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White Paper Convergent Mobile Charging Solutions

Convergent Mobile Charging White Paper

Introduction
The global telecommunications industry is obsessed with convergence, so much so that at times one could be forgiven for believing that within a very short space of time the industry will converge into one amorphous block. Industry publications and events provide constant comment on:

The convergence of telecommunications and IT The convergence of telecommunications and media The convergence of fixed, mobile and IP communications (service convergence) Supplier convergence (consolidation) Convergent charging Convergent rating Convergent billing Convergent mediation Convergent CRM Etc

As it happens most of these aspects of convergence are interrelated and some are manifestations of much the same thing. What is clear is that convergence is a very heavily used word at the moment and unfortunately means different things to different people. As a result,

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White Paper Convergent Mobile Charging Solutions

the term convergence in the telecommunications industry is in itself almost meaningless. Most conversations on convergence in the telecommunications industry start with well lets define exactly what aspect of convergence we are talking about. A very important aspect of convergence in the mobile communications world is the convergence of the prepaid and postpaid charging environments. Prepaid/postpaid convergence is not confined to mobile communications, but it is here that it has the most obvious impact, because of the large and growing global base of prepaid mobile subscribers. The concept of prepaid/postpaid convergence is not new. Mobile operators have been looking at the possibilities for a number of years, but despite the compelling advantages for mobile operators, there have been few operational deployments of convergent prepaid and postpaid charging solutions.

Prepaid and Postpaid Charging

In the early days of mobile communications the model for charging customers for the services they used was much like the model employed in fixed communications. Customers signed up for the service, with some form of contract and were billed for usage in arrears. The solutions that were used to rate and bill for postpaid accounts were largely batch based, but developed a high degree of flexibility in terms of product definition and rate plans. The postpaid model worked reasonably well in the markets that were developed first, at a time when virtually all public mobile communication was voice traffic. However it did not work particularly well in countries where there was no infrastructure for credit control, or automated regular payments and even in countries where this infrastructure existed the model was overstretched by the requirement to increase mass market penetration. The answer in these circumstances was prepaid charging. However, prepaid charging meant the real-time degradation of a prepaid balance as usage took place. It was a different charging model to that used in a postpaid billing environment and required a totally different technical solution, which included real-time rating. In most markets and for most operators within them, both prepaid and postpaid charging environments are offered. However, they have tended not only to be separate charging environments, but also separate businesses. Until fairly recently in the more established mobile communications markets, mobile customers on prepaid tariffs tended to be the poor relations of those on regular subscriptions. For many operators the provision of prepaid services was a means of controlling bad debt and lowering the cost of customer management for the least profitable sections of the customer base. In this scenario separate business operations and separate charging platforms were acceptable. However this is now all changing. Operators are recognising the advantages of bringing the inherent strengths of both prepaid and postpaid charging environments to the whole customer base. Customers are looking for prepaid and postpaid charging as options for individual transactions, or transaction types, rather than for all types of service, to help them with spending control and account management. At the same time many operators are also looking to reduce the operational costs of their billing platforms and consolidation of prepaid and postpaid charging environments can have significant financial benefits. So why have so few convergent prepaid and postpaid deployments taken place to date? As with most things in life its not as simple as it first seems. True there are many compelling advantages to prepaid and postpaid convergence, but there are also a number of significant hurdles, as discussed below.

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Market Drivers and Constraints

Figure 1 shows Junipers view on the principle drivers and constraints related to the implementation of mobile convergent prepaid/postpaid solutions. Figure 1: Drivers and Constraints for Convergent Charging Solution Deployment.

Drivers

Constraints

Changing Face of Prepay Cost Reduction Operating Efficiency Reduction of Debt and Fraud Exposure Customer Management & Business Intelligence 3G Services Product Innovation & Service Differentiation Competition Subscriber Cost Control

Technology Legacy Systems Cost Supply Side Constraints Operator Reluctance Organisation Consumer Indifference

Source: Juniper Research

Market Drivers
Market drivers can be grouped under three primary headings:

Operator Cost Reduction Operator Product Innovation and Service Differentiation Subscriber Spending Control and Account Management

Operator Cost Reduction A primary driver for the early implementation of mobile convergent prepaid/postpaid charging solutions has been operators striving to reduce the cost of billing platforms. There are two aspects to this: acquisition cost and operational cost. Operational cost issues include:

Multiple software license fees and maintenance contracts. Maintaining the skills necessary to operate and maintain disparate systems, including training costs for operational and end user staff. Maintaining multiple vendor relationships.

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Multiple configurations required to apply new offer new products, packages, tariffs to customers across billing platforms. Integration, interworking and consolidation costs e.g. to get a complete picture of billing data.

On top of the operational costs there are replacement/acquisition costs. System replacements are expensive, they consume vast amounts of costly staff time and effort, apart from the actual purchase cost of the solution. Couple this with the economies of scale and operating efficiencies mentioned above and there are real cost advantages to platform consolidation. Product Innovation & Service Differentiation The second driver group is the need for operators to find new ways of non-price differentiation, both to acquire customers and to retain them. This focuses on product innovation and pricing flexibility. It also focuses on the need to be able to make the same offers to all customers, whether they are prepaid or postpaid customers New network and handset technologies and a wealth of specialist WASPs (Wireless Application Service Providers) are increasing the opportunities for innovative product and service delivery and increasing the pressure on operators and service providers to innovate. Of course if one operator in a country market introduces convergent prepaid and postpaid charging and the pricing flexibility that goes with it, there is increased the pressure on other CSPs (Communications Service Providers) in the same market to follow suit, providing further market impetus. Subscriber Spending Control and Account Management For mobile subscribers there are also tremendous attractions to convergent charging options. Customers are now starting to look at prepaid and postpaid charging as just charging options for individual (or types) of transaction, not as a different type of account. For operators, giving subscribers the tools for better cost control helps to promote confidence and controlled increase in usage. Typical scenarios where a mixture of prepaid and postpaid charging on an account for cost control purposes would be:

Family accounts, with a postpaid parent account, but prepaid child sub accounts allowing child account top up from the parents postpaid account. This scenario would allow parents to provide a set amount for the childs mobile phone, whilst giving them the flexibility to add to their balance by purchasing prepaid units. Business accounts, where the employer does not want to pay for private use. In this scenario the phone number would have say two associated accounts, one postpaid by the employer applicable during work hours and the other prepaid by the employee for private use, applicable out of work hours.

Market Constraints
Despite the compelling drivers for the deployment of convergent mobile charging solutions there are a number of constraints. These are quite significant and to date very few implementations have taken place. Of those that have, many have been restricted in application e.g: for value added data services only, or just for corporate customers. The principal constraints are discussed below.

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Technology The technology to implement various prepaid/postpaid convergent charging architectures around real time rating engines is available; it has been implemented and is proven to work. However, convergent prepaid/postpaid mobile charging is not a trivial task. If it was, a lot more MNOs would have implemented it by now. It is not surprising that early implementations have tended to focus on point solutions for particular customer, or service groups, turnkey solutions for start ups, or small operators and network centric solutions for larger operators with a heavy predominance of prepaid subscribers in their total customer base. Among the technical challenges facing mobile operators implementing convergent prepaid/postpaid charging solutions are:

Real time rating performance under heavy loading Handling complex product and tariff plans in a real time charging environment Integration with disparate legacy components

Greatest technical challenges are for operators with heavy investment in legacy charging systems and operators with a fairly even split of prepaid and postpaid subscribers. Most of the larger Western European operators fall into both these categories and not surprisingly little progress has been made amongst major operators in Western Europe to date in terms of operational systems. Many operators that have heavy investment in legacy systems, wish to maximise return on that investment before installing alternative solutions, or before entrenching themselves further within their existing architecture. For this reason many deployments will have to wait until the appropriate time in the Charging infrastructure replacement cycle. Cost Despite the prospect of operational cost savings through the implementation of convergent mobile charging solutions, complex carrier grade solutions do not come cheap. It is not just the direct costs, but also all the indirect costs associated with organisational change. Mobile operators of any age have possibly been through many phases of OSS/BSS investment to maximise the opportunities presented by advances in network technology and mobile data products. Many of these same operators are still trying top recoup the vast expense of acquiring 3G licenses. Business cases for convergent charging solutions need to be very carefully prepared and considered along with ways of phasing implementation and associated costs and benefits. Juniper believes that many convergent mobile prepaid/postpaid solution deployments will be phased to gain incremental benefits and control CAPEX. Operator Reluctance Operator reluctance to take the plunge relates to perceptions of:

Largely untried technical solutions (few reference sites) Complex implementations and organisational upheaval An aversion to putting even more eggs in one basket

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Cost and an uncertain business case Internal politics

The strength of an operators aversion, or enthusiasm will depend on the organisations individual market and structural circumstances and its attitude to risk. A significant constraint on the implementation of mobile prepaid/postpaid convergent charging solutions is uncertainty within many operators of where responsibility for such a solution would lie. IN platforms have traditionally been the responsibility of Engineering departments. IT platforms (BSS and most OSS) have traditionally been the responsibility of IT departments. Engineering depts work in the world of high reliability, high throughput, real-time network solutions. IT depts come from a different world, where only a small proportion of solutions are real time and high availability. In addition, the approach to the prepaid and postpaid customer bases of many operators has been to treat them as separate entities, presenting further organisational difficulties in converging the environments. Consumer Indifference Whilst it is clear that convergent prepaid and postpaid charging environments present an opportunity for consumers to tailor their mobile accounts to suit their purposes, there is still a question market over how many actually want it. Certainly the demand from the consumer side is probably strongest in the most developed markets, where sophisticated product packaging and account structures are necessary to for operators to compete. However these are also the markets with the greatest legacy system constraints. In many developing markets the main demand remains the acquisition of low cost mobile, largely voice, communications, with the opportunity for a few fun add-ons like ringtones. In these markets the drivers are coming from operator cost reduction, not subscriber demand. In more developed markets, consumer indifference at the lower end of the market may lead to convergent solutions being applied for premium customers only, at least initially.

The Market for Convergent Prepaid & Postpaid Solutions

Overall expenditure on convergent prepaid/postpaid solutions over the period 2006 to 2011 is estimated to be over $4.8bn. Annual expenditure is forecast to grow from $299m in 2006 to just over $1.1bn in 2011. This is undoubtedly a rapidly growing segment of the telecom OSS/BSS market. The overall average annual growth rate for expenditure on mobile prepaid/postpaid solutions is estimated to be 30%, however this disguises rapid growth in the early years from a small base and a levelling of expenditure in the later years. Largest expenditure over the period is forecast to be in Europe, with a total expenditure of over $1.6bn over the six years. The Rest of the World and Asia Pacific regions come next with $1,193m and $987m respectively. Latin America is forecast to generate expenditures of $688m, with North America a considerable way behind the other regions, generating $336m. This reflects the smaller number of opportunities in North America (USA and Canada) and the current lack of enthusiasm for prepaid charging. Figure 2 shows the percentage breakdown of cumulative expenditure on convergent mobile prepaid/postpaid solutions 2006 to 2011, by region.

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Figure 2: Total Cumulative Revenues from Convergent Prepaid/Postpaid Charging Solutions 2006 to 2011. Regional Split (%).

34%

20%

North America
Latin America
Europe
Asia Pacific
RoW

14%

7%

25%

Source: Juniper Research

The largest expenditure element is forecast to be on professional services. This is particularly true for the largest deployments in the European and North American markets. Software related expenditure comes second, with expenditure on the hardware element of convergent prepaid/postpaid solutions making up the smallest element. This breakdown is clearly shown in Figure 3. Figure 3: Total Cumulative Revenues from Convergent Prepaid/Postpaid Charging Solutions 2006 to 2011. Expenditure Type Split (%).

43%

36%

Software
Hardware
Prof Services

21%
Source: Juniper Research

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Juniper Research Limited

Juniper Research specialises in providing high quality analytical research reports and consultancy services to the telecoms industry. We have particular expertise in the mobile, wireless, broadband and IP-convergence sectors. Juniper is independent, unbiased, and able to draw from experienced senior managers with proven track records.

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About the Author

Bruce Gibson is Research Director of Juniper Research Ltd. He has worked in the IT and telecom industries for over 20 years, providing consultancy services and information products to telecom service operators, application developers/service providers and to industry investors. Prior to joining Juniper Research, Bruce was Managing Director of Zetetic Consulting, where he provided consultancy services to telecom operator and solution supplier clients in Europe, the Middle East and Africa on IT-lead business process improvement and market strategy. Bruce is a frequent conference speaker and chairman at telecom industry events. He is also an experienced workshop leader and trainer. Publication Details Publication date: October 2006 For more information, please contact: Michele Ince, General Manager michele.ince@juniperresearch.com Juniper Research Limited, Century House, Priestley Road, Basingstoke, Hampshire RG24 9RA Tel: +44 (0)1256 830002 / 476200 Fax: +44 (0) 8707 622 426 Further whitepapers can be downloaded at http://www.juniperresearch.com.

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