The Clearing House:
By Martin Browne, VP Business Development, Azure
different models for running your interconnect accounting solution
The Ideal Environment
Strategically, the approach to the issues of revenue assurance, settlement and fraud could be handled more flexibly and efficiently, if we had the right environment. The extremely sophisticated, established infrastructure and stakeholder relationships in the industrially developed world make it difficult to get rid of the evolutionary detritus of fraud with all its blind alleys and its spoilt broth of solutions. However, if we consider that the developing world has been the leading consumer of new innovation and business applications by virtue of the lack of developed infrastructure and its conflicting standards, we do have an opportunity to get it right from the start. It may be debatable whether a telco is a actually a bank or not, but with the increased connectivity and the growth of transactions across their networks, some form of settlement and national clearing scheme, similar to the way banks operate, would be a good way of creating the right kind of environment.
A clearing house in a country or a region for that matter, would only really work in developing regions of the world because the infrastructure is not too advanced. It would also reduce the risk for investors, as well as government, the national operators, local banks, retailers and the network users. In fact, it could promote trade and commerce as well as inward investment by virtue of the self-regulatory nature of the relationships between these stakeholders.
Most Operators with their own interconnect solutions have either developed them in-house, paid to have them built or bought an interconnect product licence from a solution vendor. In all three cases, significant amounts of money are spent before the solution is put into service and before any benefits are gained.
With a licence sale, the Operator will usually pay a substantial licence fee in the first year based on the projected volumes of Call Detailed Records (CDRs) to be processed and an annual maintenance charge of between 15% and 20% to cover support and product upgrades. There will also be additional incremental licence fee payments as certain CDR volume thresholds are reached. The Operator meets all other costs, including implementation and hardware.
Operators striving to reduce their operating costs are increasingly looking at the option of moving their interconnect billing to a Bureau. The Bureau offers a “pay as you go” model without significant upfront payments. With a Bureau option, there is a processing charge for every CDR that is processed. As volumes rise, the processing charge per CDR may be reduced. There may also be a “joining” or set up fee.
A basic interconnect Bureau offering normally covers the provision of the software, hardware and technical staff to run and support the interconnect billing solution. The Bureau will usually be located off site and users will access the solution using some form of dedicated link.
There are a number of potential cost benefits that result from using a Bureau. The Operator does not have to meet the costs of hardware, software and a computing environment. The cost of implementing and testing new releases of software no longer falls to the Operator nor does the cost of recruiting, training and retaining technical staff. Using a Bureau should allow Operators to concentrate on the core business of providing service to their customers.
It is important that the service is underpinned with a contract that clearly describes the scope of the service and a Service Level Agreement that can be measured to ensure that the required level of service is delivered. It is also important to include provisions that give the Operator the flexibility to change their business model e.g. by introducing new products or pricing mechanisms.
Some Operators may be unwilling to pass CDRs, which contain sensitive information on their customers, to a third party for processing. Many countries will not permit CDRs to be sent outside the country for security reasons. This may limit the Vendor’s ability to set up a Bureau where it is most economically advantageous or to set up a regional Bureau in one country to service a number of other countries.
With a managed service the Vendor also provides some of the functions carried out by the Operator’s interconnect staff. Typically, this will include maintaining reference data, reconciling interconnect statements and producing reports. A managed service Bureau creates a much closer relationship between the Operator and the Vendor since the Vendor is actively involved in running the Operator’s business.
The Operator must be satisfied that the Vendor can supply the required levels of expertise and security on an on-going basis. The benefits of a managed service Bureau should include a reduction in the size of the interconnect team, lower training costs and, above all, better protection against losing skilled interconnect staff.
A Bureau may also act as a Clearing House for a number of Operators. The purpose of an Interconnect Clearing House is to provide a common, independent mechanism for the billing and settlement of interconnect accounting traffic for all the existing and future Operators in a particular country or region.
The Clearing House takes over all the functions relating to the preparation of billing information and reconciliation reports and the reconciliation process itself. The Clearing House has access to information from all the Operators involved in a particular call and, therefore, discrepancies are more easily identified and resolved.
Operators who are owed money received pre-reconciled billing statements that are to generate a formal invoice. Operators who owe money receive a pre-reconciled verification statement confirming that the amount due has been checked against the Operator’s own data.
The interconnect Clearing House is most appropriate where a country or geographic area is in the process of deregulating and Operators have not yet invested too heavily in individual interconnect solutions.
A national or regional interconnect clearing house cannot be set up without the support of the appropriate Government Ministries and Telecom Regulators. Some form of government order or decree will probably be needed to establish the Clearing House and to grant a licence to operate the Clearing House for a specified period of time. The Operators will need to be closely involved to ensure that their interconnect business requirements are fully supported by the Clearing House.
In order to ensure that this service is non-discriminatory, the Interconnect Clearing House must be independent and must carry the confidence of both the Regulator and the Operators. For the national or regional Clearing House to be fully effective, all the Operators will need to be persuaded to join (or may need to be coerced into joining) the Clearing House.
The Clearing House will need to be accountable to a body that includes the appropriate Government Ministry, the Regulator, the Operators and the organisation running the Clearing House. This body will need legal and technical support and is likely to determine not only how the Clearing House operates but how the interconnect regime itself is implemented.
The relationships between the Government, Regulator, Operators and the Clearing House organisation is shown in Diagram 1.
Once the Clearing House is established, all the potential benefits of using a Bureau and a managed service also apply to the Clearing House. There are additional benefits.
Since every Operator is using the same solution to rate and summarise their calls, reconciliation margins should be reduced. Reconciliation errors should be mostly volumetric, for example, where more calls are sent than received or where call durations vary due to switch timings.
The Clearing House can provide the mechanism for implementing a standard reconciliation and settlement process between the Operators that use the Clearing House. A common standard for reconciliation should greatly reduce the time and money spent resolving disputes.
The Interconnect Clearing House can also provide a complete view of the interconnect market to the Regulator. The Regulator is then better able to monitor the impact of interconnect policy; model the likely impact of any proposed change in interconnect policy; identifying market share, market growth and interconnect trends; identifying Universal Service Obligation payments correctly and make informed decisions, for example, on when to allow competition and when to award new licenses.
Since the Clearing House handles every interconnect call between all the Operators, each call is rated at least twice, once for the originating Operator and once for the terminating Operator. Transit calls will be rated at least four times. In each case, the same algorithms, logic and rounding rules will be applied.
Although the Clearing House model cannot guarantee that call rating is always accurate, it should, at least, ensure that it is consistent.
Martin Browne joined Azure in March 2002 as VP Business Development. His career included time at BT where he developed the BT’s interconnect system (INCA) before moving to Texas Instruments Software to head up their interconnect business unit.
He co-founded Intec Telecom Systems, helping to take them to a successful flotation.
He has provided interconnect consultancy and implementation services for a number of carriers in Europe and Africa.
Martin has qualifications in Law, Accounting and Management Sciences and was awarded the “Outstanding Achievement in Billing” Award from Billing Magazine in 2001.
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