Trends 2005: Telecom Industry Placing Its Bets on the Future

Leaders in the telecom industry gathered at TeleStrategies' Billing and OSS World Conference and Exhibition in Philadelphia in May. Discussions on the show floor and in sessions during this three-day event revealed the latest trends in the telecommunications industry. Here is where Billing World & OSS Today believes the telecom industry is headed:

Increased Focus on Customer Satisfaction

Today's telecom industry is shifting from the mass-market land grab for customers to a focus on customer satisfaction. They want their service and their brand to be king.

Operators are focused on how to differentiate themselves, target their market segment and find better ways to understand their customers, and through this deliver better customer service and customer satisfaction. The goal is to become the sole provider of all services to an individual customer as a way to drive up customer loyalty and combat churn.

A billing expert at one major provider says that the company's primary goal is customer retention. The J.D. Power and Associates rankings are on every provider's mind. In conversations, they will cite the industry rankings, and no one wants to come in last for customer satisfaction. If they fail to perform in customer satisfaction, they know they will lose big to other providers.

Keeping the customer is extremely important but, surprisingly enough, providers are just now starting to realize it. They cannot afford to throw money at customer acquisition costs only to lose it to poor satisfaction before recovering what they have invested to win the customer. Providers are starting to see the customer relationship as just that—an investment—so they will focus time and money on this in the next year to improve customer satisfaction.

As part of this effort, providers are moving more aggressively toward enabling customers to self-manage an account or relationship with the provider. In subscribing to services, customers want the full end-to-end flow. This includes everything from shopping for products and services to self-ordering and provisioning to being able to monitor trouble and account status.

Increased Focus on Customer Care

To effectively manage customer care, providers must align their systems to offer bundled services and manage them as single relationship. However, today a customer who subscribes to many services from a provider likely inherits a separate account number and identity for each individual service.

Gone are the days of silos in which operators could offer services individually and apart from one another. If one customer orders many services, that customer must be treated like one customer, and not how providers have managed this scenario. In the race to be the customer's sole provider for multiple or all services, yesterday's fragmented and disparate billing and OSS environment simply will not do.

The provider must focus on customer management. This means customer information cannot be distributed across different billing platforms and OSSs. This traditional environment is beginning to become a nightmare for providers who want to offer a much more unified experience.

Yancy Oshita, senior director of global communications, media and entertainment industries at Oracle Corp., says that this shift in customer care will ultimately have an impact on the underlying data facilitating OSSs. Customers will demand a total view of their relationship with their service provider, and providers will be forced to piece together customer profile information that accurately reflects the full value of the customer. This would be a struggle for most providers to accomplish today.

Oshita says providers are now starting to demand account information organized by household versus by the traditional way—by phone number. If providers can view this information by household, they can better manage the relationship and better market to their customers. But "it's a lot more difficult than it would appear," Oshita says.

We will see operators begin to piece together their systems to provide a single user experience, versus one in which each product or service represents a separate and distinct customer experience. Customers do not want that, and providers who maintain this type of environment and experience for their customers will only expose the nature of their tangled web of disparate back-office systems and drive customers elsewhere.

The MVNO Question

The industry is abuzz with the potential of mobile virtual network operators (MVNOs). MVNO revenue is predicted to rise from $2.2 billion in 2004 to $23 billion in 2009, according to the ARC Group (see "MVNOs: The Next Gold Rush?" Billing World and OSS Today, May 2005).

MVNOs are clearly interested in expanding their brand name to the wireless domain, so vendors are moving to support them.

Formed around niche brands with a targeted and often established audience, MVNOs represent possible revenue streams for software vendors who are scrambling to support these new providers. The hope is such that it has spawned a new acronym within the industry: MVNEs, or mobile virtual network enablers—the companies that develop software for the needs of MVNOs or support them through outsourcing.

In June, Convergys announced that it will be working with MVNE Visage Mobile to support ESPN Mobile, an MVNO scheduled to launch in early 2006. Convergys and Visage Mobile formed an exclusive partnership in 2003 that includes Visage's carrier gateway and Convergys' billing and rating software.

But some questions are looming about MVNOs and the two models they have presented thus far. The first model entails wireless operators opening up their network to manage billing and OSS for the MVNO. The second model involves MVNOs deploying and managing their own billing and OSSs instead of relying solely on the service provider.

At their inception, the original intent of the MVNO was to fly light and solely operate as a marketing machine capitalizing on a brand name and targeting a niche market. But the market segment is evolving, and now MVNOs are taking on more of the customer management aspect themselves. Virgin Mobile Canada, for example, has employed Oracle's complete CRM and customer care systems, proving that being an MVNO is not just about the brand, it's about controlling the customer information as well.

But the question remains: How involved in the back-office quagmire do MVNOs really want to be? Would they prefer that the carriers whose networks they ride on support this functionality for them? Or will they outsource to MVNEs?

If MVNOs want the latter, it is argued that wireless network providers cannot support their MVNO customers. They are not set up to be a wholesale biller, nor are they set up to sell their OSS/BSS assets, so this leaves the MVNOs stuck to perform these functions on their own. But what network operators may not be able to do today represents a significant opportunity for them. Certainly, it would be to their advantage to move into this area, but they do not currently have the right pieces in place. Either way, there must be some system changes and enhancements among network operators or MVNOs.

Some argue that if MVNOs prove to be highly profitable, their network providers will want to step in and tap into this revenue by competing with these virtual operators, but other suggest that they will continue to embrace MVNOs to drive network capacity.

For MVNOs, the network is only half the battle. The other half is the OSS/BSS—and how this will play out remains to be seen.

Self-Care a Must

All providers face a constant battle to trim costs in their contact centers. They continuously wrestle with bill layout to minimize the confusion that prompts calls to live agents—a major cost. Previously, providers had set their sights on electronic bill presentment and payment as a way to trim mailing costs and decrease days sales outstanding. Now, providers are placing their bets on self-care.

Case in point: In June, while Verizon was offering DSL for $29.99 per month, SBC launched a residential DSL offering for $14.95 when subscribers signed up online. Sprint was offering $3.00 off per month for the first year to subscribers who signed up for DSL online. The message from providers is clear: Subscribe online and they will pass the cost savings on to the customer.

Providers like BellSouth are employing technologies from companies such as ClickFox to analyze their Web traffic and enhance the online experience. The goal is to prevent failure at the point of bill payment, or to mitigate questions that arise in the online experience that stop a self-care attempt in its tracks and drive customer calls to the call center. BellSouth is saving millions of dollars a year by streamlining its online self-care processes. When providers analyze IVR usage patterns and improve them to halt calls to the call center, the savings are even more dramatic.

Self-care ultimately also goes back to the idea of customer satisfaction. If customers want to manage their own accounts, order their own services and pay their bills online or via an IVR, then let them—and the provider saves money at the same time.

The Move to IP

Fixed and mobile convergence and IP are hot.

IP is steaming along with tremendous momentum, as companies routinely announce their intentions to move to an all-IP network. They are readying their networks and back-office systems for this conversion. If a company does not have its own IP game plan in sight for the next 6 to 12 months, it will likely partner with another company that does to get to market, and then build out its capability later.

For example, as part of its 21st Century Network (21CN) initiative, BT announced in April the vendors it will use to move to an all-IP infrastructure, stating it will invest up to £10 billion for the project in the next five years.

Some believe that BT is taking a big risk with 21CN, even though the company may save £1 billion by consolidating its systems via convergence. OSS Observer analysts predict that the large OSS contracts from the BT initiative will not appear until a significant portion of BT's network build-out is accomplished.

Thinking aggressively, some estimate that in the next five to 10 years, everything will ride over IP networks and IP will successfully displace the circuit switch. For some time there will be a dual environment, as the industry makes the transition to future IP networks, but it will be just a matter of time before providers get rid of their Lucent and Nortel circuit systems and replace them with softswitches. At that point the systems tied to the circuit world will be pushed out. This will increase spending in the OSS realm, since OSSs are more tightly tied to the network.

John Trembley, director of strategic planning, for TimesTen, recently acquired by Oracle, classifies the growth of services like VoIP as "meteoric." Trembley says that VoIP and 3G will be clear drivers that lead providers to seek new OSS/BSS to offer these services.

OSS Observer's Patrick Kelly predicted that commercial OSS spending to support VoIP services will increase from $17 million in 2004 to $620 million in 2009 (see "VoIP Strategies Emerge in the Cable Industry," Billing World & OSS Today, April 2005). The IP Multimedia Subsystem (IMS) is just one more example of the shifting nature of today's networks, where convergence is king.

Nokia's Olli Oittinen, vice president of networks, sees fixed and mobile convergence as "a tremendous opportunity for the industry." In June Nokia announced a contract with Finnish operator Saunalahti to deliver a full suite of technology for a converged network based on IMS to enable SIP-based multimedia services such as video sharing and push to talk.

Nokia also announced it will continue to work with Avaya to develop fixed-to-mobile convergence applications offered on a dual-mode device that will allow a user to make calls via mobile and wireless local area networks.

Focus on Next-generation Mobile Services

Next-generation mobile services will lead the pack on innovation, but this innovation will be useless if wireless operators cannot adequately provision and bill for these services.

Providers will look toward content and data to increase ARPU, and in doing so they will offer new services whose pricing models are untested. Traditional rating and billing systems will probably not be able to facilitate the new pricing structures as well as the partner management and revenue settlements required for these services, so providers will seek out more flexible systems to manage content services.

As one example of this, Swiss telecom provider sunrise deployed CSG Kenan Revenue Settlements to manage its complex content partner relationships. The software includes easy setup and individual partner detail viewing. Content providers can see account and contract information, as well as legal agreements. Service providers can track revenue and manage content partners based on individual agreements and by logging the content volume purchased from an individual partner. Since employing the revenue settlements product, sunrise has cut processing time for partner statements from 3 days to half a day.

Free or flat-rate billing for content may appear as services are initially rolled out while providers are working through the technical aspects of billing, but eventually providers will need flexible systems that can bill for any type of content with any type of pricing mechanism.

Providers will need OSSs that can manage and provision these services in real time. They will require and ways to mitigate fraudulent use. In Ho Shin, director of platform infrastructure development for SK Telecom, points out that authenticating subscribers will become more important as high-value and high-price services increase.

Existing OSS/BSS prohibits the service-oriented architecture needed to support next-generation offerings. Systems will have to speed their evolution to deliver on providers' future needs.

Content Pushes Prepay

Supporting a real-time billing infrastructure is becoming more critical for giving service providers better control over service usage and accounting. Offering higher value services such as content increases the financial stakes. Thus, prepay becomes more about financial management and less about servicing the low-value, high-risk or credit challenged customer.

Moreover, customers will demand better control over their budgets, and they want tighter control over sub-account users such a teenagers using wireless phones with text and picture messaging and game downloads. Likewise, if mobile content is dominated by the "3 Gs" (girls, games and gambling) that SK Telecom's In Ho Shin predicts, then parents will likely want to restrict teen access based on raciness of the content as well cost.

In addition, enterprises will benefit by placing both pre- and postpay capabilities of employee mobile phones on one account.

For example, Comverse's Group Plan Manager allows users to share balances on group accounts for voice and data services, enabling a group manager to define and modify spending limits and block access to certain services.

As well, companies like Ace-Comm and bcgi are putting control of mobile service usage in the hands of the subscriber. Ace-Comm's Parent Patrol allows parents to log in and set rules via the Web in both pre- and postpay environments. The tool allows parents to limit a child's mobile phone usage to specific hours, for example, or to block certain services, such as SMS, during school hours. Parents can also create exceptions, such as calls to 911 or to the parents themselves.

Bcgi's Mobile Guardian product also allows operators to give control over service access to parents and enterprises by controlling such parameters as overall usage allowances.

Consolidation Continues to Constrict Industry

The telecom industry continues to face serious consolidation.

SBC Communications has launched a $16 billion takeover of AT&T Corp., and Verizon prevailed over Qwest in a head-to-head bidding war to win control over MCI. Sprint and Nextel announced their intention to merge in December 2004 to form Sprint Nextel.

Oracle's Oshita says consolidation "will [have] and already is having an enormous impact specifically in the OSS space."

Consolidation brings a plethora of opportunities for consultants needed to help formulate migration paths for merged systems. For some providers like SBC, born out of parent company AT&T, the genetics may be the same: A lot of SBC's billing systems were clones of the original AT&T systems and exist today as legacy systems with new products layered over top of them. Although a consolidation effort would pose integration challenges, the legacy systems are still fundamentally the same. For other companies not from the same womb, consolidation will be tougher.

Oshita notes that providers are seeking to consolidate their operations internally, and many are pushing to have a single ordering system. They simply do not want to skip a beat when they merge or acquire other companies. Oracle itself has worked with more than 13 companies to provide single order management capabilities.

The shrinking industry does not bode well for independent OSS/BSS developers who rely on an industry ripe with competitors. Fewer providers represent fewer opportunities; yet, the shift to IP occurring simultaneously may counterbalance the ill effects of industry consolidation. Interestingly, though, new OSS companies are emerging with funding in tow: Arantech, Invocom, Ipanema, Psytechnics and West Ridge, to name a few.

Billing and OSS Spending

The pressures of emerging services are driving spending on the guts of OSS. Providers are focused on the difficult problems—those that are above the network and below billing. These include the core OSS such as mediation and provisioning.

In OSS, any product that enhances customer processes will be in demand. Order management, provisioning, inventory management, resource management and activation are being sought out, and on the customer care side, CRM, analytics, call center and trouble ticketing systems will all be needed.

Some spending is also on hold. Though IPTV was all the rage at SuperComm—with Microsoft's IPTV platform demonstration, and its announcement that T-Online France would trial the software for its triple-play offering—some suggest that IPTV will be on hold in the United States because the multitude of franchising authorities will delay wide-scale rollout. Smaller providers might be able to tackle the fewer franchising entities they need quicker than the mammoth players, but big spending on OSS/BSS for IPTV will largely be on hold because of government regulations.

Spending on traditional CDR-type billing and rating will decline, but other areas in billing will be hot. Event-based rating and charging, interconnect and partner settlements will continue to drive billing spending as providers look to the future.

Billing experts in the trenches at providers say they are not seeing a decrease in billing spending, but they still feel the pressure to do more with less and continue to cut costs. Customers want more detail and more services, and providers must find a way to deliver new detail or services with the systems they currently have.

A billing professional at one major provider says that typically a customer will ask a provider to support specific functionality. The provider will put in a quick fix with a long-term plan to buy the functionality down the road. As additional customers also demand the same functionality, the provider will price it into its revenue stream and spread the cost of employing a new system out among the clients demanding the new capabilities.

Providers are placing their spending bets carefully in a radically changing environment. The industry will certainly see some pioneers cutting their teeth on next-generation technology and taking a big gamble on their vision of how the future will be. Whether others follow suit with the same vision in mind will depend on the success—or lessons learned—of those who take the initial risk.