Tomorrow’s interconnect systems will go beyond simply enabling one network operator to do business with another. They will have to be both metering tools and central decision support repositories for business planning.
Deregulation, privatization and advancing technology have fostered fierce international competition among carriers. Rivalry among LECs, IXCs, long-distance operators, international operators, VAS providers and ISPs has set the wheels in motion for a slew of value-added services. And for those, the negotiation of interconnect agreements and the billing and verification of interconnection charges are becoming a key part of survival.
It is inevitable that with the emergence of new offerings, such as SMS, GPRS and WAP-based services—traveling either over signaling networks or GSM data channels—current interconnect agreements will have to give way to more flexible and intricate solutions. Already in Northern Europe, as much as 10 percent of revenue for operators is attributable to SMS over signaling networks.
Not to mention that interconnect agreements will join many more players than ever before.
Dynamics of Interconnect
With the emergence of so many new players, two types of interconnect billers are surfacing: wholesalers (carriers’ carriers), and their customers—usually Tier 2 players, many of which have just recently received licenses under deregulation. In Germany alone, 30 new licenses have been issued.
“First, you have the wholesalers, whose objectives are to buy bandwidth at ‘x’ and sell it at ‘y,’ making a margin in the middle,” according to Saville business analyst Felim O’Neill. “To buy at ‘x’ and sell at ‘y,’ it is important to know at what level your operating costs are for each of your routes and connections to each partner telco. These players can’t profit unless they fully understand their margins.” This strategy, he notes, “demands that interconnect systems be based on a bandwidth-oriented model that supports advanced reporting and data mining.”
At the next tier down, carriers will deal with a much more “granular” type of interconnect accounting, according to O’Neill. “That means it goes beyond the occupancy of routes, and onto services,” he notes. “One operator using VoIP over a private, in-house network will require class-of-service information, as well as data describing distance in kilometers. In the area of GSM settlements, billing systems have to handle TAP [transfer account procedure] files, which are prerated for roaming customers.”
Out with the Old, In with the New
These and other intelligent network services will have a major impact on operators and their networks. Traditional intercarrier billing platforms are ill-prepared to handle these new requirements, as almost all traditional interconnect systems are currently driven by CDR-processing.
“Many traditional settlement agreements were based on some type of declaration, and discrepancy checks were roughly done,” says Adrian Horodniceanu, product manager at Amdocs, which offers intercarrier settlements. He notes that with traditional systems, it was not uncommon to have settlement discrepancies of 5 percent to 10 percent. “But with so many carriers and services emerging, this will no longer be acceptable,” he believes.
In the past, signaling between incumbent operators was free, and traditional billing systems sufficed. “But now, with SS7, for instance, we must carry traffic for operators lacking the fixed network,” says Laurence Leopold, product manager for SS7 services at France Telecom. “Now we have to download links and add new ones to handle not only voice calls, but increasing roaming messages for the mobile sector as well. The burden will increase as WAP and GPRS take off, which will have a huge impact, as traffic will either go over signaling networks or GSM data channels.”
This will inevitably lead to significant changes in international interconnect.
“Carriers will have to avoid having separate billing mediation and NMS mediation systems,” warns Avichai Levy, vice president of marketing for TTI Telecom, an Israeli-based developer of network management system (NMS) and OSS systems for 70 large carriers, including ATT, Sprint and Telefonica. TTI Telecom, through its Netrac interconnect system, provides fault, configuration, accounting, performance and security management for wireline, wireless and SS7 networks.
Carriers need one network mediation system that can collect events, statistics, CDRs and SS7 data, thus enabling real-time data on open calls. TTI’s move to reformat CDRs for real-time traffic management signifies the next wave, according to Levy. The key, he says, is OSS and BSS integration, which “will eliminate the need for fault management from one company, SS7 from another, configuration management from another, and performance management from yet another.”
Also with strong roots in SS7, Inet has built diagnostics equipment and network-based products that extract raw SS7 data and correlate and aggregate it in order improve revenue assurance applications, according to Kevin Keough, vice president of marketing. “Lately we have had to move beyond network operations variables like bandwidth of SS7 links, and local number portability. Now carriers demand the transfer of data for revenue assurance, QoS, SLAs for reciprocal compensation,” says Inet’s Samir Marwaha, director of marketing strategy.
State of the Market
The majority of global carriers do not have up-to-speed systems. “We calculate that of the roughly 500,000 operators around the world of reasonable size, only about 130 have implemented true interconnect solutions,” notes Caroline Bloomer, senior associate consultant with Chorleywood Consulting, which is assembling a report on next-generation interconnect. “We still see carriers using manual spreadsheets and meter pulsing.”
But as carriers take on more partners, and agreements become complicated with discounts and penalties, or when pricing rating involves element-based conveyance, the market opens up, especially for cost-based pricing interconnect systems. As a result, interconnect companies have reported an increase in RFI/RFQ/ITT activity over the past few months. Currently, about a 17 suppliers claim to have interconnect billing systems (see sidebar “The Interconnect Players”), although many offer what is essentially an interconnect piece to a retail BBC package.
A handful of vendors have developed systems that address the next generation of settlements. Most are dedicated to interoperator settlement—they are not built into or added onto another system. Some claim to offer roaming billing support, although as of press time none had announced any contract wins.
According to Chorleywood’s research, the market leaders—as measured by installations—are Intec, with approximately 50; BT’s Telenor, with about 40; EHPT, with 20 to 25; and ICL, with about 20.
However, with the advent of interconnect service bureau and ASP business models, breakouts of the installed base are becoming a less viable measure of vendor dominance. “For example, Savera Systems’ InterCarrier system has one installed base with an ASP model, where a single installation is supporting 17 different European Union countries for a carrier with multiple presences, in several countries across Europe,” points out Tunde A. Onitiri, managing partner at Astir Strategic Consulting. Astir recently released its “Product Profile Analysis Report of Interconnect Accounting Systems,” which breaks out some of the top vendors according to functionality (see Figures 1 and 2).
The Cost
Carriers are looking for ways to both optimize network performance and introduce innovative services—all while keeping operating costs at a minimum. That’s been difficult with traditional interconnect, which generates up to 75 percent of carriers’ operating costs. However, new strategies can allow carriers to turn interconnect into a significant source of revenue, and competitors into profitable customers.
Of the leading systems, the mean cost seems to be a minimum of $180,000 for a small dedicated system handling a low daily CDR count, according to the Chorleywood report.
The cost is worth it, if better management of interconnect processes leads to significant savings. “Carriers can experience a 1 percent reduction in interconnect charges, which leads to a 10 percent profit improvement on a route by providing data to facilitate cost control of interconnect traffic,” according to Saville analyst O’Neill.
Boosting profitability by reducing operating costs and interconnect charges is as imperative as growing the business revenue/margin, Onitiri believes. “Speed by which to make intelligent interconnect business decisions and negotiate favorable interconnect agreements is key.”
Because the market is in its infancy, there is a lot of room for maneuvering when it comes to cost. “There’s a lot of horse trading going on. If Intec is undercut by EHPT, there will be flexibility in the licensing costs quoted to prospective customers,” says Bloomer, who notes that interconnect cost should be proportional to the financial sums handled by the system.
“If interconnect out-payments are $100 million per annum, and likely to increase year in year as traffic increases, plus there is revenue from interconnect that is less—but nonetheless significant—an operator ought to be able to justify, intrinsically, a large investment into a billing solution,” Bloomer contends. “So, if an operator spends $700 million on a retail billing system, it is probably reasonable that it should spend a comparable sum on an interconnect billing system that handles far fewer ‘customers’ but handles bills and ‘virtual’ bills [verification reports].”
Get What You Pay For
From a business viewpoint, interconnect systems should have adjunct functionality, such as least-cost routing, network capacity analysis, price/margin analysis and data warehousing/mining analysis, according to Onitiri. “These must either be an integral part of the interconnect accounting system, or have seamless access and operability from an external system,” he adds. Saville’s O’Neill further identifies functionality (see sidebar “Key Interconnect Functions”) and key components as:
? Delineating market segments and defining services that are open to competition
? Market entry procedures and licensing
? Legal contracts, including service level agreements, between operators for inbound and outbound services
? Physical connection of one operator’s network to another
? Provisioning of capacity on another network in response to customer demand
? Billing another operator for carrying its customers’ traffic onward
? Paying another operator for carrying one’s traffic
? Making a profit from the difference between the operating cost of wholesale services and the resale service price
? Operation and maintenance procedures for diverse activities, such as community rating, emergency services and number portability between operators.
3G Issues
Standards are still in the works, so carriers would be wise to track how vendors of interconnect accounting systems will address 3G services.
The standards-making process for 3G (UMTS) has been slow. Carriers need to follow how some issues will pan out, such as how to have seamless hand-over of multimedia sessions from a 3G network to a non-UMTS network according to Tunde A. Onitiri, managing partner, Astir Strategic Consulting. There also is the issue of how 3G services in the home network of a subscriber will be mapped onto services of another operator when the subscriber roams into another network.
As in the past, next-generation interconnect functions will add up to the ability to determine who owes what to whom. Therefore, rating, audit and reconciliation for traditional and emerging services will be as imperative as ever. However, tomorrow’s interconnect systems will evolve beyond being back-office OSS, as they also will become central resources capable of determining future business strategy.
ITU SETTLEMENT MODELS
The market for ITU settlement systems is a strange anomaly, in that few suppliers are targeting it. InterConnect (EIC) from Telesens (a player in Israel and Germany) is one of the few doing so. “This settlement process, after all, ought to have disappeared … if the WTO and other bodies had their way,” contends Caroline Bloomer, senior associate consultant with Chorleywood Consulting. “However, ITU settlement is being used inside the EU between operators in neighboring countries—if the incumbent former PTT can get away with it.”
Indeed, the EU has been loose with regulation in this area, but eventually, Bloomer believes, cost-based settlement charges will rule, as carriers will have to prove their costs are not excessive.
Also, according to Astir’s Onitiri, the CODIFI settlement method is one to watch. “EHPT SETTLER and InterconnecT from Intec Systems both support the CODIFI settlement method, which may become a trend,” he says. Thus far it has been implemented in Spain, but he expects it will be accepted elsewhere as well.
Regarding the future direction of interconnect, “It is likely that regulatory authorities will concentrate on ensuring the equitable provision of specific network connectivity or functionality, presently controlled by a single party, to others,” contends Kevin Turner, product manager at BSW Telecom. “The current emphasis on ensuring wide-ranging interconnect offerings based on services will change. Regulators will shift their attention to standardizing the introduction of new services, and ensuring service quality in the IP and mobile arenas.”
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