Top Ten Reasons for an Unbundled IP Rating Engine

The IP revolution keeps changing how we look at billing. Over the last several years, IP mediation devices appeared in the IP billing model as a separate entity. Today, here come IP rating engines with billing and rating unbundled.

First, some background. IP services today, as we have frequently pointed out, are flat-rate, all-you-can-eat deals for both business and residential customers—and billing is about as challenging as for garbage collection or daily newspaper delivery. Over the last couple of years it became clear that to deal with IP usage and QoS-based pricing, a separate layer or device would be needed: the IP mediation layer for collecting, correlating and processing IP events before delivery to a billing system. Companies such as Narus, Xacct, HP and others have stepped up to the plate with IP mediation products.

I believe, however, carriers’ profit expectations will not be met unless another layering or unbundling step occurs: the emergence of an IP engine between IP mediation devices and the billing system—in short, unbundle rating from the billing system. The rating engine accepts usage data—hopefully, in standard IP Detail Record (IPDR) format—from network elements, applications and/or content servers, and calculates charges from this data, as illustrated below.

Here are my top ten reasons why this vision or model for a stand-alone rating engine for IP billing will prevail.

1. Rating for a Market of One

Go to an IP wireless, cable or DSL conference or exhibition these days, and you walk away nearly mind-boggled at the thought that consumers will be able to visit a Web site, browse through a list of available services, and configure their own unique IP service package. That means no two consumers will likely be paying the same price for an individual service.

Take mobile wireless content, for example. You’re in your car and you use your wireless phone with location capability to find the nearest gas station. The carrier’s charge is free if you have a location subscription package, or you may pay a few cents for the transaction, or you may get a credit on your bill if you buy gas at the location indicated, or you may be billed for the gas purchase on your wireless phone bill, etc. Throw in advertisement and pricing based on your personal information on file, and this transaction could have a million different rating options. The point is that rating for a market of one will require the utmost rating flexibility—not for billing, but for the purpose of determining profitable price plans for custom bundles in real time.

2. Marketing Will Own Rating

One of the most important responsibilities of marketing is product pricing, and that means being responsible for the rating plan. At almost every major carrier today, billing is the responsibility of the finance/accounting or IT/finance departments. If the rating engine is bundled with the billing system—it is in the wrong department. If marketing could define pricing rules, run what-if scenarios or otherwise take the lead in procuring the rating engine, you would see a different animal, especially in the case of access and operations. If a marketer knows how to program a VCR to the point where 12 a.m. ceases to flash, he or she should be able to enter a revised IP rating plan, and do it nearly instantly.

3. Minimal Impact on Legacy Billing Systems

If you take a carrier’s IP revenue and strip out everything except IP usage-based services, you are left with zero revenue. Replacing legacy billing systems with IP or hybrid IP/circuit-switched billing systems is unlikely until usage-based IP service revenue becomes a reality. As carriers look for a migration path, many are finding that costs are prohibitive for replacing a legacy circuit billing system or enabling it for usage-based IP billing. In such cases, it is less expensive to rate IP events outside existing billing systems than to use bundled rating systems.

4. Disaster Avoidance

It’s a no-brainer that IP usage collection, rating, billing and other OSS will be orders of magnitude more complicated than for today’s voice and data services. No one billing package has the flexibility or performance to keep up with the transaction volume. Likewise, no one vendor can keep up with a fast growing company that is constantly redefining itself and its products. Deploying a fully integrated package is inviting disaster. OSS must be decoupled.

5. Rating in Mediation Devices and/or Network Elements

Rating depends on the type of transaction being billed. Bill presentment, accounts receivable and accounting, on the other hand, are indifferent to those transactions. Current billing systems build a dependency with the service offerings and the billing infrastructure. This is exactly why most current voice billing systems cannot handle IP services. Conversely, rating is fundamentally independent of payment and presentment technologies—which are evolving quickly, as new types of electronic payment and debit cards, and even more convenient means of communicating with end customers, are clearly on the horizon.

Carriers must look to decouple their investment in data collection, rating and service monitoring from payment and presentment technology. As multiservice carriers and network platforms evolve, rating will likely be integrated with the mediation devices or the network elements themselves (see diagram above).

6. Fraud Control and IP Rating

Probably the least talked about risk in next-generation IP services is fraud. In the circuit-switched world, you could place fraud control software behind a billing system that spits out customer usage charges in non-real time to detect fraud. OK, so if you see 5 or 6 hours of unusable customer charges (2 hours of holding time on a cellular phone call, etc), you deny future service.

That won’t do for IP services. First of all, with video streaming, mobile e-commerce or advanced ASP services, you can drive up enormous charges in a short time. Fraud must be controlled in real time to be able disconnect services in progress. Further complicating IP service are the numbers or IP addresses for consumers or internal corporate users, because today the actual IP address is temporary.

Bottom line: Fraud control systems will have to receive usage records or IPDRs at the same time as the billing systems. Furthermore, rating systems may have to be modified immediately to detect new types of IP service fraud. Again, this will be easier if rating is done by a stand-alone engine.

7. Non-Carrier Rating

Who says that the carrier must price services? A virtual ISP or a reseller may want to rate IP events received from a wholesaler and for business customers, or customers who are using their network services (cable, wireless, etc). They may want to bill themselves and return rated IPDRs to the wholesale IP carrier for them to do the billing. Or what about a retailer (K-mart, Wal-Mart, Circuit City) that will want to rate its prime customers’ IP sessions for discounting and/or cross-discounting? This new era of discounting would be handled more efficiently on an unbundled IP rating engine.

8. Outsourcing Rating

It’s clear that usage based IP will be complex, and at the same time speed to market is key. If billing can be outsourced, so can rating. The rationale behind outsourcing billing—lower start-up costs, scalability, and so on—can also apply to rating, especially for the many carriers just entering the IP services space. A single-vendor approach prohibits outsourcing. However, a palette of mediation, rating and billing players can offer a variety of in-house and outsourced combinations (and an elegant migration path to outsourcing, as corporate needs change). Bottom line: Either start out with a stand-alone rating engine and go to outsourcing for scale, or vice versa.

9. IP Business Model?

Among the most complex questions of new-generation IP services are who pays for IP services and where the charges will appear. Some IP rated events will appear on the customer’s bill, and some will occur on the service sponsor bill. Some charges will appear on phone bills, content provider bills or credit cards. Some may be in mobile e-commerce units (for example, this Coke from a vending machine will cost 100 minutes of air time). Some charges may be commissionable; others may generate frequent flyer points. Further billing and rating complications will occur due to complex business relationships between content providers, packagers, operators and customers. Carriers will look to rating engines that can guide transactions to multiple billing and accounting systems. This can be done only if the rating engine is unbundled.

10. Best of Breed

There was a time when carriers built their own billing systems. That approach has been all but abandoned, for obvious reasons. Designers who are focused on one task will do a better job than IT generalists. Just like billing systems are chosen by best-of-breed criteria, so will rating engines. This can best be accomplished by unbundling rating from billing.

The new world of usage-based IP billing will create new opportunities, and stand-alone IP rating engines will be one of them.