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How Billing can become a Revenue Generator

Billing within Telcos is often seen as a necessary evil — an overhead which frequently puts a brake on marketing visions of grand new services. Whereas, billing within the Telco 2.0 world is a great asset offering the capability of pricing nearly any transaction on any number of variables in real time in huge volumes.

One approach to leveraging the telco billing asset is for the telco itself to provide billing services to an upstream partner, and quite often also to collect the money on their behalf. In our recent report on ‘Sizing the Two-Sided Telecoms Business Model’ we estimated that there could be over US$26bn in new revenue for Telcos offering billing and payments services to vertical industries by 2017 (mature markets alone). A good example today is the mobile content industry which has already evolved into a multi-billion dollar industry.

This approach is best suited to two situations:

  1. when the telco network is being used to deliver the goods, or
  2. when the telco network is being used as a channel for purchasing the goods and the buyer is a customer of the telco.

Billing is a key enabler for a telco wanting to pursue a two-sided business model, together with a collection of related services: identity, authentication, advertising, business intelligence, e-commerce sales, content delivery, and customer care.

The Telco 2.0 team was therefore delighted to be invited to participate in a recent industry roundtable, organised by Highdeal. (Highdeal provides real-time rating systems that scale to high volumes at low cost using a clever technological approach akin to a compiler for rate plans.) The workshop was entitled “Stop Reinventing the Wheel: Comparing Cross-industry Pricing & Billing Strategies”. Telcos can learn lessons from other industries, both good and bad. Here are just three examples from the Transport Industry:

Oyster Card

The Oyster card is an electronic ticketing system used by Transport for London (TfL). It can be used on various forms of transport including the Underground, Buses, Rail & Trams. The card itself is based upon a NXP MIFARE contactless smartcard.

Oyster has been very successful, and its share of TfL trips has grown steadily over the years. There are over 5.5m separate cards used each month, over 20,000 smartcard readers supporting around 36m journeys per week.


TfL outsources the operation of the Oystercard system to a company called TranSys which is a consortium including EDS & Cubic Transportation Systems. In a recent Financial Times article:

A TfL spokesman said last night that the 17-year contract, which pays TranSys £100m annually for supplying, running and marketing the swipecard ticket system, had a number of break clauses that allowed for early termination.

£100m/annual costs actually seems like a reasonable figure for billing & payment services especially when placed in the context of 36m journeys/week (around 5p/journey) and total gross revenues on the Tube and Bus of £2.4bn in 2006/7 (4% of total revenue excluding rail).


Unfortunately, the Oyster system has been in the press for all the wrong reasons recently: reliability and security.

The Oyster system has crashed a couple of times in a couple of weeks. The first caused 60,000 cards to be corrupted, and the second shutting down readers at 275 stations which meant Pay-As-You-Go customers were allowed free travel. Telcos know all about the importance of reliability in pre-paid systems and will probably sympathise with the Oyster problems.

The Security problems are potentially much more problematic with the encryption being cracked and the cards cloned. Even worse, the cracking was done by Dutch researchers who will publish the information in October. BT’s security guru Bruce Schneider explains that the fault is in the design of the chip.

The consequences of the cracking are hard to determine at this stage, but if mass cloning occurs then revenue leakage for TfL could be severe. It is not beyond the realms of possibility to force a replacement of both cards and readers. Even worse, it could undermine the public faith in the system and NFC cards in general.

Again, telcos know all about the importance of security in payment systems, having many years of experience with SIM cards, online authentication, and fraud management. The Oyster card may prove an important case study for when people complain about security costs and want cheaper options.

Oyster cards have been combined with credit cards, but not with mobile phones. The take-away for telcos is that they are the natural distributors for this payment capability, possibly embedded into SIM cards. They have all the assets needed to manage pre- and post-paid customers, send marketing messages to users, and help manage fraud and support. The revenue model is proven. You just have to enter the race if you want to win.

The London Congestion Charge

Vehicles which drive within a clearly defined zone of central London between the hours of 07:00 and 18:00, Monday to Friday, have to pay an £8 daily Congestion Charge. Payment of the charge allows complete access to the Charging Zone for the full day. The charge aims to reduce traffic congestion and improve journey times by encouraging people to choose other forms of transport if possible.

This is another transport system run by TfL, however the economics are radically different from the Oyster Card. The 2006/7 TfL annual report shows the scheme raised £252.4m, but cost a whopping £130.1m to collect, or 51% of revenues.

The root cause of these high costs is undoubtedly the technology used by the scheme. CCTV cameras record vehicles entering and exiting the zone. The number plates of the cars are recorded with 90% accuracy, the rest of checked by humans. The identified numbers are checked against a list of payees: those not paying are fined and chased.

The enforcement process is complicated and non-payers are high. Over 1m Penalty Charges were issued in 2006 and only around 75% are collected.


Enforcement costs are not the only problem. Payment collection also seems heavily labour intensive. It is amazing that the use of call centre agents has grown over that 3 years in a process that so obviously begs for automation. Fine-tuning revenue assurance and collection processes and systems are worth the effort. The Congestion Charging scheme shows that costs can easily run of control with poorly designed systems and business models.

Not all road-tolling and congestion charging schemes are as poorly designed as the London Congestion Charging scheme. Across Europe there are notable success stories.

Again, the opportunity for telcos is to use their assets to enter this business: massive existing investment in IT infrastructure, and near-universal coverage in areas where congestion is likely to occur, and relationships with nearly every car driving adult. The telco is in a position to take a great deal of cost out of this market, and therefore collectively telcos are able to take the model to cities and towns who otherwise could not afford it. This is a general pattern: telcos have scale at transaction processing nobody else can match. There are plenty of billable events left in the world to be metered and monetised beyond voice and SMS.

Yield Management in the Airline Industry

Yield Management techniques have been used in the airline Industry since the 1980s to optimise revenues. Airlines use software to monitor how many seats are being reserved on a particular flight and adjust pricing accordingly —for instance by offering discounts to particular customers through particular distribution channels, if it appears that seats will remain unsold. New online distributors such as lastminute.com have emerged to exploit the Yield Management techniques of the airline and hospitality Industries.

The capacity on any particular flight is fixed and determined by the number of seats on the plane. Any unsold seats on a particular flight carry very little incremental costs, and once the flight has departed they also carry zero value. Most importantly, different customers place different value on the seats. Some customers are willing to pay a premium to guarantee a seat on a particular route or flight, whereas others are prepared to wait for a bargain by holding out until the last minute for unsold inventory.

Although many airlines have claimed huge successes from yield management, it is controversial because it is a form of covert price discrimination, and risks customers ire. Therefore, customer segmentation is vital as well as the use of different wholesale partners to offer discounted products which don’t damage the premium brand.

Telco’s have a similar problem in that they have huge sunk costs in building networks and unsold capacity at a particular moment in time is in effect a lost revenue opportunity. However, the telco industry doesn’t have these “space-filling” services — the network equivalent of the £0.99 Ryanair flight.

The telco response should be to create the wholesale products to fill this gap. Partners might be offered off-peak data overnight to residences to pre-cache movies or TV shows on DVRs and PCs. The obvious issues is having a network that can account for who is paying for each packet, and apply suitable policies in real time. We’re sure Highdeal are therefore looking forward to your call!

[Ed: We have a major session on ‘Billing & Payments 2.0” at the November Telco 2.0 event in London. Highdeal will be demonstrating their tools in the Innovators Zone there.]

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This was an outstanding post! It read much like the marketing material we've been developing for our Transaction Processing & Billing Capabilities. You said it best, "a great asset offering the capability of pricing nearly any transaction on any number of variables in real time in huge volumes." This is exactly what NetworkIP's Transaction Processing & Billing engine allows us to do & through Jaduka we've developed an API so that any company can access our Transaction Processing & Billing Engine for the needs of their business.

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