Posted: 11/1999
From Time and Distance to Bandwidth and Priority
By Robert Rosenberg
The financial markets have created a bubble, which seems to envelop nearly every initial public offering (IPO) of an Internet-related business. Though that bubble will burst, it nevertheless is apparent the public Internet is the new engine of telecommunications that initially will augment, and later supplant, the circuit-switched, public switched telephone network (PSTN). The word Internet conjures up new concepts of what constitutes a telecom service and a new delivery system for those services, and creates a foundation for new business development. Using Internet protocol (IP) to build a telecom service, carriers can, for the first time, establish tiers or grades of service and create variable pricing to reflect real marketplace conditions.
Insight's research suggests that at least for the next few years, billing for these new IP-based services will be an element of a convergent billing operation (see chart below). Mediation is the process of taking switch outputs and converting them into billable events. Much like their circuit-switched predecessors, the mediation function for an IP billing system will format switch output into billable event detail records. The big difference between the circuit-switched and the IP model is that the IP billing system must be able to handle many more variables, and these variables must be reflected in the packet headers.
Graph: IP Billing as a Percent of Total Billing/Customer Care Revenues,
1998-2004
IP-based billing is derived from Internet usage records (IURs), which are similar to the call detail records (CDRs) of circuit-switched billing. The IUR utilizes fields and functions from the traditional CDR and extends it to monitor a broader range of parameters encompassing session length, packet, transaction, service level or central processing unit (CPU) usage.
The converged bill of today will evolve to a new paradigm of real-time, usage-based billing based on session length in an all-packet network. The future of IP billing systems centers on the benefits that flow to carriers and users, some of which are:
* Increased customer satisfaction through the immediate delivery of value-added information and services. Real-time billing supports the provision of value-added information services to customers in real time, even if bills are generated only once a month. Customers can sign up, be registered online, and begin accessing and adding services immediately. For example, users of online games can purchase additional game resources while immersed in play.
* Increased revenue for carriers through more accurate and more timely billing cycles and collections.
* Rapid product deployment. Real-time capabilities allow providers to roll out a service right away, a crucial capability in today's markets.
* Enhanced target marketing. An Internet telephony service provider (ITSP) can target promotions to customers based on calling patterns and can deliver the promotions in real time, while the customers are online.
* Reduced fraud through real-time detection. Real-time systems protect against fraud by allowing the network provider to check the user's available credit while online. These systems can detect in real time whether a customer's ID is being used in more than one place in the network at the same time and, if so, services can be canceled immediately.
Differences of Packet- and Circuit-Switched
There are some fundamental differences between systems designed for Internet telephony and ones designed for traditional telephony. Traditional telephony operates on circuit-switched networks while Internet telephony operates on IP packet-switched networks with IP packets operating over a distributed network. IP services are connectionless, whereas circuit-switched networks are connection-oriented. Traditional voice services fill an entire channel or circuit being used. IP packets, however, are scattered across the network, taking different routes. These packets are lined up at the receiving gateway. Packet five in a transmission, for example, may arrive before packet three. Packet one may show up last, and packet seven might not arrive at all and must be retransmitted. The receiving gateway reassembles messages in the proper order from the arriving packets. As a result, IP networks are more efficient in terms of network use. Moreover, distance is not important to IP services, while location and distance is a prime determinant of pricing in the circuit-switched world.
Another major distinction between circuit-switched and packet-switched billing systems is the difference in the networks' technologies and the service provision. Circuit-switched networks are older, more proprietary, legacy-based systems, while packet networks are much less complex. From a service standpoint, circuit-switched networks have a much higher availability (99.9 percent for circuit-switched compared with the 80 percent availability for packet networks). The quality of service (QoS) for circuit-switched networks is much higher and the networks more reliable overall than packet switches. In all IP services, there is a one-to-three-second latency inherent in today's packet network technology, which explains why the quality of real-time analog services, such as voice or video, is degraded in packet networks.
Disparate Quality of Voice Communications
The disparate quality of voice and other connection-oriented communications is the major difference between packet and circuit-switched networks. The lower quality of IP telephony services is the reason why IP telephony now is used mainly by students, PC hobbyists and those with numerous family members living outside of the United States, all of whom are seeking an inexpensive way to make international calls. The sound cards on most PCs, if they exist at all, were made for games, not for a voice transmission. Screen savers, spreadsheet sorting and other background PC-based functions can further degrade the call quality. In addition, it is awkward to bend over a PC to talk to someone. Companies do not want to use this technology to speak with their customers. If IP telephones are easy to set up and do not use a lot of capacity in their data networks, companies may decide to use them internally. In the United States, however, traditional telephony prices are so low that saving an extra cent or two per minute may not be worth the effort of adopting IP telephony.
Flexibility of IP Billing
Billing systems for IP services require much greater flexibility than the systems used in the traditional circuit-switched billing model. Like their circuit-switched predecessors, the mediation function for IP billing systems formats switch output into billable event detail records. The big difference between the circuit-switched and the IP model is that the IP billing system handles many more variables, and these variables are reflected in the packet headers.
Insight's research suggests that most often IP billing systems are an element in a convergent billing operation--they may be standalone--but more frequently, we expect to see IP billing systems feeding into one of today's leading billing and customer care systems. As a niche-specialty area, IP billing must adapt to more established billing systems to be successful. Once the records are formatted and translated to a CDR-type of format, they can be fed into any of today's leading billing systems for flexible rating and billing.
The typical IP billing system is likely to run off of client/server architectures. Unlike most circuit-switched networks, IP billing systems are not wedded to a mainframe for bill processing. The IP systems in place today tend to be much smaller, with fewer subscribers than a circuit-switched network. When we do encounter circuit-switched network providers offering service, they typically segregate IP billing systems from the main portion of their networks.
IP billing systems give carriers access to object-oriented toolkits and open application programming interfaces (APIs). This process allows carriers to configure their own billing systems, resulting in more timely new product introductions and deliveries. With all the billing system functions performed in house, carriers have greater control over the programming. They also can eliminate the need for expensive outsourcing and reduce the danger of revealing proprietary billing system information to external parties.
The newer IP billing systems cost less than traditional billing systems. Still, vendors of traditional systems such as IBM Corp., Armonk, N.Y.; Hewlett-Packard Co., Palo Alto, Calif.; and Kenan Systems Corp., Cambridge, Mass., claim the newer IP billing systems do not have sufficient power to perform the telco applications for larger companies. Windows-NT proponents, on the other hand, say scalability and redundancy in IP billing networks are accomplished by adding more processors.
IP billing systems require little, if any, proprietary programming and resources to support custom development. They are not tied into the legacy systems attending circuit-switched networks. IP billing systems offer many more parameters that can be coded into a packet header's sorting information. Leading billing vendors are offering 20 to 30 different fields in IUR formats, many more than circuit-switched services offer today.
The greatest weakness in IP billing is the difficulty of validating a PC's IP address. IP addresses are assigned dynamically within an IP network and do not necessarily correspond to a telephone number or customer identity. Since many service providers now are struggling with maintaining number portability, they do not want customers to have their own static IP address because it is more difficult to maintain. IP services still face technical problems in fraud prevention and in the complexity of packet-based event detail records.
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Robert Rosenberg is president of The Insight Research Corp., a Parsippany, N.J.-based consultancy providing market research and strategic analysis to the telecommunications industry. Visit Insight on the web at www.insight-corp.com |
