Billing Q&A with Jim O'Neill

Q—During the seminar “Understanding Telecommunications Billing,” you mentioned the term “open billing,” in which various service providers, such as long-distance companies, dial-around services and operator services may bill their customers via local exchange carrier bills. Can you explain in more detail how that works?

A—There are a number of models for open billing, which is a long-standing North American practice among landline carriers.

When AT&T was the only long-distance company, all long-distance calls, whether originated by subscribers of Bell System companies owned by AT&T or by subscribers of independent companies, appeared on LEC invoices. Settlement with the Bell companies owned by AT&T was managed with a division of revenues process, while settlement with independents more closely resembled the intercarrier settlement process in use today. When competitors of AT&T entered the long-distance arena, they too initially used LECs to bill on their behalf.

For a long time after the divestiture of the Bell companies, even AT&T continued to use LEC billing for the majority of its customers. Eventually, the larger long-distance companies like AT&T, MCI and Sprint developed their own systems and gradually took back billing of many customers. As competition grew, a whole industry evolved for managing the interface between service providers and LECs.

Today, in the most common model, a third-party clearinghouse will have contracts with certain service providers to manage their accounts and negotiate separate contracts with the LECs to be a common interface for all clients of the clearinghouse. This is particularly advantageous to smaller LECs, as it avoids having separate contracts with each service provider.

The service providers, who may be long-distance companies with dial-around services, long-distance resellers or operator services companies, in various ways capture the call detail records or services they wish to have billed by a LEC. Sometimes they rate them internally; sometimes they may have the clearinghouse rate them on their behalf. Eventually they are converted into EMI records, a standard format the industry uses for this purpose throughout the United States.

The EMI files are periodically routed to the clearinghouse for editing and possibly rating, typically formatted into an invoice page and assembled for further routing to the LEC responsible for billing the calling telephone number. Before number portability reared its head, routing was a simple process that used the NPA-NNX combination to determine which LEC was responsible for billing. Now the clearinghouse has to be sensitive to ownership at the line-number level, as individual numbers may have been ported to a CLEC.

Depending on its contract with the service provider, the clearinghouse will often immediately advance a portion of the amount due to the service provider. A portion of the remainder will be retained as a fee for services. The rest is usually retained as a bad debt holdback—a hedge against non-collectible revenues. Depending on the arrangements with LECs, the holdback may have to be tracked anywhere from 7 to 18 months. Once the LEC agrees, the remainder will be remitted to the service provider. The clearinghouse has to have a comprehensive settlement system to manage this process.

Periodically the clearinghouse will forward batches of EMI records to each LEC, keeping track of due amounts reflected in each batch and of the payments received from each LEC on behalf of the service provider customers. As noted above, the EMI records to be billed by a particular LEC may be formatted into a page by the clearinghouse that is included on the LEC invoice.

Should calls initiated by a particular telephone number be rejected by the LEC, the clearinghouse will examine the reason code in the returned EMI record and take whatever corrective action is possible. For example, a LEC might indicate that the number had been ported to a CLEC. If that clearinghouse has an agreement with the CLEC, it will initiate a billing name and address (BNA) query. In other cases, the clearinghouse will invoke its own or a separate third-party revenue recovery service, a process that will search various databases containing telephone number references. The objective is to relate a valid BNA to the rejected telephone number and, with this information, bill the customer directly on behalf of the service provider.

The FCC Steps In

In mid-1998, the Federal Communications Commission (FCC) met with a number of industry representatives to address the problem of cramming, the inclusion of unauthorized, misleading or deceptive charges on consumers’ local telephone bills. In relatively short order, the FCC implemented guidelines to prevent the defined abuses. These guidelines have had a significant effect on the invoice formatting process.

Over a relatively short period these guidelines evolved into the more stringent truth-in-billing rules. According to the FCC, “Consumer confusion over telephone bills has significantly contributed to telecommunications fraud such as ‘slamming’ (the unauthorized change in a consumer’s telecommunications carrier) and cramming.” To address this problem, in April 1999 the FCC adopted binding principles and guidelines for telephone bills intended to reduce fraud by making telephone bills easier for consumers to read and understand. These rules were expected, in turn, to make slamming and cramming easier to detect and report.

The rules adopted in the April 1999 Truth-in-Billing and Billing Format Order required telephone companies to:

• Identify the service provider and highlight on the bill any new providers that did not bill for service in the previous billing cycle for that service provider

• Provide full and non-misleading descriptions of charges that appear on telephone bills

• Provide contact information for customers to use in order to lodge a complaint or to obtain information about any charge contained on the bill

• Identify charges for which failure to pay would not result in disconnection of the customer’s basic, local service.

• Use standardized labels on bills when referring to certain line item charges relating to federal regulatory action, such as the Primary Interexchange Carrier Charge (PICC) and fees for local number portability and subscriber lines.

Most of these rules took effect in November 1999 and April 2000, although some did not because of reconsideration petitions and Y2K concerns. The provisions requiring highlighting of new providers and displaying contact information became effective on August 28, 2000. The only pending issues remaining from the Truth-in-Billing and Billing Format Order are the specific, standard labels for line item charges and application of the rules to commercial mobile radio service carriers.

The immediate effect of these guidelines was that many of the RBOCs, seeking permission to become long-distance carriers themselves, advised service providers that any violation of these guidelines would result in immediate termination of billing.

The author would like to thank Yvette Shipley of Billing Concepts for contributing to this column.