Sprint's New ION Service – A Major Test of Usage-Based Pricing

Sprint’s New Integrated On-Demand Network (ION) service represents an opportunity for a major carrier to construct a billing, provisioning and customer care system from the ground up. This is also an invitation to simplify how services are billed. Sprint’s goal is to charge strictly on a usage-meter reading. The carrier has assigned great importance to billing, provisioning and customer care. These concerns fully occupied three teams of 20 members each since ION went onto the drawing board. Overall, some 30 teams composed of more than 600 specialists worked more than five years to develop ION at a cost of $2 billion.

What Sprint is attempting goes well beyond electronic stapling. The new billing system, known by the internal shorthand of IPS, deals with convergence in its purest form, where individual services are delivered over a single broadband pipeline to the business or home. It’s clear that Sprint is approaching billing, provisioning and customer care with a full understanding that cell-based services don’t look and behave like traditional circuit-switched services. Networks such as ION not only transport virtually any type of traffic, they permit rapid development and deployment of service add-ons. While this fosters innovation, it also creates billing headaches that are inconceivable in a public switched telephone network (PSTN) environment. Basically, ION is designed to move data, over a SONET backbone network, in ATM cells that contain virtually any type of present or future application-based data, including e-mail, inventory data, voice, videoconferencing, alphanumeric pages and even audiocasts of sporting or cultural events. These applications aren’t based on PSTN-type, inside-the-network proprietary systems, such as caller ID, but on end-user devices ranging from the desktop PC, to palm-size personal digital assistants, to mainframe computers.

Trying to Avoid Billing Complexities

The quandary therefore, is what to bill for. The services offered over ION – frame relay, ATM, voice, Internet – already exist with a number of pricing options. One strong economic rationale behind ION is that combining these services, plus any others that become in available in the future, will create savings of 20 percent or greater. This means the old ways of pricing and billing these services would no longer work. The answer, Sprint believes, is to bill strictly by metered usage as measured in megacell units (equivalent to approximately 96 minutes of switched-voice usage). When implemented, data from customer premises meters on megacell consumption will be sent to the IPS billing system several times a day.

With the megacell as the single unit of use, Sprint hopes to avoid the billing complexities associated with cell-based and packet-based services that do not use real-time billing, such as prepaid Voice over IP and voice enabled Web sites. The billion-dollar question for Sprint is whether or not the end users, either business or consumer, are ready to pay based on usage alone. Paul Hughes, a Yankee Group industry analyst in Boston, expects “massive confusion” if this approach is taken immediately, particularly with the consumer market. “ION is the kind of service that requires a lot of user education and right now the consumer market is used to 10 cents a minute long distance and all-you-can-eat Internet access at $20 per month.” Sprint is well aware of the need to educate customers and is focusing up front on easy migration paths, as well as billing systems that accommodate both flat rate and usage-based parameters. The overall objective, according to Susan Sentell, vice president for marketing and product management at Sprint Business, is “to enable customers to pay [based on] how they use the network instead of what network they are using.”

Resistance to Change: Creating Four Flavors

The issue of usage-based billing is part of a larger concern. Sprint discovered as ION was being developed that business customers weren’t ready to move to merged network services in one fell swoop. Many had multiple contracts expiring at various dates. “They told us they wanted a way to buy one ION service at a time,” reports Mike McRoberts, director of Next Generation Products Management. This was just one of many complications in creating the ION billing system. Not only did the network have to be scalable, but so did the invoicing.

The strategy for Sprint at this time is to get a foot in the enterprise network’s door by delivering the benefits of ION-based networking on a service-by-service basis. The implementation began in January, with Sprint rolling out ION in four standalone flavors to customers billing more than $10,000 a month: frame relay, ATM, long distance voice, and Internet. “This gives the customer an easier migration path,” according to McRoberts. The first step in getting Sprint’s foot into the enterprise network’s door is to install an Integrated Services Hub on the customer’s premises. The hub is capable of delivering all services, but initially is used for one or two. Sprint assumes the financial responsibility for extending its communications network to the premises via a Cisco hub, with the local telco providing a T1 line or higher. By 2000, additional ION services will be provisioned “on the fly” from the desktop from sites where Integrated Services Hubs are already installed. Until then, it will take several days to implement a customer change request.

The second step is providing billing for these piecemeal ION services that makes the customer comfortable. “Our initial vision was that of a meter running, but customers raised issues about totally usage-based billing,” according to McRoberts. A frequent concern was budgeting, particularly since ION delivers considerably more bandwidth than the services it replaces. “Telecom managers find costs based on usage scary, particularly when business units suddenly are capable of adding bandwidth-hungry applications such as collaborative services, Enterprise Resource Planning, or e-commerce,” he finds. Sprint representatives feel that end-users in particular will be unhappy when they find out how much these services are costing only when the bill arrives after the fact.

Providing a Range of Familiar Options

Sprint’s remedy is to provide options, particularly the ability to bill not only in megacells, but on a flat rate basis. “We got very strong feedback on this. Our customers feel strongly about having a choice, like flat rate, that’s familiar and can be better managed,” says McRoberts. Therefore, customers ordering specific ION services will be given traditional pricing based on the network being used. “The ION frame relay network is the familiar frame relay pricing we now use,” he adds. Change will come quickly, though. By mid-1999, performance and pricing will be tied together. For example, McRoberts points out, LAN traffic will be quoted at a service level, rather than as a traditional frame relay service. “This means better performance, since LAN-based e-mail is immediately transmitted, rather than being assigned best-effort routing,” he adds.

Sprint expects usage-based billing to become the standard for ION once the service is established and customers get a good handle on actual usage. “We’ve implemented a system that tracks usage in traditional ways, such as minutes of use, as well as by megacells. Those who can go to cell-based billing will achieve some real economies once cost allocation and charge back issues are resolved on the customer side,” predicts McRoberts. In addition, IPS can breakout usage by service, allowing customers to see how many megacells were consumed by voice, frame relay, data, and other services.

Billing Systems Details Kept Under Wraps

Details of the IPS billing system Sprint developed for ION are being kept under wraps as a trade secret. “It was mostly developed in house, but we did have consultant and third-party help,” McRoberts admits, adding that IPS is not an acronym. The same system is being used for both business and consumer customers and it is downward compatible for Sprint billing systems for non-ION services. Different formats will be used for bill presentation to specific classes of customers. Extensive field testing of ION’s invoicing system was done, using Sprint’s own facilities and, later, beta customers.

“It’s a different paradigm when you go from buying all kinds of different network services from different providers to using a single provider. Billing is part of giving [customers] a comfort factor when it comes to committing all of their services to Sprint,” he says. This approach is apparently working. A Yankee Group survey of some 2,000 U.S. households shows that 55.7 percent find Sprint provides “accurate and easy-to-understand bills.” AT&T beat out Sprint with a 56.9 percent rating, while MCI was well behind both, at 45.8 percent.

The IPS billing product can be structured in numerous hierarchical ways to meet most customer needs for cost allocations and charge backs. “One major achievement is, we now have the ability to deliver a single bill to business customers for all Sprint services, whether they are ION-based or not,” claims McRoberts.

Desktop Performance Monitoring and Analysis

Integral to ION is a customer window into the network operations and performance through a Desktop Manager system. Telecom managers will have access to network performance data, not only on ION, but on all services provisioned from Sprint. When fully operational, Sprint promises ION’s Desktop Manager will deliver on request more than 100 types of reports on performance, usage and costs. Beginning in 2000, the Desktop Manager will permit customers to add or tear down services on the fly, as well as reserve bandwidth when applications such as videoconferencing require it. “Bandwidth on demand is a very important future aspect of ION,” adds McRoberts.

The Desktop Manager will be fully equipped, as well, for self-serve customer care. Traditional customer care services using more traditional telephone and Web site access interfaces are being beefed up. “Our customers will be able to contact a very intelligent person who knows how to deal with back-office systems and get the right people working to resolve the customer’s issues,” McRoberts assures.

The Future Proofing Promise from Sprint

While up-front savings of 20 percent or more are the immediate enticement offered by ION, Sprint believes that many customers also are interested in what it calls “future proof” services. “By leveraging ION services, the customer need not worry about the complications and expense associated with network upgrades – Sprint will handle these for the customer,” stated Michael Franz, president of Sprint Business, in a press briefing about the January 1999 ION launch.

A key component of future proofing is Sprint’s assumption of financial and operational responsibility for extending its communications network to the customer premises, thereby eliminating wide-area network (WAN) equipment capital requirements and associated risks. Another is the ability to consolidate multiple networks or services, through ION, as an integrated and managed premise-to-premise broadband service. The Sprint billing, provisioning and customer care systems behind ION are critical to delivering in the near future on the promise of a “more efficient and flexible integrated communications solution,” according to McRoberts.

The Nuts and Bolts of Sprint’s ION Network

ION integrates voice, video and data transmissions over a common ATM nationwide infrastructure. This infrastructure is capable of delivering almost unlimited bandwidth, using the Internet Protocol (IP), to an Integrated Services Hub at the customer site. The ATM cell-based technology, based on Cisco’s multi-service platform, transports real-time voice and video traffic, along with delay-tolerant data traffic, on the same transmission link without compromising the performance of voice and video. The architecture also provides customers the ability to “grab bandwidth” at any time and pay only for the amount used. ION now supports a maximum bandwidth of OC-3 (155 mbps), which in 1999 expands to OC-12 (6222.08 mbps), and will eventually migrate to OC-48 (2.4 gbps). Last mile deployment will use existing and emerging broadband services, including Digital Subscriber Lines (DSL), to connect to fiber optic rings within one mile of approximately 70 percent of large businesses in the U.S.

IP Networking Is Ready to Soar

Demand for managed Internet Protocol (IP) networks is projected to soar as more and more carriers integrate voice and data over cell-based platforms. The Yankee Group in Boston, based on surveys of actual users, foresees the amount of voice traffic routed over public or private IP networks in the U.S. reaching 11 percent by the end of 1999. Within three years, the percentage jumps to 23 percent and then escalates to 48 percent in five years. In Europe, the migration will not be as rapid, with 7 percent moving to IP in one year, 20 percent in three years, and 40 percent in five. “There’s a lot of unsatisfied demand out there, and this bodes well for carriers with these types of networks,” says Rob Rich, senior vice president for Telecommunications Research & Consulting.

Sprint ION Is Coming to an Area Near You

The Integrated On-Demand Network is now rolling out, with availability limited in the first six months of 1999 to businesses spending $10,000 or more a month on communications. The initial markets are in 31 or 70 areas where Sprint has standing agreements with telcos to make use of their metropolitan fiber networks. A minimum 2-year commitment is required and Sprint pays the cost of installing and maintaining on premises customer equipment, but there is no customer option to purchase. By late-1999, ION is expected to be available nationally for all sizes of business customers.

Business customers desiring individual ION services, such as frame relay, ATM or Internet, can ramp up much sooner, as long as an ION service node is installed in their metropolitan area. Sprint points out that those planning to upgrade data services in the near future might want to take this route, since a complete ION node will be installed on the customer premises at what essentially is no cost or obligation to sign up for additional ION services in the future.

Consumer ION services availability is projected for the fourth quarter of 1999, with deployment dependent on where there is DSL availability. By mid-2000, Sprint expects nationwide availability of ION’s integrated local and long distance voice and high-speed Internet services.