Billing Q&A with Jim O'Neill

Q & A With Jim O’Neill—October 2000 Column

Q—Our company is a fairly new entrant to telecommunications and we don’t have much experience with interconnection. Can you shed any light on this subject?

A—Well, given the ever shifting sands and rapid changes underway not only in North America but all around the world, that is a pretty tall order. What I can do is explain some fundamentals and the terms being used, and then point you to more detailed information sources.

Way back before the late 1970s, when there was only one telephone company in each community to give you local service and (here in the United States) only one long-distance company (AT&T Long Lines), policies for billing and division of revenues were fairly straightforward. The local telephone company billed you for all usage, whether local, long-distance or international. Domestic call revenue was divided between the local companies and AT&T for having carried the calls over their networks.

International calls were settled according to mutually agreeable guidelines developed by the International Telecommunications Union (ITU). The guidelines were based the assumptions that:

· international traffic was balanced between all countries, and · collection rates, that is the rates charged to customers, were comparable.

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Operators then determined an accounting rate (the agreed upon rate between operators) and a settlement rate, the percentage of the accounting rate that would go to each operator. Traditionally settlement rates were a 50-50 split.

The troubles began when competition was introduced and rates here in the United States began to fall dramatically. That led to more and more people making outbound international calls. Over time there developed a huge imbalance of high traffic and revenue volume flowing from the United States to the world. Most other countries, still heavily regulated, were keeping their collection rates artificially high, resulting in low traffic and low revenue volume flowing from the world to the United States. In effect, U.S. customers were subsidizing the regulated telephone companies of some nations with less robust economies.

As deregulation and competition began to spread across the world, technology improvements led to multiple global networks. Partnerships and alliances began to appear. Some countries started to require a shift to a more cost-based structure for termination charge settlement. In the United States, the FCC imposed limits on international settlement payments. Today there are a number of choices for delivery to many parts of the world. This has led to a number of one-to-one operator agreements, where instead of splitting revenues, the originating operator bills and keeps all the revenue.

On top of all that, as multiple operators began to appear within countries, number portability requirements added more complexity. In many cases, the former national operators continue to be the terminating point, and then call traffic is handed off to the operator that now owns ported numbers. Those operators are entitled to compensation for use of their networks, too, so additional layers of settlement and new accounting methods are required. Besides the originating and terminating operators involved in a call, additional transport operators are in the middle. Each has to be compensated for the use of its facilities. Increasingly, agreements are based on actual traffic volume, final destination of the call, and the amount of network facilities used.

In addition, some of this approach is necessary because the traditional accounting rate system does not recognize when calls are terminated on mobile phones. (Remember that in most parts of the world the calling party pays, so the rates have to include that extra element to compensate the mobile carrier who terminates the call.)

Domestically there are many parallels to the international situation, although our long distance companies have discrete networks of their own for handling traffic passed to them from local exchange and wireless carriers. While long-established carrier access billing guidelines and systems in place have been reasonably effective for traditional carriers, downsizing, mergers and acquisitions and other realignments have made accounting difficult for many carriers. Older service order and billing mechanisms have not kept pace with the many new services being deployed. Provisioning verification has been difficult in a fast moving environment, and more than one carrier has experienced major losses as a result.

Interconnect settlement also became more complicated when Competitive Local Exchange Carriers appeared on the scene. Unfortunately many of them, bowing to the pressure of getting to market fast, launched their business before having reliable tracking and billing systems in place. It has been fairly well documented that some transport carriers did not keep track of the traffic they were carrying for other operators and depended on the originating and terminating operators to tell them how much they owe. The lack of robust systems have generated war stories of some companies being over billed millions of dollars by their interconnect partners.

So, on to sources for more details. The article “Interconnect Isn’t What it Used to Be” by Kevin Turner of Savera Systems Inc. (Billing World, November 1999) highlights some of the European accounting issues. Also, “Next-Generation Interconnect” by Susana Schwartz (Billing World, April 2000) highlights more issues and product differentiations. You could also access any search engine on the Web (I find google.com to be a good choice) and search for the term “interconnect settlement.” That will quickly create a list of many pages of articles, sites, and other Web resources with information on the subject. Articles also can be found on the sites for ICL (www.icl.com), one of the largest settlement management companies in Europe, and Ovum (www.ovum.com), a research and consulting firm specializing in IT and telecommunications.

As many of the major retail billing system vendors have added interconnect modules or have created completely separate wholesale products, their sites should also be visited for comparison purposes. Companies that have developed interconnect settlement products include Savera, Saville, Kenan Systems and Amdocs.