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October 2012

Partner Settlement: The Adaptable Chameleon that Lives Between Wholesale and Retail Billing

Partner Settlement: The Adaptable Chameleon that Lives Between Wholesale and Retail Billing

Billing, no other word in the telecom dictionary is harder to put your finger on.  Billing is highly adaptable.  It evolves over time.  It’s slippery.  It’s a chameleon that changes color to fit its environment.

But maybe it’s better that billing can‘t be defined precisely.  Perhaps billing is better understood as a broad family of telco/customer interaction activities.  On the one hand, billing is accounting — keeping track of charges, rates, and receivables.  On the other hand, billing is analytics — being intelligent enough about customer needs so you can offer them some new and useful things.

The billing term has also stood the test of time.  A few years ago, some prepaid and charging vendors tried to secede from the billing republic to better promote their charging approach. “Kill the bill” was their battle cry.  But then the iPhone came along and abruptly ended that revolt.  Today, whether an actual bill is sent or not, the telecom world still considers it plain old billing.

A few weeks ago I got a press release from Redknee announcing their recent wholesale billing software win at Indosat, a mobile operator in Indonesia.  The release surprised me because I’d always associated Redknee with retail billing.  Turns out, four years earlier Redknee had acquired some wholesale billing expertise from a small Australian biller it acquired called Argent Networks.

Obviously I needed a knowledge refresh on Redknee and wholesale/settlements billing.  Redknee was happy to accommodate.  So in this interview, Arun Kalavath, Redknee’s Director of Interconnect Solutions, gives us a fine briefing on some key industry trends happening in the partner settlement arena.  One of my biggest takeaways from Arun’s remark is that the boundary line between retail and wholesale billing is steadily being erased.  Billing changes its colors once again.

Arun, we’re going to get into settlement software shortly, but first, I think many readers would appreciate getting a quick refresher on what’s happened in the wholesale business over the last several years.

Dan, the inter-carrier and inter-partner business is typically both the highest expense and the second largest income stream in the telco business.  For a very long time, voice interconnection has been the bread and butter of the business -- and it still is.  However, major change erupted around the year 2000.  As international voice traffic exploded in the Internet era, wholesale billing teams saw huge volume increases — from both mobile and landline phones because people are communicating so much more.

Pretty soon wholesaler billers were getting hit from several directions.  They had much larger volumes to manage, settlement complexity grew thanks to the multi-partner content services, and wholesale revenue was dropping like crazy because voice was being commoditized.

Roaming revenues — a major wholesale stream -- have also taken a hit in the last few years.  Bill shock and other European Union laws have forced operators to cut their roaming costs.  Even in Southeast Asia, regulators are pushing for operators to adopt a single roaming fee.

Finally, the window for actually billing partners is getting smaller.  It used to be you could get by billing for services a year or more after the fact.  But the industry practice is changing to a 3-month maximum because carriers no longer want liabilities on their books.

OK, so how are all these changes in the wholesale business affecting the way settlements are done?  We know that in the voice connection world it was a relatively simple two-party transaction — one sends and the other receives traffic and the wholesaler collects usage and settles with the retail partner.

Yes, and historically most of the voice interconnection transactions were with the large incumbent PTTs across the world, so as a wholesaler, the risk of not getting paid was very low.

Let me walk you through a few examples of where new settlement models are getting more complex or the traditional boundary between retail and wholesale billing is breaking down.

Supermarket Chain as MVNO

One of Redknee’s mobile operator clients has a partner who is a supermarket chain.  And whenever the subscriber buys something from the supermarket, he gets a discount on his mobile phone services.  He also can get loyalty points to spend on other things.

So this complicates settlement greatly.  You may have 3 or 4 parties in on an arrangement like this.  You have somebody selling the content, you have the loyalty points to charge back to, then the telco receiving the traffic.

WiFi Hot Spot Partner

Retailers Starbucks and McDonalds are famous for giving free WiFi access and the idea is encourage the consumer to stay longer and buy a second cup of coffee.  However, in the UK there are also thousands of hot spots set up and run by British Telecom (BT) where the merchant sets up an arrangement with BT.  People, in turn, can access the hot spot as long as they subscribe to a special WiFi plan from their mobile operator.

So here’s a case where the mobile operator selling the add-on WiFi service settles with BT.  And another interesting twist here that the usage transactions are being managed at the wholesale, not retail level.

On-Line Gaming and Other Content

On-line gaming is one of the toughest services to settle properly.  In a typical scenario you have one partner who is hosting the game on special servers.  Then there’s the game provider who is selling new virtual reality characters for the game.

Let’s say the subscriber wants a refund because they didn‘t like the on-line experience of the game.  Well, that becomes an issue because it may require you to claw back payments already made to the partners.  By contrast, in the voice world a consumer is not going to expect a refund for a 10 minute call where the quality is bad.

Another complication of content services is that the content owner often doesn‘t know how many times the content was downloaded, so the wholesaler needs to supply those records.  With content, the wholesaler sends the partner a statement saying X number of downloads occurred and there could be disputes back and forth so you need the data to defend your case more vigorously than is the case with voice traffic.

What are some of the emerging services that will require settlement dexterity?

The service with the biggest potential is probably mobile money — using a mobile phone as a substitute for cash or a credit/debit cards.  Operators figure they have a big advantage here because they have a billing relationship with the subscriber.

The groundwork is being laid for mobile money.  For example, Android smartphones are equipped with NFC capability.  Yet there are still some major hurdles to be overcome such as handset security, banking industry regulations, and getting merchants to support the telco business model.

Machine-to-Machine

Another emerging area is Machine-to-Machine (M2M) services and one of the most promising applications here is health-care monitoring.

At an old age home, for instance, you can have people monitoring your vital signs remotely.  A central monitoring system will check your blood sugar too.  If it’s a heart patient, they monitor your pacemaker.  And if there’s a problem they contact the ambulance services automatically.

Once again because there are various parties involved, settlement is needed.

In the UK, M2M for electric power has started.  Usually, the utility provider comes to take a reading every six months, and the customer is billed by an estimated of charge which is typically an overcharge.  Already controversy has arisen over the pile of cash being collected upfront, so the government is now requiring the operator to issue a credit on overcharges at each billing cycle, which is resulting in another billing complexity.  UK regulator has also mandated that every home is fitted with a smart meter by 2014.  This will cause M2M traffic to explode in the UK in the coming years.

Won‘t settlement for health care services and other M2M services be simplified?  Are you really going to bill for usage of these things?

When the service starts up, I agree that a flat rate is quick and easy.  But like so many services that have come before, operators will try to differentiate — so we can expect sophisticated billing to become one of the ways to differentiate.

So how can operators prepare for this new era of advanced wholesale and settlement flexibility?

Well, first off, Dan, I think a platform designed for voice settlement alone is not going to cut it in the world of content.  And operators have begun to realize this.  In the past decade many of them have been buying COTS solutions for voice settlement which is no longer fit for purpose.

Operators require a modern, flexible solution that is both cost effective and scalable.  In order to reduce costs they need to reduce their reliance on third parties.  In many cases, mobile operators begin this migration by bringing roaming settlements in-house.  Roaming settlements are very complex, and so many operators have outsourced that function.  Operators see in-house roaming settlement as one way to recoup some revenue.

How is Redknee going to market with your wholesale/settlement solution?

Our biggest differentiator is selling an integrated solution.  We don‘t require a third party mediation solution for example.  And rather than buy adjuncts to handle different services, we offer a single all-in-one solution.  In fact, the operator can buy our wholesale product as either a standalone or as part of our overall TCB retail billing solution.

Our solution is retail subscriber aware.  It is able to track and report on wholesale usage by subscribers.  Operators need this data to better align their wholesale and retail business objectives and strategy.

What about deploying solutions like this in the cloud support?  Are operators looking for that?

Traditionally, operators used to have an on-premise operator license but more and more are looking at the feasibility of having either a hosted cloud model or simply managed services, so they don‘t need to have people to manage the system themselves.  Redknee caters to all those various models and we recently signed a large North American telco for a combined retail/wholesale solution that lives in a private cloud.

Last time I checked there are a lot of suppliers out there who offer wholesale and settlement billing solutions to telecoms.  What’s your advice to operators for finding the right fit?

I think our new wholesale client, Indosat, is a good measure of what a mid-sized mobile carrier needs and worries about.  Indosat has about 53 million mobile subs, is growing fast, and supports a couple MVNOs.  Their wholesale system went live tracking 800 million CDRs a day.

First of all, Indosat was cost conscious.  They were eager to choose a solution with a rich enough capability so they wouldn‘t have to reinvest in a new platform two years later.  Second, though scalability was important, they were also keen on having a predictive growth expense.  They also thought long and hard about their CAPEX and OPEX requirements if their business grew 5-10% per year.  Finally they wanted to roll out a new wholesale product very quickly.

My advice to operators is to get references.  Do your homework and make sure a supplier proves they have done it.  I think a proof of concept is a good idea especially if you have niche requirements, such as converting from an older homegrown system.  In a case like that you’re likely to see a lot of process changes.  But don‘t go overboard with the proof of concept idea because if you are doing that with 20 vendors you’re wasting a lot of time.  When you’re down to two or three vendors after your RFP process, that’s when a trial makes a lot of sense.

Operators also need to select someone who can support their growth strategy as well as their Opex/Capex constraints.  They need to find a vendor that continues to invest and develop the solution so that their investment is future proofed.

Copyright 2012 Black Swan Telecom Journal

 
Arun Kalavath

Arun Kalavath

Arun Kalavath is Director, Business Line Management at Redknee where he is responsible for direction, P&L, pipeline, orders, revenue and customer satisfaction for Redknee’s Wholesale Settlement Solution suite.  He is based in Reading, UK.

Prior to joining Redknee in early 2011, he was Senior Product Manager at Intec Telecom Systems.  He received his MBA in corporate finance, strategy and change management at Kingston University.   Contact Arun via

Black Swan Solution Guides & Papers

cSwans of a Feather

  • Webinar: From Wholesale Settlement  to Global Partner Management by Dan Baker — A 40 minute webinar providing a sweeping view of the challenges and opportunities service providers face as they try to manage a far more complex wholesale and partnering scene.
  • Partner Settlement: The Adaptable Chameleon that Lives Between Wholesale and Retail Billing interview with Arun Kalavath — Partner settlement has been around a long time, but its profile is on the rise because wholesalers are offering new services and content services are bringing settlements into the retail sector.  In this article, you’ll learn about the market forces changing the wholesale business, the expanded portfolio of services that require settlement, and advice on how to pick a settlements solution vendor.
  • Partners in Carrier Management: The Success Story Behind T-Mobile’s Fiber Rollout in Wireless Backhaul interview with Bryan Fleming — Wireless backhaul is the unsung hero of the smartphone’s success.  This interview with T-Mobile’s carrier management architect for backhaul reveals the behind the scenes game plan for one of the most ambitious wireless interconnect programs ever.  You’ll learn about: the reasons for adopting a full-scale fiber strategy; the challenge of finding carrier partners; the clever techniques T-Mobile used to simplify and cut costs; advice on building great relationships with suppliers; and the key role that analytics, assurance, and visualization software played.

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