UNE Audits: World of Missed Revenue

So, Mr. CLEC, you’ve bought loads of unbundled network elements (UNEs) from your ILEC. You’re billing the enduser and collecting their money. Guess what? You may be missing the most important network item: someone to audit your bills to ensure your’re paying the right price for the right UNE at the right time.

Auditors of unbundled network elements dig daily into a maelstrom of confusing rules nonstandard billing codes, and ever-shifting offerings and tariffs ferreting out the mistakes that hurt your bottom line. Welcome to the world of UNE billing, where telcos on both sides of the parts counter struggle to keep up with the fast pace of sales, provisioning and billing.

Sudden changes in the regulatory playing field, struggling account teams, provisioning and ordering mistakes, and incorrect code remove money from your revenue flow. More than ever, CLECs must have people to monitor UNE agreements, prices and billing to stay competitive.

Analysts who help CLECs find revenue leaks in UNE billing must also understand how public utility commissions around the country interpret the Federal Communications Commission’s UNE rules. “Every single state has its different kind of UNE look and feel to it,” says Faye F. Henris, managing partner of TeleCon LLC, of Fairfax, Va., and St. Louis. “For example, with Southwestern Bell you’re dealing with one kind of attitude in Texas, where we’re seeing a lot of unbundled loops, while in Oklahoma I don’t think there is one. So now you’re dealing with 50 viewpoints. The biggest hurdle the companies out there face is the fact this whole game is new, and nobody knows the rules, and everybody is interpreting ‘the handbook’ slightly different.”

“And you get really squirrelly when you start dealing with a city like St. Louis, which crosses state borders,” says Kieran Travis “Kit” Mays, a partner with TeleCon. “Same LATA, just different jurisdictions. You’ve got two different state public utility commissions injecting their flavor, their thoughts.”

Frazzled, overworked account teams

Good auditing skills are vital in the mean streets of Telecom Town, USA. Proper auditing gives a CLEC a competitive edge against other carriers fighting for the same revenue. A CLEC with accurate auditing procedures in place can better argue its case against an errant ILEC bill and thus, win more billing disputes. That can add greatly to the CLEC's bottom line.

But much too often, CLECs don’t have the staff to keep up the provisioning of UNE services, much less the auditing. “It all depends on your account team. And there are excellent account teams, and there are overworked, frazzled account teams,” Mays says. “I know CLECs out there who try to put 40 to 50 lines per week—and we’re not just talking local loops; we’re talking T-1s, business loops. They are growing quickly and are trying to play catch-up right now. If you buy a switch, you’ve got to fill it up, so you’ve got sales people running around like madmen and madwomen selling capacity.”

But many start-up CLECs just can’t afford to bring in outside auditors. “CLECs have been struggling to keep their heads above water with the exponential growth they’re realizing,” Mays says. “This is a luxury for a lot of CLECs, to go out and hire analysts every year to do audits.”

And it isn’t always easy for incumbents, either. “Most RBOCs have broken up into one dedicated account team for AT&T, a dedicated account team for MCI WorldCom, a third dedicated account team to handle Sprint and Qwest, and a fourth dedicated account team for everybody else, including CLECs,” Henris says. “And that fourth account team is dealing with 400 different companies instead of being dedicated to just one.”

Mistakes begin at ordering

Henris warns CLECs to be careful when ordering UNEs. “The beginning of the process is the creation of an interconnect agreement, and from that the CLEC will begin ordering services by issuing access service requests or local service requests, and it’s usually a combination of both,” she says. “That’s the first pitfall that companies run into, using the wrong request type, whether they are ordering access charges off the access tariffs and issuing ASRs, or whether they’re ordering local services using LSRs off the local tariffs. Oftentimes you can have the appearance of the correct service, even if you’re ordering off the wrong tariff and taking on additional costs.”

The answer? Using the proper service request. “But in a lot of cases you don’t have a choice,” Mays says. “The LSR platform is relatively new, and the ASR platform has been around since the early ’80s. What the RBOCs said was, ‘OK fine, you want to be a CLEC, you go out and order what you want as a CLEC; we really don’t have an LSR platform, so use an ASR platform.’ And every single RBOC came out with its own set of rules and tricks, so to speak, on how to fill these ASRs out.”

Filling out LSRs and ASRs properly can be difficult, especially for newcomers. “The people that come in traditionally haven’t been in the phone business,” says Tom Moquin, director of BellSouth Interconnection Services. “Some of our customers are in the 99 percentile in accuracy, and there are others who aren’t nearly as good, because they aren’t up on an OSS system, and they are entering orders manually. You fill out an order and one incorrect stroke of the pen on a letter or number, and the order is going to be wrong. And accurate orders mean less time and cost they’re spending on their business office.”

Check the invoice

“To audit a facilities-based CLEC, start with the invoice,” says TeleCon’s Henris. “You compare it back to your provisioned record to find out what you billed. You then compare it out to the tariff offering and find out what the CLEC is buying, whether they are buying smart and buying right.” The auditor then makes sure that provisioning, price and inventory all match, down to the end user’s bill.

But some circumstances can make even a seasoned auditor fume. “These are coming in on customer record information system (CRIS) bills, which are the absolute worst invoice media available out there,” she says. She prefers records in carrier access billing systems (CABS) format, used predominantly between IXCs and CLECs to bill for access. “The CABS records are documented, and the Ordering and Billing Forum recommends standardization of those formats,” Henris says. “CRIS does not enjoy the same stature at all. And it’s in an EDI format, which is difficult to read, and that is something that almost no company has mastered.” Unfortunately, she says, CRIS is predominant when CLECs bill their end users.

“A lot of incumbents tried using their CABS systems, but that’s more of a patch,” says Sid Hoosein, Telcordia’s project manager for its une-BILL system (see accompanying story). “They were trying to adapt a system that was designed for IXC-LEC billing. And they have backed that into the LEC-CLEC interconnection. I would speculate that that would not work as well. You need a lot more flexibility.”

Ask the basic questions

Once the auditor translates the invoices, he or she asks basic questions, which, unfortunately, few CLECs find time to do. “Am I ordering access services when I should be ordering local services?” Henris says. “Am I paying for things from the RBOC for provisioning local services that I’m not billing out to my customers? CLECs are losing money to ‘shrinkage,’ which is the purchasing services which they don’t turn around and bill out to their end users,” she says. Again, the CRIS records fail to help answer basic revenue-assurance questions. “Because of the CRIS format, it is difficult to make sure that you’re passing on every charge that’s coming through. In theory, if you set up the account in your own billing system correctly at the same time you are ordering the services from the RBOC, that wouldn’t be an issue.”

“Unfortunately, because these UNE rules are changing and there’s different interpretations, I may order my services from the RBOC expecting to receive elements 1, 2, 3 priced at A, B, C; but I get elements 1 through 4 and never put 4 into the billing system,” Henris says. “Therefore, I’m not passing it through; and I can’t audit that bill, because it’s not automated. I never know that 4 is coming in, I just know my margins aren’t where they’re supposed to be.”

And CLECs would be surprised at how much money they’re losing, Mays says. “We did work for one of the older CLECs. They wanted to know by city, by state, by product, are we making money on this? We gave them so much bad news that they didn’t like it when we came walking up to their door every time. But they implemented a lot of the changes; they’re selling smarter now, rather than selling more.”

Profitability analysis reveals more

Another tip: CLECs should do a backward- and forward-looking profitability analysis. “When these carriers set up a business plan, they installed their switch, got their financing and off they went,” Henris says. “But they built their business plan on a set of assumptions which have either been disproven or changed over time. And unless they’re going back and readjusting that and reevaluating each of the markets they’re expanding into for overall profitability, they run a risk of being places where they are not going to make money and where there is not a market to be had.”

The enhanced extended link, or EEL, represents a big change in business assumptions. It amounts to a shift in access for CLECs—if the CLEC knows about it, that is. “That’s a very hot, unbundled network element out there that a lot of provisioning people are talking about,” Mays says. “Now you can move off your collocated end office into other end offices, and it provides a transport element. But most companies continue to use T-1s off the access platform, which is three times as expensive.”

To take advantage of EEL, the CLECs have to take a step back and re-evaluate their business plans, Henris says. “Now I have a higher profitability margin, because I can find cheaper transport to get further out and increase my market reach. I can change commission structures, I can do all kinds of things to drive the sales of my higher margin product.”

Useless without USOCs

So which UNE is the toughest for auditors to track? “The new one that no one knows about, like EEL,” Mays says. “And a lot of CLECs haven’t even applied uniform service order codes [USOCs] to half of the elements. I open up a company’s bills, and all of a sudden I’m looking at stuff I didn’t see even two months ago. I would think that everyone of them is hard to track.”

Each carrier might use its own service order codes for end-user billing, Mays says. “They’ll either leave a field blank or they’ll use a descriptor or a USOC that’s not in their tariff or their interconnection agreement. They’ll populate their billing platform, but they won’t populate their tariffs. So we’re sitting there looking for the EEL, for example, and we can’t find it in the tariff, because there’s no search element for it. You might have ‘U-EEL,’ the U standing for unbundled. And I’m doing a tariff documentation on this, and it’s not there.”

Covad’s OSS tracks discrepancies

Covad Communications, a CLEC based in Santa Clara, Calif., uses an OSS platform built with various vendor and in-house functionality. The billing component is from Portal, and the order management component comes from Vitria Technology Inc. Covad operates in 51 metropolitan service areas and has about 30,000 lines. It primarily offers consumer and business-grade, high-speed data services.

Vinu Sundaresan, director of software engineering at Covad, explains how his company’s system keeps orders and billing straight.

“Our OSS is a set of applications that are integrated at the data layer and the processing layer,” he says. “There is a process flow, so that you have different jobs being done on the order as it goes through the system. If you have good business processes, you can automate that, so the system has a complete flow-through, without ever having humans touch an order.

“And having an integrated database underlying all of the OSS helps the data get from one stage to the other. Using that integrated database, the billing system picks different stages of the order and says, OK, this is a billable line, or this is a line that has been ordered, or this is an order that’s been canceled. So we can track at any given time the orders we have installed, or are in progress, or have canceled, or how many have been entered.”

The Covad system uses multiple databases, all of which have some form of integration to LEC circuits, central offices or UNEs. Its circuit-tracking system indicates when an order is cut, as well as the capacity on that circuit. The system can check with a central office’s system to see whether that central office has efficient capacity, Sundaresan says. It also picks up a port for a particular order, using the paired number, then sends an electronic message to provision that particular line.

“We are able to pick up data at different stages and feed it into other application components, including one we bought just for bill reconciliation,” he says. “It flags and reports discrepancies between billed elements versus what we ordered. We get the data from the ILECs in whatever electronic form we can get. That is fed into the bill reconciliation system, a comparison is run, and exceptions are flagged.”

So, have there been any discrepancies between what’s been ordered and what a LEC bills Covad?

“I must say yes,” Sundaresan says.

RBOCs get confused, too

ILECs often aren’t sure how to interpret the FCC’s UNE rules, because they change pretty quickly.

On Sept. 15, for instance, the commission dropped operator access and directory services from its original UNE list. At the same time, it added sub-loops, dark fiber-optic loops and transport, and EELs. The FCC changed the UNE list in the aftermath of the Iowa Utilities Board case, in which the Supreme Court ruled the FCC improperly applied the “necessary” and “impair” standards when it drew up the original list. “Necessary” elements are those without which a carrier cannot provide service; “impaired” elements are those without which a carrier is materially diminished in providing services.

The ever-changing list and its resultant uncertainty keeps RBOCs guessing. “Our basic strategy is to continue on the road we’re taking until the FCC gives us some definitive guidance on what they expect,” says John Goldman, communications manager at BellSouth. “We’ve been doing that with ADSL since day one. There was always a question about where it stood. We made a strategic decision to deploy it until the FCC finalized the UNE list. We go with our best thinking on the subject, but we’re not going to hold up technology waiting for them.”

A changing list

The FCC’s Sept. 15 rules orders ILECs to provide unbundled access to:

? Loops, including high-capacity lines, xDSL-capable loops, dark fiber and inside wire owned by the ILEC.

? Subloops or portions of the loop, at any accessible point. Such points include pole or pedestal, the network interface device, the minimum point of entry to the customer premises, and the feeder distribution interface located, for example, in a utility room, remote terminal or controlled environment vault.

? Network interface devices (NIDs) for connecting loop facilities to inside wiring: Unbundled access to NIDs throughout the service territory.

? Local circuit switching, except for switching used to serve end users with four or more lines in access density zone 1 (the densest areas) in the top 50 metropolitan statistical areas (MSAs), provided that the ILEC provides nondiscriminatory, cost-based access to the enhanced extended link.

? Dedicated interoffice transmission facilities, or transport, including dark fiber. ILECs must also unbundle shared transport (or interoffice transmission facilities that are shared by more than one carrier, including the ILEC) where unbundled local circuit switching is provided.

? Signaling links and signaling transfer points in conjunction with unbundled switching and on a stand-alone basis.

? Call-related databases, including those used for line information, toll-free calling, number portability, calling name, operator services/directory assistance, advanced intelligent networks, and the AIN platform and architecture.

? OSS throughout the ILEC's service territory (ordering, preordering, provisioning, maintenance and repair, and billing functions) supported by an ILEC’s databases and information. The OSS element includes access to all loop qualification information contained in any of the incumbent’s databases or other records needed for the provision of advanced services.

“Another pitfall for CLECs is that the RBOCs, who are receiving these orders, are still trying to figure out how it should be done,” Henris says. “They’re changing what they offer … with relatively high frequency.” What’s more, the FCC in the past has asked carriers for input to help it interpret the terms “proprietary,” “necessary” and “impaired.” On Nov. 4 the FCC found that the Telecom Act does not require ILECs to discount xDSL services when selling them to ISPs for resale.

On Nov. 18, the commission announced that ILECs will have to share their voice lines with competitors offering DSL services. Before the ruling, CLEC customers had to buy a second line for DSL, but not anymore—incumbents now have to unbundle the high-frequency portion of their landlines. The CLECs like it, the incumbents don’t, and no one knows how it will be priced. Competitors and incumbents have 135 days to negotiate prices and terms privately. If they can’t make a deal, states will step in and arbitrate an agreement.

Then, on Nov. 24, the FCC put restrictions on the use of EELs until it can resolve the debate over whether IXCs can use EELs to bypass special access services offered by ILECs. Questions remain over whether the IXCs should be allowed to use EELs to bypass special access services offered by ILECs. ILECs believe that such bypasses would make less money available for universal service. The restrictions do not apply to IXCs that use EELs to provide significant local exchange service, in addition to exchange access service, to a particular end user.

Now add that to your business plan.

RBOCs extend helping hand (sometimes)

Not all RBOCs are alike when it comes to helping CLECs gain access to UNEs. Although BellSouth and, to some extent, Bell Atlantic hold classes and offer service support, other RBOCs are still behind in setting UNE tariffs.

Meanwhile, AT&T, MCI WorldCom and Sprint asked the Illinois Commerce Commission in October to speed up the pricing of Ameritech UNE-Ps, accusing the carrier of dragging its feet.

According to the state commission, Ameritech filed its initial UNE rates in April 1998, but its pricing for the platform is still up in the air. “The dispute is that Ameritech was ordered by the commission to file a tariff for the platform in its 1998 tariff,” a commission spokesman says. “Not only was the platform tariff in question, but the non-recurring charges involved in reconnecting the network elements. If a company came in and ordered the platform, Ameritech could charge them for each element separately plus a nonrecurring charge,” the spokesman says. Ameritech filed its platform tariff Nov. 9, and the commission was to decide at its Dec. 8 meeting whether to approve it. “We still have an open docket … where the nonrecurring charges and other UNE rates will be addressed to determine if those rates comply with the original UNE order,” the spokesman says.

But it can be said that at one time or another, every RBOC has been criticized for being obstructionist when it comes to making those elements available. Yet other RBOCs see the potential for making money in the face of mandated unbundling. BellSouth, for instance, aggressively markets its UNEs and offers classes to CLECs on filling out ASRs and LSRs, as well as other hints for managing UNE accounts. One class offers an overview of UNEs; another covers the technical aspect of UNE maintenance and repair, as well as billing, BellSouth’s Moquin says. The RBOC offers more than 11 classes on various CLEC subjects and has a dedicated UNE service center for CLECs to turn to when they run into UNE questions. The company also has an online classroom where CLEC employees can take the course over several days.

Its approach to UNE access has paid off: BellSouth in November reached a 7-year interconnection deal with Network One for $500 million in UNE combinations and intelligent network and operator services. The agreement is part of the RBOC’s Network Combinations program, which allows companies to operate in BellSouth’s nine-state marketplace “without having to put out millions or hundreds of millions in capital,” says Ken Ray, vice president of BellSouth Interconnection Services.

Constant change, bright future

The FCC, the public utility commissions and other regulatory bodies guarantee at least one constant in the world of telecom: that the rules will change overnight. As soon as you think you’ve got your ducks in order, two or three of them fly off in different directions. The CLECs with the best chance of staying on top of UNE accounts have the resources to hire and build strong account teams. Good accountants fight their way through billing systems with improper code, track changing regulatory rules, and can tell you where the carrier is losing money. Incorrect routing, overcharging, underpaying … it happens all the time, especially in this rapid-fire world of telecom.

“This is a booming industry,” says Mays, “and I don’t think CLECs can keep up with the demand that’s presented to them right now.”

Sidebar

Telcordia developing usage-based UNE billing system

Building upon a capability it launched for the unbundling of 800 numbers in 1993, Telcordia Technologies has developed a billing system for usage-based unbundled network elements. Although Telcordia has a UNE billing system for European carriers, this marks the first time the company will implement such a full-scale system in the United States.

“We have a trial running right now, and at this point we’re still in negotiations” with a carrier, says Sid Hoosein, product manager at Telcordia. The system, branded as une-BILL, accesses data from the incumbent’s line information database (LIDB) to determine what elements the ILEC is providing the CLECs, and the rate for each element. It measures usage by monitoring the number of LIDB dips for each CLEC.

Hoosein explains the system’s evolution: “The FCC mandated in 1993 that that 800 numbers should be portable. To make the numbers portable, all of the 800 service providers have to access this network element. The number is ported from one carrier to another, and that change has to go into the network.

“The network element instrumental in making sure that the change occurs in the network is called SMS-800. SMS-800 updates all of the service control points in the intelligent network, which makes sure that all the switches and the service control points are up to date on which 800 number belongs to which 800 service provider. The FCC also mandated that the cost of that SMS-800, which is now effectively unbundled, has to be charged back to the 800 service providers.

“We took the concept that, if you can unbundle that network element, then you can go to any other network element; and if it’s unbundled and used by CLECs, you should be able to come up with a billing system that does that, regardless of which network element it is. The billing system has the flexibility of charging different rates for different carriers and all the other features needed in that environment.”

The billing system first grabs the data for each specific UNE, and determines what the usage rate is for those UNEs, he says. “Then we have to come up with what elements the incumbent is supplying the CLEC,” Hoosein says. The LIDB stores a number of CLEC record changes. The database then lets Telcordia’s system in to grab the information. “We can tap the right information about the number of LIDB dips and bring that data into the billing system,” he says.

“We have systems within Telcordia that actually administer the network databases,” he says. “So we can get the information from the service management systems as to the change in the number of records in the LIDB. In that way, we can measure the usage in terms of LIDB dips. Then we access the DRS system under the intelligent network, which monitors call duration for all the different calls.”

For now, most unbundled network elements are charged at a flat rate, but usage-based billing for UNEs is growing at a rapid pace. “We’re getting ready for the next two or three years, when we expect those market shares to go up,” Hoosein says.