So,You Want to Tackle UNE-P Resale?

Posted: 3/2004

So,You Want to Tackle UNE-P Resale?
Here are Six Key Strategies in the Playbook
By Edward J. Finegold

Local resale never has been easy.
Unbundling regulations have been hotly contested throughout the
deregulatory era. Wholesale-retail relationships among ILECs and CLECs can be
openly hostile. Bureaucratic trappings encumber service ordering and restrain
the fulfillment of customers choices. And yet many CLECs and resellers consider
owning their customers local business a strategic absolute. There is money to
be made in local. It is often considered a customer anchor in a multiservice
bundle. As margins shrink in traditional resale markets, such as long distance,
the need to diversify and create revenue streams drives interest in offering
local. Providers and vendors are building successful businesses on
UNE-P together, and here they share six primary considerations for anyone
looking to tackle UNE-P.

1. Be Prepared for Hostility. One of the
harsh realities of the UNE-P business is that it is built upon ILECs enmity for
resellers. While the pot only occasionally boils over, the nature of business
interactions is not simple. Every step of the process from acquiring customer
data to dealing with billing disputes is set up in a way that fulfills FCC
requirements, but does not pursue high-quality service. Theres a perception that CLECs like buying stuff from the
ILECs. We hate it. They are hostile suppliers that dont want to do business
with us, says Robert Curtis, senior vice president of strategic planning for
Z-Tel Technologies Inc. Z-Tel has built much of its business through UNE-P and
is now expanding its facilities footprint nationwide, while simultaneously
working in the Washington, D.C., Circuit court to protect favorable pricing
rules for CLECs.

Offering UNE-P often means entering into discussions with
individual ILECs to negotiate tariff agreements, contracts that dictate the cost
a provider pays for the services it resells. Across the board it is advised that
anyone entering these discussions hire an expert to help in the process. Derrick
Van Grol, vice president of sales and marketing for Info Directions Inc., says
there are many local consultants his company recommends who specialize in tariff
agreements and CLEC licensing, and using them is critical to success. Van Grol
explains many companies seek an alternative strategy where they skip this
process, find a partner who already has agreements negotiated and then resell
underneath them.

2. Do Things the ILEC Way. ILECs are
difficult to interact with because every process involved in ordering,
delivering and repairing services depends on exact data accuracy. If a simple
address format is slightly wrong, an entire order for multiple services can be
held up or rejected. ILECs insist that their wholesale customers provide a range of
accurate information via a different, stringent, defined process in each region.
You (the CLEC) speak German; they (the ILEC) speak French. Solution: learn to
speak French, says Bob Fabbircatore, chief executive officer of New Horizon
Communications Corp.

Learning French, like it or not, means putting the burden on
ones own organization to learn the ILECs systems and processes, and get them
right. If you want the carrier to deliver the product on time and accurately,
you have to send in the information very clearly. You better find out if the
customer can pay their bills. You better find out if the location can support
the service. If youve got all that, youve got to make sure its sent very
accurately, stresses Fabbircatore. He describes dealing with ILECs as an
extremely literal business…and if you dont understand that, youre going to
have a very difficult time being a direct biller of their services.

Further, threats and complaints do little good. One cannot
overlook the human component the fact that people are working the ordering,
provisioning and trouble desks on both sides. Having good relationships with the
people on the desk, and making sure to do the best job of making their lives
easier by being accurate, can drive performance. Also information accuracy and
the ability to be knowledgeable about a problem when raising disputes or
troubles is critical to seeing them solved. You cant just scream about every
little thing, says Fabbircatore.

3. Simplify Interconnection, and Dont Forget the Hot-Cut. For larger operations, particularly those offering UNE-P
nationally, it quickly becomes apparent that automating ordering and ILEC
interactions is necessary. The good news is this is one of the most mature
aspects of the UNE-P business. Numerous vendors have solutions for interfacing
with, formatting orders for, and following processes rules defined by each ILEC.
A useful development in this market came Sept. 2, 2003, when Neustar Inc.
acquired the assets of Nightfire Software. Nightfire developed a solution for managing ordering among the
national ILECs, originally as an on-site solution for CLECs, but also on an ASP

Neustar, the primary manager of the number portability
administration centers (NPACs), now provides what amounts to a clearinghouse for
ILEC ordering based on Nightfires technology. CLECs can interface with Neustar
using either a web-based ordering front end, or by integrating to an XML-based
API Neustar publishes. Some vendors have also developed productized integrations
with Neustars API. Its relatively straightforward to get that integrated,
says Venkates Swamy Swaminathan, senior vice president and chief OSS
strategist for Neustar, it takes three to six months, depending on the
complexity, he says. He says Neustar customers tend to take a migratory
approach, using the web option until integration is appropriate and

Neustar also offers a hot-cut solution, to help migrate a CLEC
from ILEC UNE-P facilities to an alternate supplier or network. UNEP will go
away and people will need to move their customers from UNE-P to facilities-based
offerings if a CLEC is saying it wants to mitigate its risk, it will look at a
batch hot-cut.

During the most recent Triennial Review, it was decided that
states would rule whether to end UNE-P in certain regions if they met certain
competitive thresholds. This means that UNE-P may be suspended in some large
markets, which could make CLECs scramble. Whether or not this will actually
happen is a heavily debated topic (see No. 6).

4. Make Sure your Billing System is Ready.

Telecommunications businesses particularly those in resale
are built on billing. A provider might be perfectly happy with its billing
system for long-distance or mobile resale, but that wont mean it can bill for
local effectively. If you have a system that was built for long distance,
theres no way in the world youre going to be able to support
local, explains Don Culeton, president of billing solutions provider
Info Directions. Your product offering goes from a few hundred to maybe tens of
thousands of products, he says.

The billing system must be able to create, manage and bill for a
potentially unlimited number of bundles. In the UNE-P business, its also
helpful if the billing system can provide cost and margin analyses to help both
with spot pricing and grooming the product catalog. Telecom billing systems
dont usually have accounting functions built in. We build our products into the
catalog with our costs, so we know our margins on each product, says Glen
Nelson, vice president of marketing and business development for New Horizon

In many cases, providers will need to seek wholly new billing
solutions to enter UNE-P. This does not mean, however, that a new IT group must be formed
to manage a new set of systems. We didnt want to build an IT staff, so we went
for an ASP model, says Nelson. Web technologies have introduced a range of viable ASP options
for billing and other operations functions. One of the primary reasons to
outsource is that billing is not simply billing anymore.

Billing systems do not stand alone; they are central to business
process and control and will need to interact with ordering, trouble handling,
accounting, cost-management and revenueassurance processes. Traditional billing
service bureaus, one segment of the market for outsourced solutions, often are
not designed to support this kind of interaction. They can be based on batch
processing that occurs after the fact, outside of the business. Customer billing
data is not readily accessible, nor is it easily pulled into customer care

If moving to a new billing solution while entering UNE-P, it is
critical that the ultimate solution set cast a wide net. Ideally, the billing
solution should be equipped to interact with order desks or clearinghouses,
automate task workflow and process modeling, police provisioning tasks and
automate trouble handling and escalation. The billing systems product catalog
should make it easy to create and change product bundles and their associated
rates. Further, it is important to consider a systems ability to provide online
bills, automate collections and support complex taxation.

5. More Revenue Will Mean More Leakage.

UNE-P is a volume business, and it involves turnover. In other
words, a UNE-P reseller is going to have to manage many add, change and
disconnect orders. This in turn means ensuring the billing system is billing the
right customers for the right services. It also means ensuring that invoices
coming from the ILEC supplier are accurate. You need to have a process that
makes sure youre aware of what youre provisioning, so you can bill accurately
and verify invoices coming in. Its going to be software-intensive and
labor-intensive, but your back office has to be able to handle it, says Charles
Aldis, vice president of product management for Vibrant Solutions Inc., a
provider of cost and revenue management software and services.

The opportunities for margins to erode expand as a UNE-P
business grows. First, if the billing system cannot keep up with changes,
services will go unbilled and customers will be over-billed. This means lost
revenue, and possibly lost customers before the cost to win them has been
recovered. A billing system that is linked into the ordering and provisioning
process should have selfchecks to insure billing records are aligned with
provisioning, thus minimizing billing inaccuracies caused by lags between
ordering and billing updates. Where this is not the case, manual
provisioning-to-billing audits are necessary, but might be too slow or
inaccurate in a very high-volume environment.

The real trouble and potential for loss comes on the cost side
of the equation, with supplier invoices. UNE-P bills are a mess because you
have a combination of all the UNE elements, explains Vibrants Mays. UNE-P invoices received from ILECs are
broken into thousands, or millions, of line items for loops, switching,
transport, features and more. Further, usage is broken up into line items. Each
customer will make interswitch, intraswitch, toll and long-distance calls, as
well as calls subject to reciprocalcompensation charges. The bills are difficult
enough to decipher that it often requires a day long seminar to learn to read
them. The ILECs, however, do not have incentive to simplify them because it
makes them harder to audit and results in less bill disputes, argues

The only apparent solution to this problem is to have a person
dedicated to continuous audits of provisioning records, invoices and daily usage
feeds (DUFs) coming from the ILEC. The provider must have the will to find
disputes and pursue them in order to protect margins, which generally means
spending some money on people and/or systems to manage the problem. Ive run
some pretty robust cost-management organizations with $3 [million] to $5 million
budgets, and I have never spent more than I saved, says Vibrants Aldis.

At the least, continuous audits should identify ongoing cost
overruns and should pinpoint reciprocal- compensation opportunities. According
to Mays, providers should have the wherewithal to look at all of their DUFs and
bill the ILEC back for reciprocal compensation. Weve found its a good source
of revenue to do this.

6. Prepare for UNE-Ps Demise, But Dont Bet on It. Though its often said the Triennial
Review Order eliminated UNE-P as a mandated offering altogether,
this is not entirely true. UNEP is not going away. Even under the amended
Section 251 rules, UNE-P only will be suspended if states determine there to be
sufficient alternative access in a region so as not to hinder
competition. In many areas, UNE-P rules will remain as they are for some time
to come. In some areas, where competition is heavier, there is a risk for CLECs
offering UNE-P. Any provider should have a contingency plan should UNE-P
suspended. The only options are to find an alternate facilities provider and
hot-cut, build new facilities or leave. The last two options certainly are not
realistic, which makes another argument highly appealing.

While Section 251 of the Telecommunica-tions Act of 1996 deals
with UNE-P rules and is the center of the current controversy, Section 271 still
plays a critical role. This section sets the rules that determine whether an
ILEC is permitted to offer long-distance services in certain markets. The
hitches in these rules are three critical checklist items that add up to UNE-P.
If you look at the checklist, it says (ILECs) have to provide unbundled loops,
transport and switching. Put those three together and you have UNE-P. There is
no ambiguity about that in the FCC order, says Z-Tels Curtis. Curtis, and
others, say the ILECs 271 obligations will help keep UNE-P alive, though it may
be called something else. What remains at stake is whether a UNE-P bundle, by
any other name, is priced the same.

Currently, the D.C. circuit court is considering 271 unbundled
element. Curtis adds the FCC only has jurisdiction over interstate telephone
elements local switching is priced by the states, not by the FCC If we have
to come up with a new cost method for 271 UNEs, we just did a TELRIC proceeding
for a reasonable rate. I dont think (the states) will want to do a yearlong
study just to come up with rates that arent much different from those they
already have.

While nothing is decided, its reasonable to assume the jury is
still out on UNE-Ps exact future. One thing to consider, however, is UNE-P may
be suspended in certain markets where 271 unbundled elements are offered
instead. While these services may be identical, and may be priced the same,
CLECs still could face the onus of reprovisioning all their customers from UNE-P
to 271-designated elements.

Edward J. Finegold is general partner, Stylus Telecommunications
LLC, which helps communications service providers find the commercial B/OSS
solutions that suit their specific needs and provides support for marketing,
sales, business development and strategic planning for solutions vendors and
integrators. He can be reached at

Info Directions Inc.
Neustar Inc.
New Horizon Communications Corp.
Stylus Telecommunications LLC
Vibrant Solutions Inc.
Z-Tel Technologies Inc.

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