Editorial : Billing & OSS World 2004

Billing & OSS World 2004 brought more than 1,500 industry professionals together in Washington, D.C. in May. Four days, 100+ exhibitors, many cocktail parties and some 60 sessions later, it is the best place to figure out what’s going on in the OSS/BSS space relative to years past, and what’s on the horizon. This article gives my top takeaways as a session moderator and presenter.

What’s Hot and What’s Not?

Integration is hot. At the kickoff session, senior billing executives from Verizon, Nextel, Sprint and Virgin Mobile candidly shared their views on spending trends and OSS drivers. One of the undercurrents that caught my attention was the issue of integration. OK, integration has always been at the forefront of billing/OSS challenges—so why the sense of urgency now?

The difference from years past is that larger operators are no longer implementing silo solutions. Nor are they buying end-to-end replacements. Instead, they are adopting enterprise architectures that require fully-integrated OSSs composed of many modular subsystems. As a result, service providers end up managing a significantly larger number of integration points between systems, as well as managing a larger number of touch-points to the operating groups that interact with those systems.

The result is that the cost of integration accounts for as much as 90 percent of the overall project and is the leading cause of project failure. Service provides no longer want to bear this burden and have made it clear to vendors that the integration nightmare is also their problem. This means that vendors, up front, are being asked to show operators how they are going to integrate with their existing systems, provide compelling evidence that vendors have a well thought-out integration strategy that tackles the tough issues around inter-process communication, data models, etc., and bear some of the risk.

In all fairness to the vendors, this is a tall order because it means they must invest a lot of up-front time understanding exactly what systems and processes are in place now (many of which are homegrown), where the touch points are, what data needs to be exchanged, and how their system aligns with operator’s strategic architecture over time. What is refreshing, however, is that operators are now beginning to publish their OSS interfaces, processes and system strategies in part as an effort to clearly communicate their requirements to suppliers, as well as to align their internal operating groups. Personally, I think this is good for the industry, as it should open the Tier 1 door to smaller OSS companies and provide better overall OSS solutions.

So does this mean a windfall for the EAI vendors? Not really. When I asked that question to the plenary session panel, their response was that EAI played an important role, but the direction seemed to be towards Web services-based architectures as opposed to EAI frameworks from traditional vendors.

Service assurance is not. There was a lack of excitement around the service assurance space this year, particularly as compared to years past. Maybe it is because the IP services anticipated in the market just haven’t taken off such that QoS-based monitoring is required. Or, it may be that the networks are getting more robust and well engineered and hence, the core issues that drove interest in service assurance systems have obviated the requirement for them. Or perhaps there is more interest in Europe and Asia where many of the newer, value-added services have seen greater market success. But whatever the case, this area was noticeably quiet. Perhaps we will see this area reinvigorate over time with increased market success for “vulnerable” services such as IP-VPNs, VoIP and wireless data.

Mediation is hot. It is just amazing to see how many mediation deals are getting done these days. Comptel and Intec seem to be leading the way in wireline/wireless voice and measured data services. But, Ace-Comm and Openet Telecom are also closing significant business. This is in remarkable contrast to recent years where the hype regarding IP mediation faded, and the services and usage-sensitive business models surrounding IP never took off.

Nonetheless, I must admit that I am surprised by the growth in this sector because I don’t see operators’ investments being driven by new services, the traditional driver behind mediation investment. Instead, what seems to be happening is that operators are now investing in their usage collection platform as part of a consolidation effort of silo systems in place (home-grown, in many cases) and as a means to provide a single “platform” by which information can be distributed to various user groups within the enterprise.

I believe the last point is the key investment driver. That is, in the past, billing systems have been the primary consumer of mediated data. And this remains true today. However, now you see significant data requirements from business intelligence, revenue assurance, partner settlement, finance, interconnect, law enforcement, security, fraud, tax and other operating groups. Specifically, these groups are looking for fine, granular network usage information that is not only accurate and complete, but is available in a timely basis (in real-time, or reasonable-time). It no longer makes sense for each of these groups to manage the same usage data independently. As a result, mediation has become an enterprise service. I believe that’s good news, and it is a smart strategic investment by the operators.

Postpaid billing is not. I know what you’re thinking—post-pay billing isn’t hot? Is this guy crazy? Not really. What I observed is that many of the pain points that traditionally plagued billing systems regarding scale, integrating new services, bundling and supporting new business models, did not raise the amount of attention as it had in years past. I view this as good news. It means that the billing vendors have done their jobs, and the investment made in those systems by operators, which is ongoing, is paying off. It also means that there are good choices on the market regarding outsourced billing solutions, product solutions and managed service offerings (and I certainly believe there are). The net effect is that the advances in billing systems have put more focus and pressure around the support systems that support them.

“Cost-side” OSS spending is hot. The CFO and corporate board are now intimately involved with all expenditures; particularly OSS, since that is the second-largest CapEx item on their financials. In this circle, it is all about reducing operating costs as seen through the eyes of the spreadsheet. This means that the net operating efficiency of the proposed solution versus the current approach must show a break-even ROI in a 9-12 month timeframe against cost of the investment. To reach this goal, the OSS must offer very compelling efficiency improvements and reduction in OpEx.

So who’s winning the “cost side” OSS business? The two biggest winners are inventory management and revenue assurance. In terms of inventory, it is not uncommon to see operators with dozens of inventory systems in place—with the average accuracy rate of less than 70 percent. Inaccurate inventory is a big problem because in a modern operator environment, the inventory system provides critical information used by provisioning, service assurance and billing. Therefore, poor inventory creates order fallout, stranded assets, unnecessary truck rolls, delay in sales, poor service design, churn, SLA violations, poor network maintenance, and the list goes on. On the other hand, a good inventory system greatly improves the efficiency of an operator and lowers costs.

The second winner is in revenue assurance. In some ways, revenue assurance embodies the set of processes that ensure the accuracy of inventory systems. But it is much more broad than that. As network services become more complex, and the partnerships that support them increase in breadth, revenue leakage becomes tough to control. To the CFO, these are fat dollars in that any dollar recovered goes right to the top line. For operators with 15 percent leakage (the high end of average), shaving a few percentage points here can make the difference between profitability and free-fall in their stock price.

Other winners in this “cost-side” spending include provisioning and mediation—particularly in operators that have fairly dynamic marketing plans and frequently changing product offerings.

“Revenue-side” OSS spending is not. The ROI around the “revenue side” spending is quantified in terms of the increased revenue that the operator will generate with the new services that are supported by the OSS contemplated (presumably because the existing OSS can’t support the service type or business model, and hence needs replacement) against the cost of integration, license, migration, testing, training, etc.

A few years back, “revenue side” drivers were the top reason for OSS investment, particularly in IP, mobile data, broadband, etc., since those business models all broke the circuit-optimized OSSs. That is not the case today, except perhaps in wireless because that industry has proven the market success of emerging services. Other than wireless, it seems the industry just doesn’t have the stomach for OSS investment surrounding speculative services.

Antiquated OSS companies are hot. I know what you are thinking, but from an M&A perspective, companies with antiquated technology but an installed base have significant value. In fact, they can have a much higher value than the new technology companies with some Tier 1 success, but less than five years in the market (I learned this the hard way with my startup).

This is certainly contrary to the market a few years back. But it makes sense. Today’s bottom line is that a vendor’s customer base is king, revenue generation second, management third and technology last. Startups may have technology, and some may have good management teams, but you just can’t top the value of Tier 1 relationships. Why? Because that relationship is generating services/maintenance revenue today and, more importantly, it is an opportunity to up-sell both products and services over time. Remember, that antiquated system is going to need to be replaced, and the incumbent vendor who knows the interfaces and can show the cost saving ROI via new technology will win.

Startups are not. I didn’t find one new OSS product company since last year that is a serious, VC-backed company. I’m not surprised. Even the “established” OSS startups with very solid, innovative products and Tier 1 experience are barely hanging on (although, if they have made it this far, I think there is a good chance they’ll make it). However, I did see a number of companies that are services-driven pop up. That’s great news, because it is likely that they will productize some of that work going forward. Maybe next year we’ll see some of that work in product form.

Rating is hot. If you counted the number of times each OSS/BSS system was referenced throughout the show (e.g., mediation, activation, billing), “rating” was mentioned the most. Why? I think that operators’ business models are beginning to increase in sophistication such that they are going to need to perform usage-sensitive manipulation of transactions. Now I realize that consumers like simple, flat-rate pricing, and I realize that many of the value-added services have been more or less bundled in with traditional offerings on a flat-rate basis as a differentiator. As a result, rating hasn’t been an obstacle except in wholesale.

I think this will generally remain true so long as the context is transport/bearer services. But the new content offerings and payment models are changing this dramatically. Here, you see rating issues in conjunction will all the key emerging OSSs, including partner management, pre-pay, settlement, revenue assurance as well as the business models behind retail pricing of content offerings, where transactions will be accounted for individually.

The question is, where will operators buy their rating technology from? Billing vendors? Adjunct rating vendors? Mediation vendors? IN? SIs? Or, are there some surprises here? The answer is “yes.” But stay tuned. I’ll be addressing this question in a feature article soon.

Customer-focused OSSes are hot. This theme was repeated throughout by the service providers. Although the term “customer-focused OSS” sounds more like marketing spin than a technically-grounded concept, I believe the point is that operators are orienting themselves towards OSS solutions that directly improve their relationship with the customer and the customer’s experience.

I think the best way to illustrate this is through an example of a product from BCGI. The idea behind the system is to allow customers to tune their wireless service plan via the Web. For example, consider a family plan that offers shared minutes (note that 20 percent of all US wireless subscribers now belong to a family plan). Here the “account administrator” can dynamically allocate the available “bucket minutes” among the various phones on the account; hence preventing one user from hogging all of the minutes or collectively generating huge excess minute charges. What is also nice is that you can set policies that enable a phone to only call family members or home once the minutes for a given user have expired. Very innovative! Or, customers can “ground” their kids by restricting calls or other services. For example, you may think your kid is in bed at 10 p.m., but little do you know that they are sitting under their covers “SMSing” to their friends at all hours of the night. Solution? Restrict SMS usage to certain time windows and/or volume.

The point of these systems is that they don’t necessarily enable operators to offer new services. Nor do they allow the service providers to operate more efficiently. Instead, they allow the operators to better package and deliver their services, thereby improving the customer’s experience, utility of services and configuration of services. Now that sounds like a path to success.

Taxes are hot. Thanks to Uncle Sam and local municipalities, the issues surrounding taxes, fees and surcharges are out of control. Why? Because the tax law and guidance, regulatory viewpoints and history of telecom is grounded in voice service delivered monopolistically. In fact, many of the tax laws haven’t changed in over 20 years. Can you believe that? Twenty years! Think of how much has changed in telecom since then.

In today’s service environments, the distinction between telecommunications services, information services and enhanced services is so ambiguous that service providers don’t know which taxes/fees apply to their services. They don’t know how to tax service bundles. They don’t know who’s exempt (e.g., resellers). Finally, they don’t have any idea how to tax third-party content/digital goods. To make matters worse, even if they figure out what the right thing to do is, the regulatory and other guidance is changing so fast that it will probably change.

The result is that service providers are in a very difficult position. If they take an aggressive stance and don’t apply taxes, they may be left holding the bag three years down the road when the auditors come knocking. At 3 percent, that could be an awfully big bag! Or, if they take a conservative stand and apply the various taxes, they are faced with class action lawsuits from consumer groups.

The bottom line is that the telecommunications industry is the highest taxed services business in the U.S. (average of 17.9 percent effective tax rate, with over 300 applicable taxes). And now, the tax burden has become a barrier to the rollout of new services. I believe our industry has enough challenges! The absolute ambiguity and confusion around the tax law shouldn’t be one of them. Expect an article on this matter after TeleStrategies’ Telecom Taxes, Fees and Surcharges conference in May.

What’s Around the Corner?

From a “what’s next” perspective, there were a number of themes and innovative ideas that caught my attention.

Partner management. There has been a lot of hype in this area for the past few years. Certainly, wireless data and the interest in third-party games, audio programming, business applications, wireless entertainment, location services, m-mode, etc. has been the driver. The problem is, unlike in Asia and Europe, these services really haven’t taken off here in North America—at least not yet—and hence partner management could be done on an ad-hoc basis.

Much of the delay has been due to early-stage packet data infrastructure and legacy phones (2G). Also, American culture has not been as receptive to these types of services as compared to Asia and Europe. And finally, there was a rocky start between service providers and content suppliers. Each felt that their assets were more valuable than the other side’s, and hence seemed to be holding ground as opposed to making deals.

But there was a clear sense that this is the year for content. At least on the wireless side, the infrastructure issues are behind us. Aside from some battery issues, I can honestly say that the wireless devices today are astoundingly capable. In fact, Verizon Wireless will be happy to see that I have downloaded a POP3 mail client—and actually use it—and my 9-year-old daughter has discovered the games (again, and actually uses them on our commute to work/school). We’ll see how long this lasts once I get my bill. But the point is that the infrastructure and market has moved along, and early innovation is there.

Probably more importantly, however, is that the defensive attitudes of service providers have relaxed somewhat. On a recent TeleStrategies Webinar hosted by Portal Software, Microsoft and Hewlett-Packard, service providers were polled to determine what percentage of their content offerings will come from third-party suppliers. Their response was 90 percent or more. This is great news and is refreshing compared to the “walled garden” philosophies of the recent past. This is not to say it won’t remain a tough deal-making environment. It will because each party has a different risk appetite, the market opportunity is still not quantified, it is difficult to determine the value each party’s respective assets in the overall value chain, and because everyone is afraid of making a bad deal (remember, jobs and brands are at stake). But what is clear is that each deal will be different. So, the partner management infrastructure and settlement OSS developed by the billing and mediation vendors will increase in importance, and hopefully by next year we’ll see some innovative revenue share/deals between the entertainment and operator communities.

Active mediation. This is a new class of OSSes that has emerged over the past two years. Active mediation isn’t about traditional mediation processes like collection, correlation, filtering, CDR generation/repair, etc. Instead, active mediation is about managing transactions on IP networks much like a service control point does in the IN world.

For example, say a user wants to access a given resource, requests a certain bandwidth, etc. The network needs some way to authenticate the user, validate that they can utilize the service, provision the network and provide proper accounting support for billing and other business processes (particularly pre-pay). However, much of that information resides outside the network, and hence requires interaction with the support systems that master that information before the service can be activated. Active mediation systems are designed to support these transaction services in real-time, as part of call setup.

The most compelling example here is mobile content. Here, you have multiple accounting domains that must interact in real time before services can be delivered. Such transactions can include authentication, rating, advice of charge, authorization, acceptance, QoS configuration and possibly payment. Hence, the word mediation plays because multiple, disparate OSS systems are involved but are disjoint. “Active” applies because these transactions are not dealt with in the traditional post-pay billing process. Instead, they are interactive.

I believe that you are going to see many types of services emerge that require active mediation support. Music, games and mobile entertainment are driving the boat today. But, Cisco’s directory-enabled networking initiatives will require interaction with the accounting systems for such things as bandwidth on demand and in support of applications that bundle premium transport as part of the service. Pre-pay will also be a big driver here because the balance may not be managed at the network layer as in traditional IN platforms. Finally, the IP services contemplated by cable operators will create an interactive environment that, again, in which the transactions cannot be managed by an “after the fact” OSS.

The one element to the “transaction” equation is that inherent to the transaction is financial information. And that means rating. So, the question becomes is active mediation more about mediation or rating? I believe it is more about rating than mediation, but you can’t have one without the other. This is why you see almost every mediation company on the market investing in rating technology, or buying it. It is also one reason why the standalone rating vendors are struggling, as they don’t have the API and network interface expertise. I also believe that the post-pay billing vendors will have the most difficulty succeeding in this area unless they can successfully modularize their system (e.g. strip out product catalogs, CRM functionality, etc.) and re-engineer their products to be a true real-time transaction processing system. Not an easy challenge, particularly for the legacy billing vendors.

Device-enabled billing: One of the more innovative, forward-looking concepts in my mind is device-enabled billing. The approach here is to push most of the rating and balance management logic onto the edge device and use centralized billing/customer care system to manage the account. Think of DirecTV. Here, when you buy a pay-per-view movie, you talk with the set-top box. That device holds your balance and charging information until it periodically “checks in” with the billing system to upload charges, events and other information. It also maintains a product catalog.

So why look at edge-device billing now? The answer is that the best place to figure out how much service was used and the quality of service actually delivered to the customer is the end device. The best place to provision is on the end device. The trouble in the past is that devices were very stupid (think of your rotary dial phone; it was a major technology advance just to get DTMF capabilities going). But today’s environment is different. The mobile handset, for example, now has an operating system on it. And for all practical purposes, it is a general purpose computer with processing power similar to that of a 286 PC from the ’80s (did you know there are already viruses being discovered on handsets?). For next year, think Pentium speeds! The difference is that the handset (or set-top box) is a closed environment (we hope), so that real-time accounting processes can be isolated on the device and out of reach from users who would love to manipulate that function. And Microsoft is investing a tremendous amount of money into mobility.

The big win with the device-billing approach is that very complicated processes found in billing systems (IN, hot-billing, active mediation, etc.) can now be implemented much more easily. Specifically, a call control agent, rater and balance manager provides the functional building blocks required to implement a solution. If pre-pay, wireless data, content and other more sophisticated services continue their aggressive march forward (and I think they will), I believe we’ll see this approach getting increased traction because of its power and architectural simplicity. In fact, a parallel can be drawn between IP and circuit networks, where in IP the intelligence is in the edge device.

Of course, there is no free lunch. Product catalogs, rating, customer and other information need to be synchronized between the support systems and device. Further, this approach can be vulnerable to fraud. And finally, this type of shift in the back-office doesn’t happen easily. However, it is worth keeping an eye on. Expect more on this subject next month and some case studies from vendors in this area such as Telemac.

Adjunct product catalog. One of the biggest nightmares around integration is synchronizing the product catalog across all the OSSes that must have product information. Specifically, the situation today is that billing, CRM, service assurance, provisioning, rating, order management and other OSSes each need to maintain their own version (or relative portion therein) of the product catalog. As a result, each new service must be defined and maintained within each of these systems, thereby creating a huge maintenance and configuration nightmare for operators. This problem is exacerbated in a rapidly changing market because the management and operational overhead of keeping these systems on the same page can bog down the operations folks, as well as introduce failure points which in turn ripple into billing errors and service assurance headaches.

This has led operators and innovative OSS companies to explore the possibility of adjuncting the product catalog. Here, the idea is to centralize the product information into a standalone system in which the other OSSes source their respective product information from. The key benefit is that product information can be managed in a single place, not a half dozen.

The adjunct product catalog idea isn’t new. Others have tried this is in the past and failed. The reasons are two-fold. First, most OSSes weren’t designed, nor can they be easily extended to, load product information from an external source. The problem is that product data is so fundamental to how each respective OSS operates, that it is typically deeply embedded into those systems. Secondly, even if the various OSS were able to develop APIs to load and maintain product information, the data models used by each vendor are not easily normalized. Therefore, automating the distribution of product information may ultimately require manual intervention (and hence, defeat the purpose) or the master catalog will have to be watered down to accommodate the least flexible/capable system.

In spite of the challenges, I believe the industry will see some innovative work in this area. For example, ADC presented a case study with Virgin Mobile, and there are others out there kicking around the idea. The basic driver here is that vendors don’t want to compete on the robustness of their product catalog, so this issue is more of a pain point than differentiator. Likewise, operators want an integrated OSS for all the obvious reasons, and this is a barrier. So, over the long run I think that you’ll see vendor offerings pop up in this area from both startups and/or billing vendors. I also think you’ll see vendors opening up their systems to interface with adjunct catalogs.

Pre-pay. Not much has happened in pre-pay in North America beyond long distance/international calling cards. However, there seems to be increased momentum in wireless prepaid, and it is not completely about delivering services to the “credit challenged.” Instead, pre-pay is helping consumers manage their telecom expenses. That is, most telecom spending beyond voice in the U.S. has been oriented towards business—where postpaid works fine. However, customer bases now are branching out into new services and new user groups (teenagers). In each case, costs are unpredictable. Therefore, from a budget perspective, consumers may want new ways to control their exposure. In terms of managing your teenager – the best way is through a budget (prepaid). Likewise, pre-pay is the best approach to controlling discretionary spending for entertainment, etc. Finally, carriers love it because cash up front is always the best way to run a business, and flat-rate business models are not advantageous except for commodity items. I think you’ll find this credit model gain a lot of momentum over the next few years—particularly in wireless (where pre-pay is expected to double by 2006) and for the entertainment services to be offered via IP broadband.

Bill production and presentment. The customer bill—as boring as it may sound—looks to become a red-hot subject. Why? First, the bill is the primary medium by which the business relationship between the operator and customer is managed. So it is important to get it right. But this is getting harder because that relationship between customer and operator is becoming increasingly complex. Specifically, new services, charging models, taxes, bundles, pre-pay, SLAs, third-party charges, etc. all must be effectively articulated in plain language to the customer.

This is not as easy as you might think. In fact, producing a well-designed bill seems more of an art than science (in some ways, this is similar to a Web site). And the stakes are high, because a poor design means a call to the customer care center (at a price of $5 per call), a customer churning (at a price of $400 if you’re a wireless operator) or the customers procrastinating around paying their bills (thereby delaying payment and increasing the operator’s days billed outstanding [DBO] ratio).

The second driver is that bill production is expensive. We’ve seen compelling evidence for years in support of EBPP. But the fact is that most customers are still billed via paper. Therefore, anything that the operator can do to reduce the amount of verbiage and regulatory garble presented directly reduces the size of the printing bill and postage. I think this area hasn’t received the attention over the past few years because there were bigger cost centers to tackle. But nonetheless, DST Output and OSG Billing Services showed simple techniques that reduced production costs by 10 percent. That’s a big deal. Also related is turn-around. That is, every hour it takes from the time the bill cycle closes to the time the invoice is out the door costs the operator money. For large-scale operators, including wholesalers, reduction in their DBO by a single day can translate into a million dollars annually. Again, a big deal.

The bottom line is that customers hate bills, and operators hate producing the volumes of paper in support of the process. For that reason, I believe you’ll see more and more operators bite the churn bullet and go paperless. However, for the rest of the industry, I think you’ll see investment in systems that help streamline the production, as there are good ROI cases to be made. Further, I think you’ll see operators reconsider their perspective that customer bills are a report. Instead, I think you’ll see operators view the bill as a marketing opportunity that reinforces their brand, promotes offerings and improves their customer relationship. I think that’s smart—just make sure the bill is accurate.

Wrapping it All Up

Thanks to everyone who participated in the show. Although OSS spending has remained fairly flat, or perhaps down slightly over the past two years, Billing & OSS World 2004 was a remarkable success.

TeleStrategies is planning to host a number of conferences this Fall focusing on many of the topics discussed above including inventory, revenue assurance, rating/mediation, taxes, OSS for VoIP and others. Check the TeleStrategies Web site for information, and be sure to contact Jeff Sklaver (jsklaver@telestrategies.com) if you wish to participate, or Lynn Peyer (lpeyer@telestrategies.com) for sponsorship opportunities.

Finally, feel free to send me your comments if you strongly agree or disagree with my analysis above.

Dr. Matthew Lucas is Vice President of TeleStrategies, focusing on the OSS/BSS industry. He founded RateIntegration in 1999 and served as the firm’s President/CEO through 2002. He co-founded IPDR.org and served as President through 2001. He holds a Ph.D. in computer science. He can be reached at mlucas@telestrategies.com.