Top 10 Challenges for Value-Based IP Billing

Today’s telecommunications carrier services are viewed as commodity services and are moving to total flat-rate pricing for local, long-distance and Internet access: One-price all-you-can-eat and wireless voice dumped into bucket plans. The only problem with this simple carrier world is no one in the long run is going to make money except the bankruptcy lawyers.
The only way for carriers to succeed is to move full steam ahead into the IP space with value-added services. So here are my top 10 challenges for a carrier’s success.
Understanding the Customer
The No. 1 challenge in creating value-based IP services is first to understand customer value. If the customer is not willing to pay for it, it has no value. Napster is great, but from a carrier’s perspective it has no value because the customers aren’t willing to pay for it. So the challenge will be to demonstrate IP product or service value and to convince the customer to pay for it.
Think Beyond Usage-Based Billing
IP billing based on usage is necessary for success, but not sufficient. With the exception of DoCoMo’s low cost iMode service in Japan, there is virtually no success to date where a carrier launched an IP value-added service and the customer was billed by volume of packets received. However, usage-based IP billing will be necessary for success in the carrier-to-carrier settlement process (to be discussed later).
Billing an end user based on bits and bytes just won’t hack it. Consumers buy content by its perceived value. You don’t buy a book based on the number of pages or rent a movie based on its length. Carriers will have to market content based on quality, timelessness and relevance, provision it, and of course present the fee logically on the customer’s bill.
Corporate Users Will Also Require Value-Based IP Billing
First, let’s clarify the myth that corporate users are billed based on usage. Yes, carriers present them with bill based on usage, but that’s not what they look at. The telecom or IT manager can predict with great accuracy what a company’s monthly telecom bill will be. Private lines (T-1, T-3, etc.) are not usage-sensitive, and frame relay and ATM services are only to a slight degree. Yes, switched voice calls are billed by usage, but rarely are they audited. As long as this month’s voice bill is the same as last month’s, it’s paid with no questions asked.
So, if you are a carrier touting IP-VPN service based on actual usage you won’t see a big success. Even if you satisfy corporate users that your IP-VPN has the security and QoS to replace private T-1, frame relay and switched intracompany voice service, they will not subscribe to a service where they pay by the IP packet transmitted or received. It’s not going to fly. Why? Corporate users want predictable monthly bills—a virtual flat rate—and want the ability to bill back to departments or audit specific departments or users who would use your IP-VPN service for multimedia, video conferencing and the like, but want to see the IP value delivered on your monthly bill.
Mobile E-Commerce Is Also About PCs
Another myth worth wiping out is that m-commerce replaces the need for users to have PCs. You won’t need a PC in association with a handheld, 2G, WAP enabled cellular phone to get the DoCoMo-type content (the joke of the day, and so on). But if your definition of m-commerce is impulse buying or managing your flight schedule solely via today’s handheld device, forget it. Try setting up an account, getting a password and supplying credit card information via the touch tone keypad on your 2G cellular phone, and you will probably agree. Value-added wireless users will also interface with their PC for such things as preordering, ordering and receiving billing information. So think user PCs interfacing with your strategy for wireless value-added IP service.
An IP Packet Is Not Just an IP Packet
Can you imagine running a commercial airline where you didn’t know anything about your passengers? Not knowing, for instance, are you Mr. Passenger who you say you are (authentication)? Have you paid us (authorization)? Do you have frequent flyer miles (accounting)? Where are you going (termination point)? Are you flying first class, business or coach (class of service)? Substitute telecommunications for the airline and think of IP packets as the passengers, and you have the state of IP networking today.
So, if you are an IP carrier executive, start by eliminating this adage from your list of one-liners: “An IP packet is an IP packet, no matter whether it’s carrying voice, images or video,” and at least have a vision of how the airlines view their passengers when thinking about value-based IP billing. Your challenge is to treat packets as airline passengers—and hopefully to do a better job of it when it comes to customer satisfaction.
Settlements and IPDR.org
Regarding settlements, the IP carrier community is starting from square one. The big Tier 1 IP backbone carriers (UUNet, Sprint, and so on) exchange IP packets with each other on a bill-and-keep basis: I’ll keep the money from my customers (retail ISPs and corporate users) and you keep yours, and we’ll just exchange IP packets at network access points. Tier 2 or smaller backbone providers pay transport fees roughly based on access speed to the Tier 1 players.
Not only will IP carriers have to deal with usage-based IP clearing and financial settlements due to the increased QoS (bandwidth) requirements, but a new set of players—content providers and packagers—will want to be compensated as well. More important, the IP settlements process will remain at square one without a standard IPDR.
Storage and Processing
Storing and processing voice call detail records (CDRs) is not a trivial problem. But doing the same with IP detail records (IPDRs) for the equivalent IP value-added revenue stream is probably not even doable today, given the projected cost of storage and carriers’ approaches to the task.
Consider the CDR life cycle for a circuit-switched voice call. This little 200-byte record has to be archived for seven years (remember the saga of Clinton/Lewinsky phone calling evidence?). CDRs also have to be rated and again stored; billing invoices are stored; bills to customers are stored; invoices are sent to the taxation department for processing and are stored for seven years; and on and on. Now consider a carrier with subscribers making a handful of calls per day. The 200-byte CDR per call, repeated and reprocessed, generates a gigabyte of data per day to be archived for years for a modest size, million-subscriber carrier.
Now come IP value-based business services. The voice user now generates a half dozen IP value-based sessions per day. Each session is different, different IPDRs, recorded multiple times on various routers, using rating tax tables that differ per product, and on and on. They are further complicated by differences between QoS requested and actually delivered. Finally, you want to have the archived data accessible and understandable to the customer service representative on the phone with an irate customer, who doesn’t understand their $500 IP value bill, denies anyone in their household subscribed to these IP sessions, and wants an immediate credit.
The bottom line: Billing or IT department budgets will skyrocket unless a new approach to IPDR storage and processing management is undertaken in this new era of value-based IP billing.
Regulation
The regulators, courts and legislators have just begun to deal with IP content delivery. Napster is problematic because of billing—or actually, lack thereof. How are the regulators going to handle IP content interconnection issues? “No, your content can’t be delivered to my IP customers because I can’t interconnect or do financial settlements with the IP carrier that serves you.” Or: “The content you just delivered for a one cent fee contains live voice, so you owe access charges of two cents per minute because its deemed long-distance voice.” Or: “A new IP commerce tax law has passed and you’ve got to add tax to that value-added IP service, collect the tax, and turn it over to your county, state and/or federal government.”
Bottom line challenge: When planning value-based IP content, assume the future government-mandated charges will be as complex as what’s on a consumer phone bill today and more.
Rating and Mediation
The key to success in the new era of IP value-added service starts with IP rating and IP mediation. Pricing and service packages have to be flexible, given the diversity of what could be defined as content. The business process must be incorporated into the billing process, which means that it must be simple enough for the marketing department to manage.
Finally, rating and mediation have to be distributed and as close to the network as possible. It’s highly likely that when 3G and next-generation IP-enabled cable TV set tops hit the market, the rating engine will be in the hands of the end user. In no other place will it be simpler for the user to see if the network (DSL, cable or 3G wireless access) can support the requested service (is bandwidth available now, and what quality of service is possible now?) and let users know ahead of time what it’s going to cost before they hit the send button.
This Is an Information Service Business
The most difficult challenge for IP carriers entering the IP content business is that they don’t understand the information or entertainment business. John Malone (TCI, now AT&T Liberty Media Cable) and Ted Turner (CNN and now AOL) made billions because of communications satellite technologies. John Malone recognized satellites could deliver new content (HBO) to cable TV subscribers, content they couldn’t get over the air. Ted Turner recognized he could get higher advertiser rates on his Atlanta UHF TV station if he could use satellites to get his programming on thousands of cable systems. Meanwhile Comsat, the experts on satellite technology, lost hundreds of millions trying to launch a direct TV satellite service to the home—not to mention the hundreds of millions Bell Atlantic (now Verizon) lost developing a video to the home service (Stargazor) via copper loop DSL in the early 1990s, and the hundreds of millions other RBOCs lost trying to enter the video business.
Bottom line: Experience shows that the information services business has to put content first and technology second. Carrier executives don’t know a thing about business information and consumer entertainment services. Before IP carriers start investing the big bucks needed to bill for IP value services, they had better bring in the right mix of information and finance transaction expertise and put them in charge—a challenge to some carrier CEO’s ego, to be sure.
Two closing points. First, the only constant in this space is change. Second, success with IP value-based billing will be technically challenging. Billing World will keep you updated on what’s going on, and if you need to understand more about IP network technology, check out our Web site www.telestrategies.com for seminar offerings. Finally, if you want to see what 200-plus billing vendors have to offer, join us in Orlando on June 25-28 for Billing World 2001.