Guest post: Integrated billing and policy management is key to Telco 2.0

Today's ISP model frequently fails to align behavioural incentives of users, costs of this behavior to the network operator, and revenue. In a guest post, Openet's CMO Michael Manzo looks at the crucial transition to what might be called 'Telco 1.5':

The industry is generally in agreement that "Telco 1.0" triple play bundling of voice, video and data will lead to a long slow decline for network operators. Price erosion and disintermediation will drive revenues down and churn up. Control of the value chain will move upstream to content and application providers. I do subscribe to the Telco 2.0 vision of obtaining new revenues by servicing the needs of new 'upstream' customers who want to interact with the 'downstream' telco retail customer base. However, I also believe mainstream adoption is a ways off. Most operators are still grappling with the "ex-land grab" implications of their Telco 1.0 businesses, trying to understand a more classical segment marketing approach, and embracing the long tail phenomenon.

The reality is that operators today would be happy to just stop retailing a "bit pipe". Today's ISP model frequently fails to align behavioural incentives of users, costs of this behavior to the network operator, and revenue. Operators can at least stabilise their business, and possibly achieve continuing revenue growth, by sending their pipes to school. I call this a "smart pipe" business model -- "Telco 1.5." Our definition of a smart pipe is one that is not just technically smart, but is commercially smart too: it enables the operator to realize revenue that matches the value of the network resource utilization delivered to each subscriber. Ultimately, subscribers who use fewer resources pay less, and subscribers who use more pay more.

Some in the industry associate this model with "consumption-based pricing." However, this is not so. Instead, operators can deploy a number of non-metered billing models in conjunction with the ability to govern the use of network resources.
In the Telco 1.5 model, operators have three key objectives:
  • Prioritize traffic on overloaded network resources
  • Enable subscribers to personalize services to create "stickiness"
  • Apply creativity in pricing models and service packages to differentiate offerings
Ideally they should do all three of these at the same time: ultimately developing creative, personalized price models and service packages based on the ability to prioritize traffic. Accomplishing this means that operators need to deploy the following strategic capabilities within their networks:
  • Control subscriber usage of network resources and services
  • Real-time control over the allocation of network resources to each usage session
  • Deploy more flexible and real-time billing capabilities

Again, operators need to do all of the above together. This is based on an array of real-time session and subscriber data including subscriber location, date/time, current network capacity, subscriber billing plan, subscriber usage history, subscriber contract terms, and usage and spending limits set by the subscriber. This integration of "control" and "monetization" requires a new breed of policy management capability that is seamlessly coupled with a next generation billing infrastructure.

There's a lot of talk today about "policy management," and it is certainly the key to accomplishing what I'm describing. First, it's probably wise to define what I mean by "policy management" because, like so many things in our industry, this area is also going through a transformation.
Policy management is:
  • A dynamic function in an operator network making real-time decisions concerning subscriber access to services and the allocation of network resources based on requests from the network via policy enforcement points;
  • Subscriber and session aware - by using an array of data in real-time to make decisions. Subscriber-aware information includes location, billing plan, usage history, contract terms and personalized usage and spending limits. Session information includes date/time, current network capacity, source of the traffic (internal vs. third-party application) and type of traffic (protocol or service type); and,
  • Convergent - works across voice and data services, legacy and next generation; wireless, broadband and cable/television.
Policy management isn't:
  • A static, network provisioning function,
  • Either subscriber access only or network resource only function,
  • One-size-fits-all,
  • Non-contextual authentication and access control to services,
  • A data-only, wireless-centric function as specified in the IMS standards concerning policy; or,
  • A next-generation only function.
At the same time, there's a lot of talk in the industry about next-generation billing models which is market-speak for a set of billing models that includes, but isn't limited to:
  • On-demand pricing - event based billing
  • Service passes - billing for access to services for a set period of time (commonly seen with WiFi hotspots)
  • Pricing tiers
  • Multi-service/application bundles
  • Subscriber customized bundles
  • Flexible or compound account and payment plan structures
  • Advice of charge to alert users ahead of usage what the charges will be

What we haven't heard much about is the integration of the above policy management capabilities with the above next-generation billing capabilities. This is where control, monetization and personalization meet. This is foundational to the delivery of not just Telco 1.5, but the Telco 2.0 model as well. This is because many of the network control and charging capabilities can be leveraged by 'upstream' third parties who offer services to end users. This is best illustrated through a few usage scenarios.

Scenario One - Fair Usage

This scenario is being deployed by a number of fixed and mobile broadband operators today and represents the first integrated control and monetization solution. In this scenario, monthly download capacity on a broadband connection is capped. Monthly usage is measured for each subscriber and, upon reaching the cap, the user is redirected from their requested content or application to a self-care page where they can purchase additional capacity. Alternately, the user could be allowed to continue usage with downgraded performance in terms of speed or traffic priority. This scenario could also be made more robust by:

  • Evaluating historic subscriber usage such that the limit is only imposed for users who have reached the threshold twice in a six-month time period
  • Evaluating subscriber tenure so that subscribers who have had service for more than five years are not metered
  • Traffic to and from "preferred" partner applications are not measured, thus incorporating Telco 2.0 concepts.

Scenario Two - Dynamic Traffic Prioritization

In this scenario, the network is self-healing during times of congestion in that it is able to detect a state of congestion and apply policies designed to ensure that premium customers get premium services. Traffic can be prioritized or blocked based on:

  • Violation of contract terms
  • Pricing plans that include premium service quality, such as users that agree to pay more for prioritization of peer-to-peer traffic, voice over IP and streaming video/audio traffic
  • Roaming customers versus non-roaming customers
  • Traffic to and from "preferred" partner sites, thus again incorporating Telco 2.0 concepts.

Scenario Three - Corporate Controls

In this scenario, the operator offers a service to enterprises that allows the administrator to govern the use of services to ensure spending is limited and access to services is restricted to business usage. For wireless services, the administrator could, via a web-based application, create classes of service (executives, salespeople, everyone else) and set policies based on those classes of service. Examples of policies include:

  • Set monthly usage limits on the corporate account with other spending to a personal account. This entails a single service bridging across two accounts, which is feasible with more flexible or compound account and payment plan structures enabled in next-generation billing systems
  • No international calls
  • No calls outside of business hours
  • No usage of specific services
  • No usage of specific content (P2P, video streaming, etc.)
  • No usage of a broadband connection on PCs other than a specified MAC address

Telco 2.0 may very well be on the horizon of the future, however operators need to be able to first understand and incorporate the Telco 1.5 concepts to be successful. In fact, many will find themselves comfortable in the Telco 1.5 business model, only incorporating necessary components of Telco 2.0 strategies to continue to maintain their competitive edge. It will require a fine balance to not bite off more than they can chew. The same tools that create the near-term business model innovations also support the ultimate next-generation billing models--and in the end better business models.

[Ed: Michael Manzo, CMO of Openet, can be reached at michael.manzo@openet.com.]