Billing Systems: Where the Rubber Meets the Road

Posted: 12/1997

By Dan Baker and Nancy Duvergne Smith

If the telecom business is a race car--fast-moving and subject to quick turns--then billing is where the rubber meets the road. But a billing engine is only as good as its grip on the pavement--and customers' loyalty. Billing managers build that loyalty by producing a finely tuned invoice that's flexible and reliable and ensures satisfying contact with customers.

For billing managers, hazards loom at every turn. Accurate bills need to go out on time, no matter how many new services, price changes or discount plans are introduced. Although marketing is pushing for a single invoice, pulling call data from multiple in-house service providers and calculating discounts can be a nightmare. Sure, the latest object-oriented software tools promise quicker programming changes, but making those hard-coded legacy billing systems respond flexibly to market demands is easier said than done. Fast response to these challenges is critical, yet any change that imperils accuracy or speed is a death trap.

To understand how billing managers make critical decisions on billing system options, Technology Research Institute (TRI), a market research firm based in Sudbury, Mass., conducted a worldwide survey of billing executives at 30 emerging small- to medium-sized telecom carriers. The survey focuses on billing systems purchases and upgrades for convergence carriers, defined by TRI to include small independent telcos, cellular providers, PCS providers, competitive access providers (CAPs), resellers and international gateway carriers.

Billing Moves to an Inside Position Along the Wall

As the competition heats up, companies are paying increasing attention to billing. After all, billing remains the most frequent and reliable contact a carrier has with its customers. The key billing system attribute today is flexibility. A carrier's marketing department needs the capability to roll out new services in rapid-fire fashion. To spruce-up invoices and make them powerful marketing weapons, carriers are upgrading their underlying billing platforms, software and systems.

Producing bundled bills is the biggest factor driving billing upgrades today. Telcos figure that bundling will encourage customer loyalty. First, paying one invoice is more convenient than writing checks for several bills. Second, customers are encouraged to buy more services through bundled discounts. And, should a customer switch even his cellular service to a competitive carrier, then everything else in the bundle becomes prohibitively expensive.

The tactics of CAPs show how carriers use bundling. In exchange for exclusive telecom service licenses, CAPs are offering the owners of office buildings, universities and multi-unit residential complexes a discount on local dial- tone service. One key incentive is a cross-service discount on long distance services. If a tenant spends at least $30 on long distance services, for example, he may earn a 10 percent discount on local calls.

Another benefit of bundling is a deeper level of understanding customers. One biller notes: "To do anything intelligent, I need one database that tells me which services customers have and which I can cross-sell." Bundling delivers that single view of customers who buy multiple services and/or maintain multiple accounts.

The ultimate goal is to win and hold customers by giving them a choice of bill format and account aggregation preferences. Applied in the customer care area, consolidated billing can alert carriers to valuable cross-sell opportunities.

Customers also are driving bill changes aimed at convenience. Some are asking for different billing dates, alternative payment methods, bilingual formats and environmentally friendly bills with less paper. Some want simpler bills. Others, particularly businesses, want complex usage analysis.

Billing Decisions Drive Development, But Watch the Rearview Mirror

The first road hazard faced by billing executives who need to upgrade is choosing whether to build an in-house system, buy and customize off-the-shelf systems or outsource billing entirely.

Many large convergence carriers are sticking to their current in-house systems because they often are more sophisticated than those available on the open market. Outsourced billing is a strong contender among convergence carriers that have deeper pockets. For instance, of the carriers spending more than $15 million on billing in 1996, 49 percent expect to outsource invoice processing in the future.

Resellers, though, are cooler to outsourcing due to difficulties inherent in coordinating billing streams from multiple local exchange carriers (LECs). Says one reseller's business manager, "It's tough enough for us to sort out LEC billing ourselves. I can't imagine an external service bureau willing to jump into this quagmire."

Selecting an off-the-shelf billing system is not a Sunday afternoon drive, either. Billing vendor showrooms offer shiny new models with every salesperson claiming high performance and smooth handling on all road conditions. Yet, the carriers TRI interviewed cited serious shortfalls. In fact, 67 percent of carrier respondents view off-the-shelf solutions as neither sufficiently robust nor full-featured. Despite the risk and high costs, a healthy 66 percent of convergence carriers said they were investigating components of next-generation billing systems.

Multitiered Data Architecture Leads the Upgrade Race

Deploying a three-tiered architecture to build a bridge between legacy and next-generation systems often is a sound investment, preserving legacy data and building flexibility for the future.

A three-tiered architecture allows a carrier to migrate through middleware, making legacy systems act as a database server to a newer and more flexible front-end user interface. In this configuration, minicomputers or mainframes perform the bulk of bill processing. An intermediate process server--usually a UNIX box--navigates and controls the process flow between the multiple data servers. Finally, a desktop computer serves as the user interface.

Advanced Billing Systems Offer Hot Rod Features

One advantage to three-tiered approaches is innovative features can be added to existing systems module by module in building-block fashion. Advanced features are critical to keeping competitive in areas such as bundling of service bills, corporate account aggregation, single-view customer profiling, bill formatting, bill messaging, multilanguage billing and data security.

Bill messaging, for example, is proving a highly effective way for a telco to show customers the benefits and discount savings they are earning. Says one rural LEC billing manager, "Unless we show that discount amount prominently on the bill, we're liable not to get credit for it in the customer's eyes, and he's likely to deposit that 'Switch-Me-For-Free' check from AT&T he got in the mail."

For Working Assets, a reseller that's built a business addressing the needs of its politically aware subscribers, bill messaging delivers the extra value that distinguishes it from the pack of long distance competitors. The company employs bill messages to deliver political news specific to a customer's location or known interests in various social causes.

Outsourcing Keeps Convergence Carriers on Track

Lower costs are moving convergence carriers to outsource, the TRI study found. A full 77 percent of carrier respondents that outsource cited reducing their billing costs as a critical driver. By delivering bills at a guaranteed cost, outsourcing firms can reduce a telco's information systems costs and lower financial risk. These service bureaus absorb information technology (IT) capital costs and keep their infrastructure current by incorporating the latest technology and spreading the overhead among many client carriers.

This billing outsource philosophy fits well with a reseller's focus on sales and offloading unnecessary capital expenditures. And there's always the danger when buying an off-the-shelf package that two years down the road--with a big boost in subscribers or other market change --a carrier might outgrow the system totally.

Carriers that hesitate to outsource cite high costs for their size operation or poor service bureau experience. Small carriers, in particular, say large bureaus cost too much. Says one skeptic, "Their systems are geared for a much larger operation, making some of their features too restrictive for us."

Betting on a Winning Billing Solution

Above all, TRI found a demand for billing systems vendors and integrators to provide systems with a highly flexible architecture that's able to plug in new services easily and adapt to constant market shifts. According to one convergence biller, the overriding question is not whether a vendor offers specific industry experience, but rather whether its system can adapt easily to accommodate future services. "Nothing in billing is rocket science," he says, "but when a vendor takes you through its process, you learn if it has correctly figured out the problem."

Billing managers also are finding it tough to determine exactly what vendors truly have to sell. "Getting billing vendors to reveal the true capabilities of their software is like pulling teeth," says one carrier billing manager. Vendors may claim, for instance, that their consolidated bill can merge multiple services, but it may be no more than electronically stapling billing pages together. Or they may falsely claim their systems can scale easily to accommodate rapid subscriber growth. Scalability concerns abound since hitting the wall at, say, 500,000 subscribers might mean an expensive and disruptive conversion process to a new system.

When it comes to financing a solution, there's a budget gap between large and small carriers. TRI interviewed a CAP executive who was astonished at the "$100 million Godzilla" billing project a large systems integrator tried to foist on his company. This CAP finally chose a small but telecom-savvy integration shop able to adapt an existing small LEC billing package to its needs.

UNIX's Lead Remains Strong as the Race Tightens

Selecting the operating system under the hood is also a critical call. While UNIX, minicomputer and mainframe solutions hold the lead, contenders such as AS/400 and Windows NT are edging forward.

UNIX, developed at AT&T Bell Labs in the 1970s, holds a historically strong position in telecom network systems and has captured the majority of telecom billing service purchases. UNIX servers from IBM, Digital and Sun lead the billing market in both current use and future buying plans. In addition to a breadth of world-class application support, UNIX's strength extends to multiple business support systems such as customer care, decision support, service provisioning and order entry.

UNIX scalability gets mixed reviews, however. One billing exec affirms, "UNIX vendors are making great strides improving throughput and, as a result, UNIX can handle the loads we now face. To pump billing volumes through, I always believed you needed a mainframe class system. Today, UNIX systems have achieved that mainframe class." Large or midsize carriers facing fast growth are more concerned. When a carrier is billing 500,000 customers, expects 40 percent growth a year, and has a marketing department screaming for real-time call data access, then system scalability and throughput become its lifeblood--and that's where mainframe machines traditionally have an edge.

Although UNIX is in the lead, convergence billers are not about to throw out their legacy investments. Rather, many will build three-tier architectures that enable older, but still robust, machines to fulfill a useful role distributing data to the younger generation of GUI-based desktops. The reality is that, while client/server systems offer powerful applications, the legacy systems may offer greater transactional horsepower and better systems management. One new three-tiered solution from Alltel, Virtuoso II, features an elegant architecture: PC workstations running DOS and Windows to operate the front-end tasks of customer care, switch processing and reporting; UNIX process servers to manage business processes across markets, including real-time rating and credit/fraud management; and an MVS mainframe in the background to run high-volume and compute-intensive transactions, especially final bill rating and production.

Another contender, the AS/400, has a modest but creditable following among small, independent telcos. Designed as an affordable alternative to a mainframe, the AS/400 accounts for some 8 percent of bill processing for the carriers TRI surveyed, with near-future growth tagged at 12 percent. The AS/400 is popular among no-frills billers, carriers who want performance and reliability with low ownership costs.

For front-end billing and customer care workstations, Microsoft Windows is ubiquitous, yet none of the major billing vendors has found much use for Novell Netware, Windows NT and other PC-based network operating systems.

Among relational databases, Oracle is the choice of convergence carriers for both installed base and future demand. Relational technology is state-of-the-practice, but billers are excited about state-of-the-art, object-oriented databases for two reasons: First, they promise significant productivity gains--as much as 50 percent--after a learning curve, according to one billing executive. Second, the modularity and reuse of object-oriented software is an attractive way to achieve faster time-to-market and in-service deployment.

Recommendations for a Smooth Ride

Telecom carriers' new focus is customer infrastructure--systems that communicate with customers, build loyalty and attract profitable new business--and flexible billing systems top the tool list.

With major industry growth ahead and diversification of sales relationships, good tools are required. TRI expects the market, estimated at $1.5 billion in 1995, to grow at an 18 percent rate to roughly $3.5 billion in 2000.

And, as the telecom business emerges from its infancy, its sales distribution infrastructure will mature. Today, probably 90 percent of all telephone customers are still acquired, supported and billed by a handful of very large telecom carriers.

In the future, the industry will more closely resemble the automotive and insurance industries, which create a core product and then rely on independent resellers and dealers to move product out the door.

What do these trends mean for billing executives? The chief industry goal of convergence billing--bundled bills--must be based on deep system integration that will produce a multiservice invoice that meets three needs: First, it must be customer-friendly, readable and convenient to pay. Second, it should provide a cross-service "single view" of the customer's invoice history to aid customer service. And, third, it should allow a carrier to build rich customer profiles for marketing purposes.

Fortunately, convergence carriers soon will be able boost their competitive positions by playing a big carrier game--billing partnerships with solution vendors. Partnerships already are forming: MFS is partnered with Kenan Systems, and Citizens Telecom has linked up with Saville Systems, to name two.

These partnerships are golden for both sides. Vendors get invaluable experience developing systems in live telecom environments while carriers upgrade their billing engines supported by integrators with broad IT and business process experience. TRI believes innovative solution vendors soon will partner with their smaller carrier counterparts so both partners wind up with checkered flags.

The information from this article is based on a recent Technology Research Institute (TRI) study titled, "Wireless & Convergence Carrier Billing Systems." For a free table of contents and descriptive paper on this 304-page report, contact Linda Krpata at TRI, 730 Boston Post Road, Sudbury, Mass., 01776; telephone (508) 443-4671 or fax (508) 443-4673.