces and so on where no domestic billing/OSS vendor has gone before. Finally, these new generation multinational networks will have to be designed from top down starting with centralized accounting, service provisioning and customer care or they will be chaos! Picture an international network with no common IT platform at the local level. A new partnership among the multinational carriers, local CLECs and the vendor community is needed to create these next generation billing, customer care and OSS products. Like it or not, North American companies are going to have to take TMN standards seriously.

2. National Carriers

Today's top three IXCs (AT&T, MCI/WorldCom and Sprint) will battle for the Fortune 500 customers with door to door fiber/ATM networks providing Intranet/Extranet services. They can't move fast enough to create their CLEC operations in the top 100 markets. This means establishing business relationships among the big IXCs with multiple CLECs. No standards or settlement arrangements are in place to deal with transient IP networks. Note that the IP service providers have a bill-and-keep policy to settle inter-network delivery of IP packets. I'll keep my customers revenue, but you deliver my customers packets to your customers, and I'll do the same for you. IXC-CLEC traffic will make bill-and-keep impractical because IP packets can originate on one CLEC network, transit an IXC's network and terminate on a second CLEC network. IP billing, customer care and OSS products will be needed in this new era of Internet settlements.

3. Wholesale ILECs

If the U.S. Supreme Court rules on the side of the FCC and states "RBOCs do what Congress and the FCC want: unbundle your networks, price interconnection competitively and negotiate with the CLECs in good faith," then and only then will the RBOCs be allowed into long distance. My bet is that this is where the puck will go. If so, the RBOCs will split their companies into a wholesale division with a management team reporting to the shareholders. Their offering will consist of the lowest prices on unbundled elements (loops, switches, calling card data base management, number portability management, E911 management, directory and operator services etc.). Again, a whole new set of billing, customer care and OSS will be needed.

4. Resale

Long distance resale has been a success because the wholesaler (WorldCom in particular) wanted their business. Internet service providers (ISPs) have also been successful because wholesalers or what's fashionably called Network Service Providers or NSPs (UUNET, MCI, Sprint, BBN etc.) wanted their business as well. By not offering a reasonable wholesale discount (40-50 percent vs. 15-20 percent), electronic bonding for ordering and provisioning and establishing friendly business practices, the ILECs have made local resale a sham. Once the RBOCs see the light or get thumbs down from the Supreme Court, they will make local resale bundled with other services a viable proposition. Also, once the 4th or 5th wireless carrier enters the market with switch and cell sites in place but no retail customers left to serve, you will begin to see a wireless wholesale industry emerge. One point of contact, one invoice and one-stop-shopping will be future reseller's offering.

5. Intranets

The Internet hype will pull a dozen or more carriers into the game providing high-speed access to corporations who want to interconnect their LANs at megabit rates using Internet technology. The only problem for carriers is that Internet technology to move IP packets has arrived before billing systems for metering IP packets have been formed (see Billing World June 1997).So what's an IP backbone carrier to do? Jump in offering flat-rate-based service and pricing based on access speed as corporations are billed for Internet service today. But add a capability for billing for the application software, server storage, and/or content. It will be messy but better than going broke trying to survive by moving IP packets alone.

6. Extranets

There are going to be numerous carriers addressing the Intranet (intra-company) market and as such these same carriers will be selling IP networking service to sets of companies or closed user groups such as the auto industry so suppliers can do business electronically with customers using Internet technology. Again, a whole new set of billing, customer care and OSS products will be required.

7. Info-Centric

It never ceases to amaze me how little carriers know about their customers. Take the latest flap with MCI and the RBOCs. MCI wants to pass the flat rate access charge, based on lines used, directly to their customers. The problem is the RBOCs can't tell MCI how many ILEC lines their customers have per account. Some carrier in this age of resale is going to come to the conclusion that the network services should be packaged around the customer rather than taking the approach that 'if they build it they will come'. The carrier who thinks 'info-centric' vs. 'network-centric' will be able to differentiate.

8. Convergence

Carriers who can create synergy among disparate networks (switched voice, Internet, wireless and or video) will differentiate themselves from the pack (see Billing World January 1998). Not only will they be able to create service value but will see less churn. The more services you offer a customer the less likely they are to leave you.

9. Outside industry Partners

Many companies would benefit from becoming telecommunications carriers, particularly by offering telecommunications carriers service-Medical, Universities Utilities. Some are already doing it (see "The New Frontier" page 34). Each of these joint carrier ventures requires special billing, customer care and OSS capabilities.

10. Outsourcing Carriers

Since the FCC ruling on OSS unbundling, many articles have appeared in Billing World in which parallels have been drawn to the first airline industry gateway service for ordering and provisioning: American Airlines' Sabre Reservation System. As the success of Sabre grew, business analysts began to realize that American Airlines is a transaction processing company that happens to have some assets tied up in airplanes. So too will carriers in the future see more value their networks and create service bureaus that provide billing, customer care, OSS and SS7 number portability management outsourcing. As the carrier industry evolves many new business opportunities will emerge for all!