Posted: 12/2001

Same Zoo, Different Animals
LEC Billers Cast Wider, Finer Net For Lost Revenue, New Opportunities
By Peter Lambert

What’s a clearinghouse provider to do when the community it has been serving shrinks with consolidation?

In the case of local exchange carrier (LEC) billing clearinghouse providers, part of the answer lies with some consolidation of their own. On Aug. 2, U.S. Bankruptcy Court gave the go ahead, and, a few weeks later, Avery Communications Inc. purchased the assets of LEC biller OAN Services Inc. Avery Communications, which is parent of HBS Billing Services Inc., agreed to pay $10.4 million for OAN’s assets including customer contracts, LEC billing services contracts, certain hardware and software technology and a customer care call center.

A number of industry players said one company’s default does not a market downfall make, however, HBS deferred comment on the state of the market until later this fall.

Industry sources generally agree several emerging regulatory and market factors appear to threaten the business of placing charges for long distance telephony and other third-party service charges onto LEC bills.

Among those factors:

* Proliferation of competitive local exchange carriers (CLECs) has come to a near standstill, reducing a primary need for clearinghouses: to reduce the complexity of identifying, interconnecting with, and managing billing data exchange and integration among many, many carriers.

* Volume of payphone charges and collect call charges — two third-party services commonly integrated into LEC bills — are shrinking as more business travelers carry prepaid long distance phone cards or mobile phones of their own, which are billed by corporate contract with wireless carriers.

* Incumbent LECs increasingly are getting permission to sell long distance services themselves and may soon seek to control all local and long distance billing processes.

However, consensus remains that a more powerful set of forces assures a continuing need for LEC billing.

First, in respect to traditional telecom, 10-10 dial-around services remain popular and offer a prime example of the benefit of using centralized clearinghouses to identify the correct biller for a given customer, process charges and get them integrated into the customer’s primary provider’s bill. The clearinghouses also believe they offer the best solution to finding millions of dollars left under the sofa cushions — that is, tracking down misidentified customer names and addresses.

Even more intriguing, the opportunities for innovative uses of the old, reliable local phone bill have only begun to be tapped, say payment service players like Integretel Inc. spin-off eBillit Inc. Indeed, early practice integrating Internet-based services into LEC bills suggests that LEC billers could make themselves increasingly indispensable through digital services.

“The Internet opportunity is much more complex, involved and robust than traditional, pure clearinghouse batch CDR (call data record) processing,” says eBillit CEO Joe Lynam. “Records and IP (Internet Protocol) events like click-to-buy don’t mirror simple telephony CDRs, so the payment provider is no longer a simple, single-threaded service.”

Old Money

By most accounts, the clearinghouses’ greatest continuing value lies in managing the chaos of so many moving customer and biller targets.

“In our model, most of our customers are trying to get their charges included on someone else’s bill,” says Betty Cockrell, director of industry relations for Billing Concepts Inc. “Where a company doesn’t have an established relationship with the end customer, we manage those relations for 1,200 to 1,300 telecom companies so they don’t have to.”

The clearinghouses serve to validate customer names and addresses and to generate direct bills to those customers on behalf of IXCs and other service providers where CLECs remain unable or unwilling to support third-party charges in their bills.

“A large number of CLECs won’t or can’t do LEC billing, either because they don’t want competitor charges appearing on their bills, or they want to avoid cramming and slamming, or because their billing system is simply not capable,” Cockrell says.

Last June, Billing Concepts introduced Revenue Recovery Service as a way around this issue. Revenue Recovery Service leverages the company’s extensive billing name and address (BNA) database to automatically match customers with their proper local providers.

For example, if a customer switches from an incumbent regional Bell operation company (RBOC) to a broadband CLEC, then signs up for long distance services from a new IXC, that IXC might first try to bill through the RBOC only to get a “Return Code 50” rejection, which means the customer is no longer the RBOC’s customer.

On behalf of that IXC, Billing Concepts can search its BNA database, confirm the name and address of the customer, and then either integrate the charges into the bill of the proper CLEC or, if no LEC billing agreement exists with that CLEC, generate a direct bill to the customer and take on the job of collections for the IXC.

Such a service becomes possible because a veteran clearinghouse like Billing Concepts, HBS or Integretel can leverage its relationships and direct data exchange gateways with 1,000-plus service providers to fill its database with relatively up-to-date BNA information. Still, Cockrell says, the market is seeking an industry-wide method to control Return Code 50 losses.

Neutral clearinghouse operator NeuStar Inc., which a year ago launched its first commercial clearinghouse targeted specifically to rapid, accurate exchange of BNA information, also offers a solution.

NeuStar offers each customer a single, uniform interface and format based on the industry Customer Account Record Exchange, or CARE, standard for exchanging BNA and other customer information. The CARE clearinghouse, launched a year ago with AT&T signed on, now claims some 200 LEC participants.

Christine Walker, NeuStar vice president of business development, operational support systems says, “CARE is more right-sized” for simple BNA requests than are the more complex, one-to-one gateways — in some cases proprietary or custom — that LEC billing clearinghouses have spent years building up to exchange more complex billing information with hundreds of individual LECs and IXCs.

The CARE clearinghouse could prove complementary to LEC billing clearinghouses, says Billing Concepts’ Cockrell, who met with NeuStar in October.

“We may go to them for billing name and address where we need to direct bill, because a CARE clearinghouse would enable one BNA request to NeuStar, versus today, where we’d have a hundred processes for a hundred different CLECs,” she says. The value of the service requires broad reach, she adds. And, “NeuStar has a way to go to build out a national network.”

Adds eBillit’s Lynam, “I’m not sure NeuStar can help a company like us, since we already have links with 1,400 carriers that are the root source of customer information.”

New Money

While squeezing more dollars out of existing business remains important, the LEC billers say the real future lies with broadening the kinds of services that can be integrated into LEC bills.

Integretel believed this enough to spin off eBillit 18 months ago. That payment service provider is dedicated to helping Internet service providers (ISPs) leverage the local phone bill, particularly among consumers reluctant or unable to pay in other ways. eBillit quotes studies showing a third of American households have no credit cards and that only 15 percent of people with credit cards are comfortable using them over the Internet. Integration into LEC bills is another way for ISPs to win those customers.

As of September, eBillit claimed more than $52 million in billings, primarily from Internet access, along with enhanced services such as unified messaging. Lynam estimates that 10 percent of billings so far come from digital subscriber line (DSL) and other broadband access services. He also sees Internet telephony, multimedia content and other enhanced digital services providing further growth down the road.

Image: CARE Clearinghouse Efficiencies and Benefits

“Companies like us are having to look at other markets, including utilities and other services you envision on the phone bill,” says Billing Concepts’ Cockrell. “It could be a service like Bluetooth, which enables a wireless transaction between, say a cell phone and a coke machine, and that technology is getting big in Europe.”

As incumbent carriers win approvals to sell local and long distance services, Lynam sees no threat to LEC billing, but rather new opportunities.

On the long distance telephony front, he notes, the incumbents will need to sell outside their own regions and will need comprehensive reach to other LEC billing operations and customer information, making them natural clearinghouse customers. “I don’t see pure telecom LEC billing going away, and I see OAN as a one-company story,” he says. “The need to outsource is ever greater for service providers.”

On the Internet front, Lynam adds, clearinghouse services can similarly be pitched as a win-win for the LECs and third-party service providers. “You need the phone companies to be supportive of third-party charges, and that’s an ongoing challenge,” he says. “We remind the telcos that they can’t be all things to all people and that, working with third parties instead, they have an opportunity for a commission.”

Indeed, in a world where end customers are free to sign up with any mix of providers they choose, the provider that resists cooperation stands to lose, says NeuStar’s Walker. “We see commercial clearinghouse opportunities expanding, including in IP voice,” she says. “If customers want choice and bundles of service providers, then those service providers need to exchange information for everybody’s benefit.”