Given the dramatic and sustained growth in demand for its services, the telecommunications industry has not exactly distinguished itself in recent years. With a few exceptions, a combination of poor leadership and poor execution resulted in most carriers, and their counterparts in Internet services provision, squandering many of the enviable opportunities that were available to them in the late 1990s.
Now, with restructuring, refinancing and recovery largely underway, the telecommunications sector once again finds itself facing a combination of threat and opportunity. But this time, no company can afford to get it wrong.
With revenues from traditional voice services beginning to slow or even stagnate, most carriers are now scrambling to introduce a host of new and often complex data services such as voice-over-IP (VOIP), web conferencing and mobile data applications. Each of these is forecast to be a large market – but none is so big that operators can afford to execute poorly.
The technologies underpinning most of these services are now well understood and have reached a point of maturity where large-scale roll-outs are feasible. But that doesn’t mean it is proving to be easy.
Across the world, many telecommunications companies – and these include Internet Service Providers and cable companies as well as traditional carriers – are trying to work out how to implement and market these services without cannibalising existing revenues and without over-investing. If they are to capitalise on the new opportunities associated with IP (Internet Protocol), then they must roll out new services both cost-effectively and at speed; they must price competitively but still make good margins; and, they must bill customers accurately and offer them flexible payment options.
This last point may seem obvious, but surprisingly, it is an area where many communications service providers – including telcos, Internet service providers and cable companies – are falling down. And it is costing them a lot of money.
According to Alice Salpeter, an analyst at IT industry research company Giga Group, traditional circuit-switched network operators lose on average 7% of annual sales due to “revenue leakage” – the systematic, unintentional loss of revenues that results when services are provided but not charged for, or when receivables cannot be collected due to disputes over bill accuracy. On a global scale, that 7% adds up to hundreds of billions of dollars.
But it may soon get worse: as demand for IP-based services grows – and it is clear that it will – those financial losses will spiral out of control unless new investments are made and new approaches. At present, service providers that operate IP-switched networks perform even worse than their circuit-based counterparts: they lose, on average, an astonishing 15% of their revenue this way.
This could lead them to botch some extremely lucrative opportunities. The market for voice-over-IP applications, for example, grew at over 50% between 2001 and 2002, from $575 million to $863 million, respectively. Put it another way: 20 million VOIP minutes in 2001 will boom to 380 billion minutes globally by 2005, according to the Gartner Group. By Giga Group’s calculations, on current performance, 57 billion minutes of talk time could unintentionally be handed over free of charge.
But why should these modern, all-digital services present even greater billing challenges than the older services? The reason is that traditional billing systems are not equipped to cope with the complexity of IP networks and services. As a result, a substantial investment in specialist IP billing technology is “a mandatory requirement” and “inevitable” for most communications service providers, according to Giga Group research.
These next-generation IP billing products are far more flexible and enable companies to price data services according to new parameters. IP-based services carry data in packets rather than across a circuit that is held open for a measurable duration. Operators therefore largely prefer to charge customers for each packet of information they download, rather than for every minute they are connected to the network.
Other pricing parameters, based on factors such as time of day, services used, quality of service levels and subscriber class, can complicate matters still further and need to be taken into account.
In addition, consumers may demand different payment options for different services. When a wireless customer signs up for a new data service, for example, they may be wary of prices associated with using the new service and thus prefer a pre-paid payment plan. They may, however, prefer a traditional post-paid plan for their voice calls. Operators that are able to offer flexible payment options will improve subscriber retention in a highly competitive market, say analysts.
Of equal importance, IP billing systems are designed to handle revenue distribution for m-commerce (mobile commerce) support and multi-partner transactions.
Multiple-party billing capability will become critical to providers of data services. In a traditional voice model, only two constituents are usually involved – the services provider that owns and operates the network and the end-user that pays for the services.
With data services, the billing process needs to be re-engineered to reflect the fact that a ‘revenue web’ of both service delivery and content providers is involved in the provision of a specific service. “The billing platform needs to support the design, build and ongoing change of the contractual relationships between the value chain partners, [whether they are based on] commissions, sponsorship or interconnect settlements,” says Salpeter.
These more sophisticated models of billing depend on the availability of data, collected from various points on the service provider’s network infrastructure, that can demonstrate where a customers have been, what services they have used, and when.
The collection, translation and dissemination of that data is the task of IP mediation. When a customer uses IP-based services, they leave a data trail. IP mediation software collects that data from multiple network elements, such as hubs, switches, routers, firewalls and web servers. The usage data is then aggregated by the mediation software and presented in the form of reports, or ‘event records’, to relevant downstream applications, such as billing.
These event records are analogous to a call detail record from a traditional switched service network, but will often include more parameters to determine not only session length but also data volumes, peak data rates, type of content and other factors that will affect the rate to be charged. In this way, IP mediation bridges the gap between infrastructure hardware and business applications.
The data collected by IP mediation also provides a number of other functions, say analysts at UK-based telecommunications service consulting company Chorleywood Consulting. Because an IP mediation system collects real-time usage data, it can be used as the basis for a number of customer management applications – analysts can use it to assess customer churn rates or market segmentation, for example. It can also be a vital cost control tool, helping a provider to decide how its network infrastructure should be developed and where the weak spots are – and thus to optimise capacity. Finally, suggest Chorleywood analysts, mediation has an important role to play in fraud detection.
Recent research suggests that IP mediation is set to boom. IT industry watcher IDC forecasts that the nascent sales of IP mediation products will surpass $1 billion in 2003.
Other analysts are more cautious, but many agree that adoption of IP mediation systems is far behind what it should be – some say it should be twice its current rate.
“IP mediation represents an often overlooked but vital element in the provision of new, enhanced services,” concludes Paul Kellett, an analyst at Pioneer Consulting. “Service providers seeking to establish important revenue streams from these services can ill-afford to overlook the role of IP mediation.”
Better quality of service and the increased availability of high bandwidth delivery have removed many of the technology barriers associated with IP-based services. And growth in Internet traffic continues to explode at the rate of 300% per year. But without IP mediation and IP billing software, no telco will be able to keep pace with the demand for data services – or its competitors.