Option Shock

Posted: 06/2002

Option
Shock
Service Providers Grapple with Customer-friendly IP Billing

By Peter Lambert

BILLING VENDORS HAVE BEEN AWFULLY CREATIVE in generating usage-based, content-based and value-based pricing tools these past few years. Now their customers find themselves challenged to prove themselves equally creative in applying those tools to daily business without out smashing their thumbs in the process.

Vendor innovation has certainly created option shock, yielding the ability to document literally millions of daily, billable “events” occurring in their networks. Where old-style call data records (CDRs) incorporated only a few “fields,” such as time, distance and time of day for each call, next-generation IP data records (IPDRs) might include fields for bytes or messages or downloads delivered, hits on premium content servers, database lookups, bandwidth consumed, quality of service (QoS) levels and any number of other service components upon which a service provider might hang a price tag.

“In telephony, CDR after CDR looks essentially the same,” says Keith Wolters, senior director, product and industry marketing for Convergys Corp. “In this world, none of them looks the same.”

Yet finding sensible ways to turn all that data into maximized revenue and optimized customer behavior isn’t easy.

“It’s still a case of evolving definitions of what should go into those records,” says Alex Damas, senior manager of mediation product marketing for MetaSolv Software Inc. “As the service provide defines what fields he wants in them, it may be that he really wants only five of 50 possible attributes.”

As just one example of recent usage data advances, on April 2, billing innovator Telemac Corp. partnered with leading prepaid smart card provider Gemplus to move real-time accounting and billing processes inside of user devices at the very edge of wireless networks. Telemac’s Network Edge Billing software “is able to identify the content site, the number of packets delivered, the type of data — computed to less than a tenth of a second and less than a tenth of a penny — then assign a rate specified by the operator,” says Telemac chairman and CEO Kenin Spivak.

He cautions, “Yes, there are infinite fields, but the fields have to be sufficiently finite for the customers to understand.” Others echo the sentiment. “All of this is doable,” says Nelson Hsu, senior director of business development for Integral Access Inc. whose PurePacket integrated access device can meter usage per customer, per application “and then collect that data in an edge-to-edge connection detail record. “The question is whether service providers are ready to meter at these levels. The customers aren’t there yet.”

Indeed, getting the customers there will require that service providers think outside the box in developing value propositions that incorporate multiple content suppliers, content aggregators, distributors, resellers and other interested parties in a new matrix of potential payers and payees. One mandatory result of such thinking: the ability to provide a good answer when a customer asks, in one way or other, why he should help providers maximize their profits.

CSG Systems IP Services Value Chain
Source: CSG Systems Inc.

Beyond Cost

If mountains of usage data collected from servers, routers, access boxes and other devices along a service path promise finally to enable service providers to base pricing on real cost-of-delivery information, a richer vein of knowledge may also lie with what the data reveal about customer behavior.

While prices in the old, familiar, “tangible products” economy are based on a very few, fixed parameters, prices in the emerging “intangible products” economy may be based on multiple variable parameters other than simple cost, says Serge Soudoplatoff, co-founder and chief strategy officer for France Telecom spin-off HighDeal Inc., whose pricing, rating and billing software allows service providers to simulate and analyze complex pricing schemes for bundled, convergent services before commercial launch. If enabling a car with global positioning costs $2,000, old economy thinking would price the car $2,000 higher, he says. “But if I understand what road the driver took or if I know how long the car sat in a shopping center parking lot, other parties may be willing to pay for that information,” effectively subsidizing a lower, more competitive price for the car buyer.

At a basic level, says Sue Forbes, vice president of marketing and business development for Narus Inc., “The service provider can decide he wants to encourage game downloads by not charging for bandwidth, but in other cases, for, say, just Web surfing, the customer expects to be charged for bandwidth or time.”

In other words, “value-based, top-down” pricing can become an alternative or adjunct to “cost-based, bottom-up” pricing, says Jim Culbert, vice president for Web services billing software provider MetraTech Inc. Via five- to 10-cent, 200-byte SMS text messages, “someone’s willing to spend a dime to say, ‘We had the baby,’ and that’s something that costs the service provider very little,” Culbert says. “In fact the customer doesn’t really care what it costs you to deliver that message.

“The barrier is explaining the value without over-complicating the billing process, and you’re always pushed back toward the customer’s comfort zone,” he says. “The solution is in figuring out how to price and bundle in a way that both makes money and drives customer behavior in a way that pushes minutes or distance or content or transactions in another area.”

Toward that end, service providers like COLT Telecom plc in Europe are offering peak burst traffic at certain day-parts to corporate dedicated data service customers while charging them by percentiles. “Imagine every five minutes you count packets you’ve sent, then order them by size, break the aggregate into 100 parts, then pick the one where 95 percent of the others are smaller and only five percent are larger,” says Eran Wagner, executive vice president of technology for IP mediation vendor XACCT Technologies Inc. Sounds like a tough sell, but Wagner says customers understand the proposition. “The 95th percentile is usually larger than the average, but I’m not charging you for the peak traffic.”

NWN 3G Mobile IP Architecture & Configuration
Source: PwC Consulting

Come Together

“We believe U.S. service providers are gearing up for a model that is open to not 500 content providers, but 50,000,” says Russ Freen, vice president of R&D for Bridgewater Systems Corp., whose NetProfile content-management device manages content request and permissions between wireless networks and the Internet.

“As people build download and other transaction services, the carriers are in a good position to control access to them, assure their quality, track their use and bill for them,” Freen says. “To date, we’ve seen the network service providers not that keen on sharing revenue with multilevel distribution or aggregation partners.” Indeed, it won’t be easy to get ‘keen’ on managing charges and payments that run in multiple directions, requiring a new level of rating and billing support for settlement, revenue-sharing and commissions.

But such capabilities are emerging. In May, at the Telemanagement Forum in Nice, France, for example, CSG Systems Inc. demonstrated its Kenan Revenue Settlements module due out this fall in the form of a Web video service. The product is designed to enable pricing and remuneration effectively by committee — “to create and execute value-chain agreements with revenue assurance for all parties,” says Michael Gerard, product manager for wireline IP services. He notes that CSG customer NTT last year opened its L-Mode residential wireline networks to some 1,600 content providers already established as suppliers to its iMode mobile services network.

Content- and location-based mobile services, such as a map download service for truckers, may extend the partner matrix to include not only the map-maker but a company advertising on the map, notes Rene Sotola, CTO for AMS Inc. parallel-processing mediation and rating platform, Tapestry. “So a single event will be rated on a variety of parameters, and a single event may generate credits to multiple partners.”

Even for relatively straight-forward purchases of audio CDs over iMode and other mobile networks, settlements may be once a month or every 2,000 hits or every $5,000 across a value chain including a record company, an aggregator portal, a mobile operator, a physical distributor of the CDs and other parties, each attempting to work cost recovery and customer behavior modification into the equation, says CSG mobile industry director Malcolm Lewis. “Each has to have a separate business relationship, a certain percentage and to be paid.”

Which parties will own the bill and set the price “is still unsettled, and we’re drawing up scenarios,” says David Tierno, director of global IT solution alliances for the PwC Consulting business of Pricewater-houseCoopers. With the consumer market slow to materialize, PwC introduced a Mobile IP Solution focused on enterprise mobility in March. “Enterprises have begun investment in mobility solutions and service providers are seeing opportunities to become bundled service partners as one part of a broader value chain.”

MetaSolv says wireless operators are ready to move into byte- and transaction-based billing. This is, in part, because systems like MetaSolv’s Network Mediation system, formerly Nortel Networks Ltd.’s Architel product, collect data from service-level devices, such as IP voice gateways, messaging and location servers and connection-level devices, like switches, routers and access boxes. Then, on the output side, MetaSolv makes the usage records available to multiple billing systems across the value chain.

All parties in that chain will be slow to enter such complex relationships without some risk reduction in the form room for trial and error. Vendors including HighDeal and Narus say they have that base covered too. “KDDI’s mobile phone company in Japan is offering true, content-based billing through offering access to premium Web sites at premium rates, which is made possible by very granular data from a huge pool of usage data,” says Forbes, who notes that KDDI is “at the hub of revenue-sharing and says, ‘I own the customer.’ The immense flexibility allows me to say, in two months’ time, I want to model my rates totally differently. The service providers need to trial different approaches” — for their own comfort, as well as the comfort of partners.

Michelle Nowak, vice president, product management for InfoDirections Inc., says “what providers are looking for is billing systems that can change shape, with a point and click interface to define what parameters you want mediated.”

Whether for MP3 downloads, stock quotes, ticket purchases or a message that repairs on one’s car are completed, Soudoplatoff and others note that, so far, resistance to paying for content can only be broken by using all that collected data to identify valued content.

“If you ask, ‘Do you all want to wash clothes on Thursday?’ the answer may be, ‘No.’ But if you say that electricity is free on Thursday, everyone will wash clothes,” he says. “If you offer a few extra minutes of mobile phone time for every five MP3 downloads, such downloads may become more attractive. This is what people need to invent — to share, capture and benchmark the value,” he adds. “There’s a need for a value chain of content and technology and distribution companies to come together to create new models for value.”