Pushing the LEC Envelope

By Khali Henderson

Posted: 10/2002

Pushing the LEC Envelope
Third-party Clearing Evolves into
Specialty Billing Service

By Khali Henderson

IN
THE EARLY DAYS OF TELECOM COMPETITION when end users were resistant to change,
inclusion of their call records on a LEC bill was pay dirt for startup
competitive providers. It was an economical way to invoice and collect and it
gave them instant credibility — deserved or not.

An irresistible proposition to be
sure; and one that was quickly exploited by rogue entrepreneurs (e.g.
high-priced operator services providers) such that its use remains to this day
under the strict control of the LECs and the state public utility commissions
that regulate them.

"The LECs are not well
motivated to view [third-party billing] as a profit center, but rather as a
regulatory obligation," observes Ken Dawson, president of Integretel Inc.,
one of a handful of billing clearinghouses serving competitive providers by
doling out their call records for inclusion on LEC bills.

A shift in thinking along these
lines would likely expand the opportunity for clearinghouses and their customers
to bill for products and services beyond the narrow scope of telecom subscriber
services, such as long-distance and operator services.

One reason Dawson and his
clearinghouse cohorts are keen for relaxation of the LEC billing rules is the
erosion in call records for traditional landline services as a result of end
user migration to alternative technologies (e.g, wireless, prepaid services), a
reduction in the number of service providers due to market consolidation and
carriers switching to direct billing to combat 1+ price compression and the
inability to bill CLEC customers.

"The biggest changes that have
occurred in LEC billing are the confluence of two events," says Harvey
Berg, vice president of ACI Billing Services Inc. "One is the continued
cheapening of long distance. Two is that LEC billing prices continue to
escalate."

Three to four years ago, he says, an
IXC could LEC bill a dozen records for 5 cents to 6 cents each; today it’s more
likely to be 10 cents to 11 cents each. Dawson similarly reports a
"tripling or more of charges," noting that one LEC used to charge 20
cents per page and now charges $1.45. "That’s steep for a few lines of
type," he says. This is especially true in the case of long-distance, which
has plummeted from dime to sub-nickel per-minute rates over the same timeframe.

For its part, BellSouth says, while
its billing and collections agreements are proprietary, it has not instituted
any across-the-board increases of the magnitude described, but has made some
single-digit annual increases, according to company spokesman Scott Bryan.

Due to these increases, the cost of
billing has become more important in the decision-making process.
"Everybody has struggled with the question: At what point does it make
sense to direct bill," Berg says, noting that the desire to bundle and
brand also figures into the decision.

The resulting loss of 1+ records has
contributed to recent consolidation among the LEC clearinghouses. ACI Billing
Services, for example, combines the assets of two previously separate
clearinghouses, HBS and OAN Services. HBS’ parent, Avery Communications Inc.,
acquired OAN’s assets out of bankruptcy in August 2001. They consolidated
operations as of the end of June, but continue to use both brands/CICs.

Last fall, Federal Transtel Inc.
also filed bankruptcy. The company has restructured and now operates under the
name, TransMedia Billing Inc. The remaining providers include Integretel, ILD
Telecommunications Inc. and Billing Concepts, which bills under the USBI, ZPDI
and ESBI brands.

Don Philbin, COO of Billing
Concepts, says that its 1+-based business actually is growing in large measure
due to the shakeout among its competitors. "There’s probably attrition on
the number of CDRs that an individual carrier processes, but [with the addition
of new customers] the net effect is our call volumes are growing," he says.

Dawson also reports growth at
Integretel; revenue was up 40 percent over last year due primarily to increases
in 0+ and other non-toll services, he says.

Outgrowing the shrink is the
preoccupation of all the billing clearinghouses, which are championing new
opportunities for their clients to use the LEC bill. Some of the more popular
choices are for so-called 4250 special service messages, which are telecom
related but non-usage charges. Among these is Internet access, Web hosting,
voice mail and CPE (e.g., caller ID boxes), says Philbin. He adds that Billing
Concepts plans to announce new enhanced services billing options this month.

"We certainly think there are
other applications that would be right for the LEC bill and spend considerable
time on it," Philbin says. He declined to offer examples as did other
competitors PHONE+ interviewed who were reluctant to tip their hands in a very
competitive game.

Berg mentions growth in billing for
900 services, primarily as a result of AT&T’s recent decision to exit the
900 billing business. "We have jumped into that and managed to garner a
number of accounts in the past four to five months," he says, noting that
ACI sent its first 900 records to the LECs in July.

"I’d like to see support for
digital goods — music and other services where no [physical] fulfillment is
required," says Dawson, offering an indication of the potential for the
service.

LECs don’t have anything against
music per se, but music is content and content must be controllable. For them,
billing for Internet-based content would require a blocking system, such as that
available for 900-based pay-per-call services, in order to stem the inevitable
tide of complaints and charge-backs. (Here’s the logic: If a teen loads up the
family phone bill with hundreds of dollars in downloads, mom and dad will hit
the roof.) Vendors say these potentialities can be overcome by subscriber
registration capabilities as well as other solutions, such as tying 900-based
billing to Internet content.

BellSouth spokesperson Bryan said
that his company limits third-party billing to telecom and information services
(not content) products. "When you are providing billing services for
companies outside the telecom and information services industry, it’s a billing
function, not a telecom function, and BellSouth is in the telecom
business," he says.

Dawson understands LEC reservations
about adding digital and hard goods to their bills, noting "at some point
you become [like] Visa. Then again, [Visa] has have found a way to make the
model work; the difference is the LECs are heavily regulated."

However, even that may be a
convenient out for the LECs. The California Legislature lifted in 2001
restrictions on what LECs could bill, but Pacific Bell has yet to change its
policies to include non-phone charges.

Dawson is optimistic that the LECs
will come around to such opportunities. "It’s still early in the e-commerce
game. The industry needs to prove to the LECs that it can manage itself without
consumer problems," he says.

In fact, the leading billing
clearinghouses have been at to forefront of telecom’s pro-consumer initiative.
In 1998, they formed the Coalition to Ensure Responsible Billing (CERB) and
adopted standards of practice for billing clearinghouses.

What could move the LECs to support
microtransaction billing? The pullback of a large IXC? This has already begun
(AT&T) and is suspected to be a cause for the increases in LEC billing
rates.

A little competition wouldn’t hurt.
The possibility exists to leverage the cable bill, but it is far from ubiquitous
and there are no billing standards among the MSOs, notes Dawson.

Then there are the CLECs, but their
shortcomings are worse than are cables’. Few support third-party billing either
as a matter of policy or of incapability. In fact, their emergence has forced
many clearinghouses to supplement their services with additional billing name
and address databases to catch these records when they are rejected by the LECs
(the infamous Return Code 50). They also have implemented direct billing
facilities to help their clients recoup revenue for services provided to CLEC
customers that otherwise would be lost.

Billing Concepts, for example,
initiated a Revenue Recovery service in June 2001. After matching rejected call
records through its billing name and address (BNA) database, the bill is
prepared and mailed to the end user on behalf of the client.

Integretel and ACI also perform this
service for their clients. This fall, ACI will implement its own BNA database,
Berg notes.

He says that with the addition of
pricier services, such as a $20 or $30 Internet access or Web hosting fee or
someday digital and hard goods, the importance of recovering the unbilled
revenue becomes critical.