article

Mix & Match

Posted: 011/2002

Mix & Match
Necessity is Mother of Inventive Outsourced
Billing Contracts

By Khali Henderson

While organizational preferences
still weigh heavily in telecom service providers’ decisions to outsource or
"insource" their billing systems, their vendors say more and more of
them are evaluating the continuum of hosted and managed services with an eye
toward lowering their total cost of ownership. That goal is forcing vendors to
be ever more creative and flexible in crafting both operating agreements and
financial contracts for cost-conscious operators.

"We definitely see software
purchasers looking at total cost of ownership," says Steve Borelli,
director of new products for CSG Systems Inc., noting this includes costs other
than the software license, such as people — developers and system integrators
— facilities and hardware (see
table below)
. "Then they are looking at the alternatives,"
Borelli says.

The alternatives to the traditional
do-it-yourself licensing model have been expanding of late and run the gamut
from onsite management, remote facilities management and outsourced managed
services to plain-vanilla hosting of billing, CRM and, surprisingly, other
nonbilling enterprise applications. One of the more radical solutions being
discussed is the billing vendor acquiring the operator’s billing system and
leasing it back to them, says Keith Wolters, senior director of product and
industry marketing, Convergys Corporation.

"More outsourcing options are
requested in RFPs," says Wolter, noting "operators are far more
open-minded across the board."

The primary reason for their
openness is that margins and customer bases are shrinking, pressuring operators
to reduce capital and operating expenditures.

Startups are considering outsourcing
because they don’t have to spend a fortune on billing, explains Don Culeton,
president, InfoDirections Inc., a provider of hosted and licensed billing
software. "The initial capital outlay [for a traditional in-house software
license and infrastructure] can be enormous compared to a minimal amount down
and a per-invoice or per-call record fee for outsourcing," he says.

Culeton says larger companies,
especially those going through Chapter 11 reorganization, also are targeting
inefficient back offices as opportunities to save money through outsourcing.

Ron Kunzler, director of marketing
for billing vendor Telution Inc., concurs. He says Tier 1 providers also are
using outsourcing as a means to get into new service lines without using their
existing operations support systems. "It takes too long to do it to realize
time-to-market goals," he explains. Many times the legacy applications are
more costly to modify and operate, Kunzler adds.

In other cases, says John Caddell,
vice president of marketing and business development for EUR Systems, customers
are looking to consolidate billing systems acquired over years of expansion or
acquisitions. "It’s causing them to reevaluate their current
approach," he says.

Most vendors PHONE+ talked to
reported vendor size has little impact on the decision to outsource. "It’s
more about the personality of the company and its executives," says Culeton.
"Do I need complete control, or am I willing to focus on my business?"

The incorporation of next-generation
technology is making it possible for operators to find the balance of control
they require. More and more systems are designed with hosting in mind, making
them remotely accessible over the Web.

"The challenge is if the system
wasn’t meant to [be hosted], then operators will have limited access to them,
says Jim Culbert, vice president of technology, MetraTech Corp. The company’s
MetraNet billing system is XML-based and allows for Web-based access to all
management interfaces. For example, a new module, MetaPrice, announced in
September, allows business-level users to create pricing and packaging plans and
launch services without custom coding by MetraTech nor a systems integrator.

"Obviously, the browser has
become the common means of accessing applications," says Convergys’ Wolters.
"Operators never had a chance to tunnel in and see operations in progress.
IP and firewall technologies allow operators to see what’s going on. That
capability overcomes their concerns."

CSG’s Borelli says such Web-based
administrative and operational tools "make it like they have a system in
house. "With our administrative tools and operations consoles, our
customers can do as much [administration and management] as they want," he
says.

Bill Miller, COO, CTI Group adds,
"The beauty of IP and the ubiquity of the Internet is the service can be
anywhere as long as I have an IP address. Building around that technology gives
us flexibility."

Miller says, for example, CTI hosts
one client’s MagnaFlex billing system and its Oracle database server for order
management, customer information and product development applications.
"They connect via IP VPN to the market (business management) server,"
he says. Miller notes the solution has allowed the client not to expand its
infrastructure or staff to maintain these application program nor the server.

This kind of flexibility is the
order of the day, vendors say. Similarly, Telution, for instance, offers hosted
services through third-party partner X-wave. "This gives an opportunity for
our customers to outsource hosting of other applications, such as financial, CRM
or even network management," says Kunzler.

Other vendors cite the ability to
change course midstream. "What we have the opportunity to do because our
platform is designed to be hosted or licensed is that our client may start as a
service-based user and then move it in house," says Miller. "The
migration is simple. All you really are doing is picking up the database."

Similarly, many vendors offer a
"build, operate and transfer" model, wherein the system is set up and
operated (either insourced or outsourced) by the vendor with the goal of
transferring control at some date several years in the future. Interestingly,
the outsourcing model can be so successful operators often put off transfer of
control.

"The success we demonstrate in
the operating phase determines whether they take it back in house," notes
Convergys’ Wolters. "We have SLAs with penalties; they are more strict on
us than employees. If we are meeting our SLAs and costs are contained, they are
more apt to say, ‘If it ain’t broke, don’t fix it.’ "

Telution’s Kunzler says the days of
offering operators a price per order and sending them on their way are long
gone. "It’s much more shared risk and shared reward," he says,
explaining that more and more operators are saying, "I’ll take on new
software, but you have to run it for me."

Indeed, increasingly "who owns
the software asset and who does the work are two separate questions," says
EUR System’s Caddell, who notes there is a trend toward asking others to do the
work.

"One aspect is economics …
Beyond that, there is the growing belief that there are only a certain number of
things that we can do well," he says, citing marketing, network and
business partnerships as the ones operators are keeping close to the vest.

"As far as trends go, we are
seeing the need for extreme flexibility in terms of the deal," says Caddell.
An operator might outsource for a setup payment and a monthly transaction fee,
or it could license the software and have EUR Systems host and manage the
system, he explains. "Our work is the same, but the financial structure is
different. It’s a significant decision for them [the operator]."

Managed Service Continuum

Billing Operations

  • Real-time data metering

  • Rating

  • Taxation

  • Revenue sharing

  • Online bill presentation

  • Payment

  • E-payment

  • Customer care

Account Management

  • Account creation

  • Report and invoice generation

  • Accounts receivable and data
    feeds

  • SLA option

Maintenance

  • Database backup and archiving

  • Data problem analysis

  • Server maintenance

  • Performance tuning

  • Routine and emergency software
    and hardware maintenance

  • File backup and recovery

  • Off-site backup storage

  • Disaster recovery

Network Administration

  • Security Monitoring (IDS, etc)

  • Service & Network level
    monitoring

  • Patch Updates

Professional Services

  • Billing Process Consulting)

  • Rate Plan Consulting

  • Custom Development

  • Training

Support Services

  • Initiate bill runs

  • Remediate data issues

  • Define best practices

  • Monitoring customer processes

  • Staff augmentation

  • Business Practice Expert

  • Customer Advocate

  • Production change support

Source: MetraTech Corp.

Assessing
Total Cost of Ownership

When comparing an internally
developed system to an outsourced delivery model, one must consider all
costs — tangible and intangible — over some commonly defined period of
time, such as the typical length of an outsourcing contract, which is five
to seven years.

Tangible costs are those that
would be incurred by any operator if they chose to build, support and
operate an in-house billing system. In an outsourced model, these costs
are born and managed by the vendor.

Intangible costs are items
that are difficult to put into a "dollars and cents" metric, but
impact ROI, customer satisfaction, market share and general market
perception. These metrics rarely are calculated for internal in-house
systems.

Keep in mind that when an
operator chooses to utilize an outsourced delivery model, what they
essentially are purchasing is a mix of service level agreements (SLAs)
with penalties for nonperformance, and not the billing system residing
behind the SLAs. This is never the case for an internally developed and
operated billing platform.

Tangible Costs

Hardware

  • Hardware and operating
    system

  • Hardware and operating
    system upgrades

  • Hardware and operating
    system support and maintenance fees

Billing Software Application

  • Application programmer
    resources Initial application development Ongoing enhancements,
    maintenance and problem resolution

 Implementation

  • Implementation and
    configuration

  • API development, testing,
    and integration

  • Operational and user
    training

Third-party Software
(mediation, provisioning, CRM, middleware)

  • Licenses or custom
    development costs

  • Version license upgrades

  • Operational and user
    training

Operational Costs

  • Data center infrastructure
    costs

  • Operations staff

Human Resources

  • Programmer staffing

  • Data center personnel
    staffing

  • Personnel infrastructure
    (floor space, desks, chairs, computers, training, benefits, etc.)

Procurement

  • Data center supplies

  • Programmer supplies

  • Procurement management

Intangible Costs

Time to market

  • Timeliness of enhancements

  • Vendor-funded new
    functionality roadmap

  • Timeliness of new market
    promotions

  • Ease of new product
    introduction

  • Timeliness of product
    pricing changes

  • Ease of bundling products
    into packages

Service Levels

  • System availability

  • Billing accuracy

  • Bill timeliness

  • Average online response
    times

  • Others

Source: Convergys Corp.

The
Links

Convergys www.convergys.com

CSG Systems www.csgsys.com

CTI Group www.ctigroup.com

EUR Systems www.eursystems.com

InfoDirections www.infodirections.com

MetraTech www.metratech.com/

Telution www.telution.com

X-wave www.x-wave.com

 


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