Jumpstarting a telecommunications business or entering a new market is fraught with risk. Given the number of new carrier entrants into telecommunications the last few years, apparently the risk is not daunting enough. Billing is without question a key to entering new markets. It has to be there, and be there right on day one. Billing, as the recurring point of sale, must show the carrier putting its best foot forward. The branding folks will be the first to tell you how vital it is to have clear, concise and communicative billing. Good billing goes a long way toward building brand equity. The finance folks will be the first to tell you how vital it is to have accurate and timely billing. Tight cycle times and accurate bills translate to an attractive accounts receivable ratio, a key short-term measure of financial health at any company. On the flip side, bad billing is a quick way to tarnish an image.
Some, but not all, service bureaus still have a vertical market orientation inherent in their offerings. But, even with all the talk of convergence between segments such as wireless and entertainment, most carriers are still themselves hammering away horizontally, trying to bring segments together through billing and customer management. Vendors such as LHS can support wireline, wireless, Internet, satellite and other services. The next-generation offering from National Independent Billing Inc. (NIBI), Write2K, will handle energy in addition to telephony (wireline and wireless), Internet and entertainment media, and will also offer licensing for in-house use. And today, CSG's ACSR and ESP products offer convergence across entertainment (cable and satellite), telephony and high-speed data.
According to Bruce Malmgren, president and CEO at NIBI, "NIBI currently can take a call from the network mediation processor or the switch, out through bill rendering, or can offer pieces, such as rating, or bill rendering only. We can also handle voice over IP calls, assuming they are in industry-standard call record formats (AMA, EMR)." Other vendors, such as Atlantax, may treat a specific part of the lifecycle, such as taxation. Atlantax receives call information from service bureaus such as Boston Communications prepaid wireless service, determines applicable taxes, and returns the tax filing information.
Service bureaus know that discounting and promotion capability is a key component to competing in today's hot markets. According to CSG's Liz Bauer, vice president of corporate communications, the CSG capability has a user interface to immediately tweak discounting based on customer/account type, frequent buyer, volume, usage-based, multi-service, and a combination of the above.
Besides offering toll clearinghouse services for billing, Illuminet also offers services such as ISUP trunk signaling, LIDB access and transport, and SS7 network connectivity for wireline, as well as IS-41 network transport, seamless roaming and cellular administration for wireless.
Illuminet's toll clearinghouse service, as with other clearinghouses, reduces the need for IXC carriers to have billing and collections (B&C) agreements with every LEC. The clearinghouse serves as the cog. Especially for low-usage market segments, this can be an attractive economic solution to a complex management problem - contracts with multiple LECs clear down to disposition of the uncollectibles. Settlements include taxes billed, collected and paid, and collections detail.
Build, Buy or Borrow
"Build, buy or borrow?" is the question facing the carrier staff tasked with developing or procuring billing and other business and network systems capabilities. Building a proprietary in-house capability, once construed as vital to attaining a competitive edge, is no longer necessarily so when factors such as time-to-first-bill-run at market entry are at the forefront of concerns.
Building a proprietary system is better suited to a resource rich, incumbent carrier anyway. But even then, with careful assessment of all needs-functional and economic-in-house development may not be the best way to go. Scope pitfalls abound-the infamous scope creep-- and the support gradient for dated technology leads to management and resource issues. Plus, the opportunity to interface to the abundance of next-generation vendor applications available today is weakened because little emphasis is placed on standards and concerns with external components. And the price tag is high-both in hardware and development capital and in recurring expense for support staff. Nevertheless, once this course is charted, some carriers are product- and cost center-oriented enough to make their capability commercially available to other carriers, through licensing and service bureaus. GTE, U S West, and Pacific Bell (SBC) have all followed similar courses.
Buying or licensing a system is a viable option for new entrants and incumbents alike-and a good one, especially as programming interfaces are better documented and standardized, scaleability fears are beaten back, migration paths become well traveled by vendors, and implementation lead times do a shrinking act. (Consider the recent Interpath Communications implementation by AMS of Kenan's Arbor/BP in 2 1/2 months.) The blessing, and the bane, of licensing software or using a service bureau today is the staggering number of available vendors to choose from, with probably 100 choices in the market today and over forty direct billing service bureaus. This makes a pre-selection process (such as platform, scaleability, and technical fit with overall enterprise architecture and human resource skill-set) vital well before the RFPs are sent out.
Using a service bureau, in a sense "borrowing" capability, is an increasingly popular choice for carriers, and often dovetails nicely into the licensing option as a customer base expands and transactions increase.
"New entrants and incumbent carriers entering new vertical markets and test markets should consider outsourcing to service bureaus," according to Mark Hernandez, vice president of information systems at U S West Long Distance. "A large investment in billing and other capabilities may not be the best decision until the business proves itself as fully tenable. This makes service bureaus attractive because the barrier to entry is minimized. However, if wildly successful, as is hoped, the service bureau option can get costly. It all comes down to dollars and cents." The U S West long distance overall enterprise architecture includes sixteen vendors and eighteen interfaces.
Few dispute that a high percentage of the service bureau business comes from new entrants, but a surprising number of embedded carriers use service bureaus for various pieces of the overall service delivery process. Many IXCs utilize clearinghouses, too, such as Illuminet or OAN, for LEC-billed long distance traffic, especially 10-10-XXX traffic. And MSOs/CATVs such as MediaOne and Ameritech have long favored billing service bureaus such as CSG.
NIBI's Malmgren comments: "Total support of our long-term client base has served everyone well and is a large contributor to our success. Just because a customer grows larger does not mean discontinuing [the] service bureau as an option. Growth may require the carrier to focus all available resources on its core business more than ever-continuing the service bureau relationship."
Financial factors are not the full picture when considering the service bureau option. Speed to market cannot be emphasized enough. And having a service bureau handling components of the system and/or call lifecycle can help stabilize resource and staffing (such as IT and revenue assurance) so the company can focus on marketing and operations instead of at the system applications level.
"Service bureaus are akin to carriers in a box," says U S West's Hernandez, "and this can translate into significant time and resource saving on the front-end of the procurement process. Rather than laboring over all business requirements, the service bureau option lays it on the table for the carrier."
Selection Time
Review service bureaus during the RFI/RFP process, short-list them as quickly as possible through a process of rating and weighing, then make the final selection. Right?
Not so fast, or so cautions Hernandez: "You must first understand the internal components you are attempting to satisfy. What is the immediate and future marketing plan, and how will the billing and other systems capabilities enable development and expression of the 4Ps (product, price, promotion and place)? Consider internal operations and preferred methods and procedures. Consider your end-to-end systems requirements, such as interfaces to legacy components. And always, what are the internal resources, and what is the allocated budget?"
Many new entrants make the mistake of hurrying through the initial stages of the procurement process for billing capability, only to find that the solution selected falls short of the marketing department's expectations. This invites the excruciating process of customization in mid-stream implementation, and all of the changes create management headaches. Identify all the needs - product, marketing plans, management and product reporting--not just the processing and operational needs. The full set of business objectives becomes the baseline for the RFI/RFP.
A vendor can tell immediately if the RFP writers were the technology team with little or no input from other business strategy folks. In a sense, this makes it easier on the vendor, but can work to the detriment of the carrier in the long run. Dead giveaways are lead-ins asking what platform is used, operating systems supported, and scaleability. Given the glut of service bureau and licensing options available in today's market, this information should already be known before RFPs are sent to the targeted vendors.
Since any RFP process should be under non-disclosure agreement, the RFP should be candid - full of business objectives, which markets the carrier is hitting and when, executive opinion, needs surrounding convergent verticals (wireline, wireless, IP, etc.). Crafting an RFP in this manner, with the technical and functional interlaced, prevents the vendor from simply ticking off a yes/no checklist.
Discuss your interfaces in the RFP, because these vital handshakes are characteristically the first break points, not only from a processing standpoint, but from an audit and controls standpoint, too. Also, add depth behind the interfaces: equipment specs, operating systems, types of servers, and adjunct processors. To craft the contract, billing service bureaus need to know subscriber and transaction volume projections, and, if it is for a customer management capability (whether for care, trouble, sales and marketing), how many users the carrier plans to staff or the vendor is required to staff.
Other vendors and consultants caution against being too open-ended in the RFP. If inquiring into the service bureau's intended capability in three years, tie it to the carrier's intended capability in three years. Maybe it will be for prepaid services, or local number portability, or wireless calling party pays.
Do not fear the "thump factor," i.e., the size of the RFP. Economizing in RFP detail economizes in business strategy thought. Business, functional, processing and operational needs must be defined to a deeper level. Single sentence functional checklists require little thought on the service bureau's part because they know their own capability. What the service bureau needs to assure is that it can apply its capability to the carrier's needs - with no doubts remaining.
So now that the RFP responses have returned, say within two weeks, it is selection time. Anyone who has graced the table during a vendor selection process will tell you similar things, but there is always the unique story. Senior executives at carriers have made the vendor selection more than once. The advice against this approach is a resounding, "don't do it." Not unless at the direct recommendation of the selection team. It usually results in pounding a square functional-technical peg into a round architectural-and-needs hole.
"To be considered, a service bureau must meet a minimum set of requirements," says Hernandez. "While they may excel in one area, if they simply cannot meet other minimum requirements, then they fall from further consideration." Hernandez lists other selection criteria: references, costs, scaleability, fit with other systems and processes, cycle times (for billing), the service bureau individuals supporting the carrier, and that this is all ranked in order of importance. His team personally interviews service bureau personnel who will be supporting his company.
The Gotchas!
Imagine inking a billing service bureau contract only to find operationally that gaping holes emerge. In the case of fraud, what you don't know can hurt you, and badly. Although the fight against fraud expediently moves responsibility more and more to real time, such as through SS7 network monitoring for traffic anomalies and call aberrations, fraud still relies heavily on post-rated and post-billed data for profiling. If a service bureau is not equipped to provide this data back to the carrier's fraud process, expect the revenue drain to exceed the industry-wide 5 percent. Throw in credit threshold checking - this goes a long way toward preventing bad debt - which relies on post-rated data. And if using a service bureau for customer management components, what if there is no solid credit screening against growing subscriber fraud (such as "true identity" fraud)?
"Another gotcha," according to Hernandez, "is if all the revenue assurance pieces do not come together, such as rating wrong, processing call records multiple times, posting to the correct accounts, and so on."
"On a tactical note," says CSG's Bauer, "improper planning of monthly bill processing, such as running two or four big bill runs per month, results in peaks and valleys that negatively impacts customer service. We offer our clients 28 days of cycle billing to smooth the service impact, as well as [having] the added effect of leveling cash flow."
Bauer adds, "Don't forget the scaleability pitfall of not considering service bureaus. In-house solutions often are too small or too big. Too small, hardware and support staff needs [are] added as growth occurs; [too big,] too much hardware results in under utilization of invested capital."
For those who have lived through bad billing, when it is bad, it is very, very bad. Service bureaus exist and thrive because they know the business, they are staffed with professionals, and they want your continuing business.
Just when you thought all pitfalls were functional - gotcha! They can be contractual, too. If a statement of work (SOW) is not clearly prepared and agreed to, then vital support can go unsatisfied. The SOW should be very detailed.
Structuring the Contract
One carrier may be seeking an immediate solution of questionable length. This is certainly recommended while proving the longer-term viability of the new service offering or market segment. Another carrier may be seeking a strategic relationship, maybe in the order of five years. As an example, these relationships are favored in the bill presentation services arena. Long-term arrangements will generally have both operational and development conditions within the contract.
"Trapdoors --structure them into the service bureau contract," says Hernandez. "What this means is the ability to discontinue the relationship, usually at a price and, in the worst case, after violations or SLA breaches." Why a carrier would chose to terminate a relationship prior to the expiration of the contract can be as simple as growth. Once the number of transactions is high enough, it may make more sense to buy out the contract, and license software or develop it in-house. Someone within the carrier organization, likely the capacity planning folks, must keep a tight handle on these economic factors. The worst case scenario is that the line of business is not tenable and the carrier needs to dissolve the contract. But, depending on where the contract life is, it may be less expensive to wait out the last six months and pay the contract base minimums.
A tight service bureau contract should allow for the licensing of the software, if it is a service bureau product, and for the partitioning of the service bureau into a virtually dedicated team and system exclusive to the given carrier. A shared-resource service bureau offering will result in a lower cost per unit; but remember that as a shared resource, what one carrier gets is what the other carriers get --support, change, errors, delays - the whole bag. Better to not fall into the shared pool unless the constraints are clearly understood, but rather to seek a partition with a dedicated team. Consider that the partition/dedicated team contract will be more expensive to terminate for reasons other than expiration. It may include severance packages for vendor staff displaced by closing the contract.
From day one, negotiate for a level of customization, for the initial costs, and for all the aspects required to manage the customization and pricing changes going forward. Simple pricing changes should be managed within days, and the carrier should expect T & C (time and cost) for more significant changes within several days to two weeks.
"Establish a per transaction price, along with the monthly base (minimum)," says Hernandez, "but include in volume discounts to accommodate growth or peak calling periods. Hand-in-hand with this is the issue of scaleability. Since the service bureau may incur hard costs due to your success, make sure the scaling is in the contract and that your growth will be supported by machine capacity and time, and by support staff."
Some service bureaus are willing to set pricing based on a percentage of revenue. CSG sets prices based on subscriber count for billing and number of workstations for user interfaces. Usually, especially for new entrants or new lines of business, the service bureaus expect a minimum (a base amount) and may require a deposit.
Pricing can also be done using the bill as a unit of work, and for bill presentation services may be variable per unit, based on bill length. If the billing service bureau performs bill rendering, postage may be priced separately, so the carrier must shop carefully for those vendors efficient in postal handling.
Other considerations, such as for customer management, will be priced based on subscriber count and staffing levels required, as well as other cost points. Line item database (LIDB) access is priced based on "dips" (times accessed). Network service bureau capabilities, such as SS7 network connectivity, offered by the likes of SNET and Illuminet are typically priced based on transactions and time, along with engineering, surveillance and route diversity pricing. And for IS-41 network transport, access to wireless databases for pre-call validation and registration, pricing is usually based on number of hits.
Data interface points may carry separate price tags, especially when the carrier's overall architecture includes numerous vendors. And if two service bureaus are interfacing, such as from the network to a prepaid services vendor, expect that both vendors' costs need to be covered, plus margin. Other data interface points are for PIC processing and CARE handling, billing interface to customer care, mediation processing to call collection/polling, and lock box processing to accounts receivable. LNP promises even more data interface points.
Not enough can be said about closely spelling out service level agreements (SLAs). Does the contract include warranties? The SLAs need to cover everything from processing parameters, to cycle times, to support response time. A good contract will include many measurable items with which to rate the service bureau, such as error rates, recycle rates, calls processed out of cycle, audit imbalances, accuracy, bill cycle times from start to stop, and product development lead times. During the customization process, the carrier personnel should have the right to review test scripts and approve output, and during bill cycles to fully audit and approve or reject the bill run. If using a service bureau for customer management, the carrier must ensure specific lead times for account set-up, provisioning and activation.
To manage effectively, the carrier needs reporting and accounting, both in hardcopy and on-line, depending on whether it is revenue-by-product figures, or cycle audit activities.
So why doesn't every carrier select a service bureau? Perceived loss of control, higher cost per unit, and being locked into a contract are some of the reasons carriers cite. Regardless of these reasons, service bureaus increasingly play a key role on the telecommunications frontier by serving as an enabler and an agent to get up and running fast. They strive to stay ahead of the power curve of convergence and newer technologies such as voice over IP, as seen with NIBI's development of Write2K and CSG's investment of 13 percent of annual revenues back into development. As long as service bureaus minimize barriers to market entry, remain competitive on a cost-per-unit basis, and are timely and accurate and available, they not only jumpstart new entrants and new lines of business, but they keep the motor running, too.
Frank Slavick is a telecommunications consultant based in Denver, Colorado, specializing in product development, new business development, and billing and customer management. He can be reached at 303/554-0958, or at fslavick@earthlink.net.
Service Bureau Goods
What does a particular service bureau concern itself with? "Although billing is billing," says Bruce Malmgren, president and CEO at National Independent Billing, Inc., "it is a functional area that casts a wide net. Depending on a given carrier's definition, billing could include call collection from the switches, rating, lock box processing, total customer care, and bill presentation."
Different service bureaus handle all types of needs, depending on their respective lines of business -not just billing, but network related, too, and customer management, sales and marketing, etc.
For the sphere around billing, functional expectations from a service bureau (today or in the near future), depending on the carrier's needs, are:
Account and customer management, order entry, credit services, activation and provisioning, call management, rate management, fraud management, calculation, taxing, presentation services, direct and LEC billing, hierarchy (multi-level, multi-location) invoicing and reporting, accounts receivable and debt management, lock-box processing, sales compensation, and marketing and management reporting.
Service bureaus also are relied upon for full back office and front office support, application development and migration/conversion, as well as tables or rules maintenance, tax filings, and full print and mail services.
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