Bigger Not Necessarily Better for Telecom Billing Systems

Posted: 09/2001

Bigger
Not Necessarily Better

for Telecom Billing Systems
By Chris Garifo

SIZE doesn’t always matter, even in telecommunications billing. For smaller CLECs and ILECs, turning to a major corporation, such as Convergys Corp., Lucent Technologies Inc., ADC Telecommunication Inc. or Amdocs Ltd., for their billing systems isn’t really an option because of cost and scale. For a Tier 3 or smaller Tier 2 CLEC or ILEC, using a billing product such as Lucent’s Arbor/BP or ADC’s Saville CBP, which are capable of handling in excess of 100 million subscribers, would be akin to firing a howitzer at a housefly.

On the other hand, more than 1,200 ILECs have 50,000 or fewer subscribers–plenty of fertile ground for billing vendors that want to target smaller carriers.

Cowlitz River Software Inc. has provided customized billing applications to small and medium-sized telecom providers since it was founded in 1989. The company’s TeleManagement System billing product initially was developed for a single telephone company around 1985, and then Cowlitz River was formed to sell it to other ILECs, says company president Lucy Mann. In 1998, the software was expanded to also serve CLECs.

The system can support 200 concurrent users, such as customer-support staff, and can handle 100,000 to 200,000 accounts. Cowlitz River also offers a service bureau geared toward smaller companies that start by paying very little for their billing.

“We give them a full billing system, and it’s affordable to them when they’re first starting out,” Mann says. “Then they can either take it in-house or they can just pay us more as they continue.”

Some CLECs, when they start out, initially will try using Microsoft Corp. Excel spreadsheets or a product like QuickBooks for its billing.

“They try going that way and, for a couple hundred customers, I guess they feel that it’s worth it,” Mann says. “I think they lose a lot of money.”

Big Biller Disinterest

The really big billing vendors easily could muscle their way into the arena where Cowlitz River plays, but “I don’t think it’s worth their time,” Mann says. “Their packages are big and bulky and very full-featured. It’s a different implementation.”

Big vendors would find it a real challenge to sell to Tier 3 carriers, even if they wanted to, says Paul Hughes, director of billing and payment applica-tions strategies for The Yankee Group.

“They’d be better off acquiring technology that better fits that need and then running that as kind of a wholly owned subsidiary or something like that,” Hughes says.

However, that doesn’t mean middle-tier vendors are ignoring the small-market carriers.

When PriorityOne Communications, a startup CLEC serving rural customers in eastern Oregon, went shopping for a billing system, MaxBill Ltd. came calling, says Amber Yates, the CLEC’s CFO.

“It didn’t seem like the small vendors were out there knocking down our door like the big vendors were,” Yates says. “They were actively pursuing us.”

But MaxBill’s $500,000 price tag was simply outside PriorityOne’s league.

“[MaxBill] was a great package and we wanted it really bad,” Yates says. “But we looked at our market and we’re in a small, rural area and we don’t plan on going into the major metropolitan areas and we just couldn’t justify the cost per potential subscriber.”

Selecting a billing system is one of the most critical decisions a startup faces. The wrong decision can make the difference between success and failure. Spending a half million bucks for a billing system, only to realize it’s not what is needed, could doom the startup CLEC.

“But if you make a mistake on a product that’s 10 grand or less, you can recover from that,” one vendor says.

As a result, the company began looking at smaller billing companies. It chose Austin, Texas-based Highland Lakes Software. Yates says the primary considerations in choosing Highland Lakes were price, its ability to let PriorityOne start small and ramp up as its subscriber base grows, and that it could be discarded easily in favor of a bigger system.

That last factor is one that Highland Lakes is aware of, though it doesn’t occur often. Only about 10 percent of the company’s customers use its Communications Accounting System (CAS) as a springboard to another billing system, says Dennis Killebrew, Highland Lakes sales and marketing director.

Highland Lakes primarily markets CAS to small carriers with 5,000 to 10,000 end-user customers and with annual revenues in the neighborhood of $8 million to $12 million, Killebrew says. While the big billers may not be able to bring their prices down to that arena, it doesn’t mean Highland Lakes lacks for competition.

“It’s extraordinarily competitive,” Killebrew says, and includes “very heated competition from the service bureaus, the outsourcing people.”

Small Market, Big Money

The small-carrier niche, however, isn’t small itself, and has a lot of potential for fairly big profits.

The Martin Group, an engineering, consulting and OSS software provider whose products include a billing program, sees rural ILECs and the CLECs that they spin off as “our bread and butter,” says CEO Jim Odom, who believes that segment offers a nice feast for the company.

“We think that the customer base there is still very good-sized, and they spend a considerable amount of money in adding to their infrastructure,” he says.

Because the Martin Group offers its billing product as part of an overall OSS suite, the company has an advantage as it markets to smaller ILECs and startup CLECs, Odom says.

“The smaller guys don’t have giant IT staffs and unlimited budgets,” he says.

“So, we think it offers a huge advantage because they’re able to go to one supplier, and [as that supplier] we offer a huge advantage, coming in with a solution that’s already integrated.”

Mankato, Minn.-headquartered integrated communications provider HickoryTech Corp. opted to develop its own billing and customer-care system and, by the end of August, was planning to begin selling it to other smaller, rural CLECs.

“We are targeting companies that provide the same type of services that HickoryTech does,” says Scott Grill, the company’s director of sales and marketing. HickoryTech has a subscriber base of 140,000 and serves the southern Minnesota and northern Iowa region. As such, company executives believe their product, SuiteSolution, will have greater credibility with similar carriers because developing the system and using it in-house “puts us a little closer to the front line than we would be if we were at arm’s length with our clients,” Grill says.

Four independent telephone companies formed the company, and then added a wireless company and an ISP. In May 2000, it restructured, combining all of its business units into one company–organized by function. The company wanted to present itself to its customers as a single organization offering wireline, wireless, data and video services.

HickoryTech decided that by developing its own customer-care front end, it could web-enable its applications more rapidly, introduce the types of tools the customer representatives needed, and could do it without disrupting the billing engines that were in place.

“When you consider the amount of risk that an organization exposes itself to when it changes out a billing system, if you can avoid that, if the billing system is working as it should and you don’t have to replace it, just introducing a new customer-care front end becomes a very appealing option,” Grill says.

The next logical step was to take that billing and customer-care system and market it to similar companies.

As smaller carriers combine through mergers and acquisitions to expand their offerings, they’ll want to offer a single, unified front to their customers, just as HickoryTech is doing. As a result, there will be a need for a system to bill for and manage several, disparate services. The company believes it has the product to meet that need.

“And we are interested in providing that solution to companies that may not get the full, undivided attention of some of the more established billing vendors that are in the market today,” Grill says.

Ready for ‘Big Guys’

While all of these companies are quite happy operating in an arena of smaller-sized customers, they’re not loathe to take on bigger customers if the opportunity arises.

“We rarely walk away from anybody,” says Highland Lakes’ Killebrew. “We don’t feel, from a marketing perspective, hampered in talking with ‘the big guys.'”

But The Yankee Group’s Hughes suggests that handling a multimillion-dollar deal could be harder than it sounds. “The big issue they would have is just would they be able to deal with all the support that’s behind that big deal,” Hughes says.

The fact that Highland Lakes is a relatively small company with some larger customers was a critical factor in SoftSwitch Communications Inc., a Dallas-based CLEC providing VoIP, local and long-distance services to small and medium-sized businesses, choosing that company’s CAS product.

“Even though we were small, I wanted to be comfortable that they could grow with us,” says company president Sumnar Chase III. “My major concern was functionality and reliability and ability to scale.”

He says he never even considered a larger biller because “I don’t like to deal with the bureaucracy of larger companies.”

While there’s plenty of money to go around in the small-carrier marketplace, few companies will make a mint there.

“It’s a good market for me,” says Cowlitz River’s Mann. “I don’t think it will make me rich. They demand a lot for the money they’re spending, if they’re smart.”

The
Links

ADC Telecommunication Inc. www.adc.com
Amdocs Ltd. www.amdocs.com
Convergys Corp. www.convergys.com
Cowlitz River Software Inc. www.cowlitz.com
HickoryTech Corp. www.hickorytech.com
Highland Lakes Software www.hlsw.com
Lucent Technologies Inc. www.lucent.com
MaxBill Ltd. www.maxbill.com
Microsoft Corp. www.microsoft.com
PriorityOne Communications www.priorityonecom.com
The Martin Group www.martin-associates.com
The Yankee Group www.yankeegroup.com