NEW YORK-The conventional wisdom that communications software and enhanced services were “a one-night stand as an investment opportunity,” has faded away amid a proliferation of new carrier requirements, said Susan Passoni, vice president of Donaldson, Lufkin & Jenrette Securities Corp.
Excluding electronic commerce, DLJ projects the worldwide market for telecommunications billing and customer care will reach $8 billion by year-end and grow to $35 billion by the end of 2005.
“About 99 percent of a carrier’s interface with a customer is through the monthly bill. Today’s billing systems are (becoming) more complex and are integral to new service initiatives, marketing and pricing strategies for all carriers,” Passoni said.
“One of the most exciting things powering the change in the way we communicate is the [meeting] of mobility and the Internet (because) of the ubiquity of wireless and the Internet, location sensitivity and any time, anywhere communications … The Internet is the killer [application] for wireless.”
Worldwide, the number of wireless users is projected to increase to about 550 million by the end of this year and to surpass 1 billion by the end of 2003. Wireless data users, who comprised 31 million of the 425 million wireless subscribers at the end of 1999, are expected to exceed the 1 billion-mark by the end of 2005, Passoni said.
Global wireless revenues, which totaled $185 billion, or 20 percent of the total telecommunications services market, at the end of last year, will reach $400 billion, or 40 percent of the overall market by the end of 2005, DLJ projects.
Citing figures from The Yankee Group, Passoni added that the number of wireless carriers in the world will increase to 937 by the end of this year, up from the 875 in operation today and the 341 in business in 1994.
“Customer care and billing is growing faster than (growth in) the number of new [carriers] and subscribers because incumbents are replacing their systems in order to offer more services,” said Dov Baharav, chief financial officer of Amdocs.
“The vendor portion of [customer care and billing] also is growing faster than carriers and subscribers because of the shift from make to buy, from in-house to outsourced (systems).”
Furthermore, Baharav said Internet Protocol developments could dramatically expand the opportunity for customer-care and billing companies, by double or more.
“The IP market is expanding very fast. You can see that in wireless,” he said.As the number of carriers and customers expands, the accompanying trend of convergence has dramatic implications for billing providers.
“Three industries in one form or another are in convergence. Traditional voice, traditional wireless and emerging IP are evolving into next-generation service providers,” said Richard Aroian, vice president of worldwide systems for ADC Software Solutions, part of ADC-Saville.
“Carriers want to take the most important value of each and use it to differentiate themselves. Traditional (wireline) phone companies have a pretty good reputation for customer service, reliability and (call) quality. Traditional wireless carriers offer mobility and vast distribution networks. IP offers self-care over the Web and is a creative incubator for new business models.”
Within this expanding and yet converging telecommunications universe, there is a pressing need to achieve three goals, which remain elusive.
The first is provision of the single bill for multiple services. The second is identification of the customer in households or businesses with multiple users of varied services. The third is rating and billing appropriately for using different kinds of services.
“The business infrastructure behind billing would like to get to the point of a single billing stream, but today most applications do not allow this to happen,” said Carla Schneiderman, vice president of marketing, business development and sales for Corsair Communications Inc.
Today, as an interim step, carriers often provide some form of “electronic staple” that links bills for different services, said Betty Zackheim, director of product development and customer acquisition for Lightbridge Inc.
“Carriers that have acquired other services are in the first phase of integrating systems. The No. 1 goal is to generate a bill. The electronic staple is crude, and carriers are trying to create converged, itemized bills.”
Unifying the bill is no less challenging than identifying the customer. The traditional landline model, which ties customer identity to the phone number, is losing relevance when a single household or business has several wireless and wireline numbers, in addition to cable television and Internet access.
“Most billers started with the phone number as being most important, but it is more important to start with the customer,” said Jeff Rinscheid, director of wireless support OS billing customer care for Lucent Technologies Inc.
“Many in the industry don’t know how to integrate a bill by setting up a tree tied to an account number for different and additional services.”
As a result, Kevin Bresnahan, director of business advisory services for Lightbridge, said he has seen instances in which carriers offering long-distance, local and wireless services have “dropped some wireless services customers because of their low landline use.”
As much as this is a technology question around unification of customer recognition and billing, it also is a question of how the management of carriers provides incentives to its different divisions.
“There are a lot of issues because maybe that customer has different services run by different departments, each of which assigns a different value,” Bresnahan said.
Another management issue is the concern over potential customer sticker shock upon receipt of bundled bills, said Aroian of ADC-Saville.
“I don’t buy that argument. It’s old thinking. Anyone using multiple services knows what they’re paying. I get five (telecommunications) bills a month, but I can only have a discussion with one customer service rep (from each service) at a time,” he said.
“I would prefer to be able to go to a carrier that sees the whole and will negotiate a lower bundled service price.”
The third compelling issue for carriers in an era of converging and expanding services is adequate identification of services consumed to enable appropriate pricing.
“It’s an interesting space we’re in now because the whole issue of mobile communications, any time, anywhere means carriers are faced with the problem of offering services to retain customers, without giving them away,” Corsair’s Schneiderman said.
As telecommunications providers team with content providers, the issue of adequately tracking and valuing end-user service consumption takes on greater urgency, Lucent’s Rinscheid said.
“If you don’t bill the subscriber directly for content, you have to pay the content provider based on usage, which you must be able to prove,” he said.
“If you just pay the content provider a fixed price (regardless of subscriber usage), someone will be unhappy at the end of the year.”
A number of companies, including Amdocs, Corsair, Lucent and Narus Inc. have developed various means to enable tracking and rating of customer use of varied telecommunications services.
“Carriers are not running a network. They are running a business. They must understand who their customers are, what they use and how and when and why,” said Rick Kagan, vice president of marketing for Narus.
It is particularly important for carriers to be able to track and identify the otherwise undifferentiated voice and data bits that will fly over next-generation IP networks, he added.
Lucent’s Rinscheid called this a “data sniffer associated with an IP device that
watches and values different types of packets for billing and data collectors.”
Aroian of ADC-Saville called them “mediation devices, which
integrate with the switch and billing system, to differentiate among uses.”
Right now, carriers typically charge nothing for wireless data access or a flat rate. Either method suggests they do not have enough information for more appropriate billing, he said.
While DLJ’s Passoni and Amdocs’ Baharav acknowledged the growing business opportunity for billing and customer-care companies in this dynamic telecommunications environment, others said the sector still has a good deal of convincing to do.
“We need to do a better job of showing carriers they can make money on customer profiling, that it will enhance their ability to be strategic thinkers, to see where the market is going or to protect their existing turf,” Corsair’s Schneiderman said.
Rinscheid said providing cost-benefit analyses is tough because “accounting for a negative, the avoidance of revenue loss, is a difficult argument to make.”
Small carriers, new carriers and those existing carriers of any size which have outsourced their billing functions have the easiest potential route to replacement of these major components. The concern that a mission critical system will malfunction during the transition, coupled with the cost of outright replacement, often gives carriers pause. Rinscheid likened these considerations to those of a car owner who must decide how long to keep an old vehicle and how much to sink into it for repairs before opting to buy a new one.
When either doing nothing or doing everything at once proves undesirable, Rinscheid and Aroian said some carriers are phasing in new systems one market at a time. This way, the telecommunications company can run the old and new systems in tandem until the latter has proven itself in the geographically limited deployment. Once it does, the operator can roll it out gradually elsewhere.
