Publisher's Letter The $10 Billion IP Billing and OSS Opportunity

The majority of telecommunications consultants, billing and OSS vendors, and carrier executives have taken the position that expenditures for IP billing and the other OSSs will reach $10 billion per year. The flip side is that no one with any credibility is predicting when this spending level will be reached. Why? The old public relations rule: Never predict what and when in the same sentence.

It's OK to say in five years its going to be a big opportunity-but exactly how big or when it's going to reach $10 billion? I couldn't say. Note that if a CEO predicts what and when in the same sentence, investors or board members have a nasty habit of following up the prediction with questions about the CEO's business plan to capture said opportunities.

So what makes it so hard to pinpoint when the big bucks for IP billing and OSS upgrading are going to start flowing? Here are my 10 reasons why it's too tough to call at this time.

1. The Business Case for IP

TeleStrategies has been producing IP opportunity conferences since 1991. The vision of how carriers are going to make money from the Internet hasn't changed much, however, in the last eight years. It's always been network-embedded applications, value-added services and, more recently, voice. The problem or challenge is that none of these killer applications have reached the market in any significant way. Couple this with the fact that the big carriers make little revenue from their Internet activities, let alone profit. For example, MCI was forced by the Europeans and government officials to sell off its Internet business as a condition of being acquired by WorldCom. When the Internet unit went up for sale, MCI was required to disclose to their buyers what its estimated 1998 revenues would be. It was $375 million, or less than 2 percent of MCI's revenues. Bottom line is that all the carriers talk the IP talk or hype, but they have yet to write a billion-dollar check for IP billing and other OSSs. Moreover, the industry isn't going to see one until the multi-billion-dollar business case can be made for IP.

2. IP Implementation Strategies

There are three options for implementing next-generation IP networks and associated billing and OSSs. A: The "Greenfield" approach-start from scratch, almost totally independent of today's network infrastructure. B: Replace circuit switches with IP routers and new billing and OSSs. C: Phase in IP and upgrade existing billing and OSS infrastructure to handle the new services.

Faced with these options, some carriers are choosing the "Greenfield" approach, like Level 3, Qwest and to a degree Bell Atlantic, which has set up a separate subsidiary to do it. The rest of the big carriers have chosen options B or C, which are not feasible strategies today, because carrier-grade IP switches don't exist. And besides, no one has figured out how to fit IP into existing billing/OSSs, nor has anyone come up with an IP business case at this point. But of course these carriers must have an IP story and development plan to point at for their investors. So what do they do? They set up internal IP task forces and hire big consulting firms to work on IP strategies.

3. Standards

Before carriers start signing billion-dollar checks for IP billing and other OSSs, industry standards must be in place. In the IP billing and OSS space virtually no standards exist today. The key problem here is that traditional carrier standards groups-the ITU's TMN, North American Ordering and Billing Forum (OBF) and others-are at ground zero when it comes to IP. On the other hand, there are the IP standards groups under the umbrella of the Internet Engineering Task Force (IETF), whose members are primarily university academic types who are high on QoS and security issues and couldn't care less about IP billing, service provisioning and other OSSs.

As a result lots of proprietary IP interface protocols and formats are created. Cisco Systems has a great billing and OSS IP vision, but it only applies to Cisco products. There are many billing call detail record formats-HP has one, so does Xacct Technologies, Microsoft and others-that are all incompatible. In the IP world, today's standards process is somewhat informal: some computer "geek" or company invents an IP solution that takes off, and everyone follows it. It's hard to see that happening in the telco world as long as it's open and available to all. The standards problem will not be solved anytime soon, unless the traditional telco world and the IP community come together.

4. IP Billing/OSS Vision

The problem goes beyond standards. The reality is that no single vision exists for how to implement billing and OSS in the IP space. Dr. Matthew Lucas has covered a number of different vendor approaches in recent Billing World issues. There's the mediation device approach taken by Xacct (October 1998), whereby events are logged in by a data collector and formatted to a billing system. There's the Narus approach (see "IP Usage Collection" by Dr. Matthew Lucas, p. 52 in this issue), where a probe is placed between IP network elements, and IP packets are sniffed for billing and other events. Alternatively, Portal Software uses a billing system vendor approach (see January 1999), whereby software is embedded into IP gateway switches and authentication servers in order to feed data to a control depository. Or if a carrier would just buy "all" its equipment from a single vendor such as Cisco or Lucent, the vendor would solve the problem, but at the price of being captive to a single vendor. Bottom line, at this point there are too many approaches to IP billing and OSS to even begin the standards process.

5. No Single Access Solution

The real benefits of IP come from integrated access. The problem is there's not one access technology for a 100 percent or total residential or business solution. Cable modems are great, but only about 50 percent of cable systems will be two-way ready in the next few years, and only 65 percent of U.S. households subscribe to cable. So in the next few years cable modems are a solution for roughly a third of the population. Telco xDSLs are slowly coming along, but only about 50 percent of the U.S. population has loops amendable to this IP access approach. (The 50 percent calculation comes from excluding long loops [over 2.5 miles], loops served by digital loop carriers, and those with other problems making them unsuitable for xDSL modems.) Also, it's going to take the ILECs years to gear up their COs for massive xDSL rollout. Therefore, in the next 2 to 3 years, the xDSLs are likely to be limited to less than 10 percent of the U.S. residential population. Regarding business coverage, less than 3 percent of office buildings have fiber access, which equates to approximately 10 percent of the office workforce. The rest will be limited to copper-based T-1 access and perhaps, short-haul, millimeter microwave.

The point is that one flavor of IP access will not dominate the residential, nor the business markets. The IP billing and OSS solutions will be different for ILECs, CLECs, cable operators, data CLECs and others. The myriad market segments and user acceptance uncertainty will continue to delay wide-scale deployment of IP billing and OSS products.

6. IP Carrier Interconnection

For the IP revolution to be felt-e.g., replacement of circuit switching and time division multiplexing (TDM) infrastructure-carriers will have to interconnect their IP networks. This will of course mean more than just exchanging IP packets; it means IP billing and OSS interconnection, as well creating a new carrier financial settlement infrastructure. Forget for a moment the challenges of guaranted quality of service across multiple IP networks, let alone intercarrier billing and service provisioning, the pace of IP network deployment will be different even among IP-centric carriers. Obviously, IXCs like Level 3 and Qwest will be orders of magnitude more aggressive with IP than the established big three IXCs. ILECs, on the other hand, need the IP revolution like a hole in the head, under the present regulatory environment (see Publisher's Letter, January 1999).

Equally important to the revolution (seeing the light at the end of the IP vision tunnel) is the international scene. Note that North America, Western Europe and Japan have 18 percent of the world's population and 75 percent of today's telecom infrastructure. Not only are carriers less interested in Western Europe compared to North America, the interest in IP infrastructure in economically emerging countries is no more than a curiosity. Billing and OSSs for circuit switching/TDM infrastructure, including mobile wireless, will overshadow IP for years, if not a decade, in these emerging countries.

The point here is that today's networks are global. The rate of IP deployment will likely be orders of magnitude stronger in the United States and Canada. If circuit switching and TDM technology is an albatross for the information age, it's bound to get a lot worse when the global partners are considered.

7. Regulation

Just as the business case for IP telephony hinges on regulatory rulings (e.g., access charges, interconnection fees and international settlements), the same can be said for the rate of current switch/TDM infrastructure with IP. For example, if the RBOCs are kept out of long distance, the market value of the aggressive IP-centric IXCs goes down, and with it, investor interest in "Greenfield" IP networks. Also, if the RBOCs begin to open up or unbundle their circuit-switched networks, the CLECs can make the case for accelerating the deployment of RBOC-compatible circuit-switched OSSs. Finally, if the RBOCs don't get their way on xDSL regulation, they are likely to slow-roll unbundled loops, thereby slow-rolling new IP billing and OSSs.

8. Customer Self-Service

One of the main IP market drivers people see is the vision of total customer self-care service and provisioning. The analogy most often made is consumers ordering from Dell Computers. The customers configure their PCs via the Internet, select options on-line, and track assembly and finally shipping to their homes. If only, the IP people say, consumers could do the same thing regarding their telecommunications services.

In an all-IP or so-called programmable network world, customer self-servicing should be a lot easier than in today's circuit-switched network world. Yes, it's easier to land on the moon than it would be to land on Mars, but that didn't make landing on the moon any easier. Lots of companies, and particularly Microsoft, are trying to crack the IP customer self-service nut. The quicker it's done, the easier it becomes to justify IP infrastructure and IP billing/OSS deployment. But the question still remains - when?

9. Next-Generation Networks

Before carriers can design next-generation billing/OSSs, they must see some stability in what the next-generation network is going to be. The problem with IP is the myth that everyone (or carriers, at least) agree on the network architecture that will replace circuit switching. It's a pretty good bet when you talk about the desktop, but it's another story on the backbone. ATM/SONET with IP routers at the edges has been the only game in town for carriers to date. Now gigabit routers are coming along, so some ask, who needs ATM? Others say dense wavelength division multiplexing (DWDM) is the next big thing-who's going to need SONET? Gigabit routers will generate IP packets to other routers based on wavelengths sent over fiber to ATM addresses.

Uncertainty in next-generation network technology causes carrier executives to freeze at check writing time. The same inertia applies when considering purchasing next-generation billing and OSSs.

10. Lack of an IP Consensus

If you assemble 100 chief technical officers (CTOs) from the carrier, cable, computer and billing/OSS vendor community and ask whether the next-generation networks will be IP-based, the answer would probably be nearly 100 percent affirmative. But if you ask what their IP network visions are, these CTOs would probably have 100 different visions.

The vision and standardization of today's circuit switching/TDM networks were created by AT&T at Bell Labs and backed by the regulators and federal government. The Internet and IP platform was created by a DoD mandate. Today, these unified consensus-building forces are gone forever. When it comes to creating a consensus-as evidenced by the mobile data market-there is no active mass of IP players today with a single IP vision, let alone an IP billing/OSS vision.

We at Billing World believe the IP billing/OSS market will reach $10 billion annually-and as soon as we can determine when, you will be the first to know.

Drs. Jerry and Matthew Lucas will conduct a seminar on IP telephony and integrated access for non-engineers, March 1-2, 1999, in Washington, D.C., and April 28-29, 1999, in San Francisco, Calif. Call (703) 734-7050 or check out www.telestrategies.com for more information.