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Pinning the Tail on the Donkey

Channel Partners

January 1, 1998

18 Min Read
Pinning the Tail on the Donkey

Posted: 01/1998

Pinning the Tail on the Donkey
LEC/CLEC Billing in a Destabilized Telecom Environment
By Debera Bell-Beam

Traditionally, local exchange carrier (LEC) billing has meant local carriers bill on
behalf of long distance carriers. Billing information–generally forwarded from a
clearinghouse to the LEC–must be appended to an address and a physical location
controlled by the incumbent LEC (ILEC). One telecom insider likens the process to pinning
the tail on the donkey. Both carriers–long distance and local–in effect, share the same
customer even though each provides a different telecom service.

What happens, though, when the line becomes blurred, and the long distance provider is
also a competitive LEC (CLEC), even though it may be supplying only long distance to
customers of the ILEC that bills for it? Will the incumbent do as good a job of billing
and collecting for its marketplace competitor as it does for itself? Why should it? Do
those cooperative/uncooperative attitudes change when the ILEC considers going out of
region to provide local services, thus becoming a CLEC? How much information should one
company hand off to another? Should one competitor release to another billing information
that could be used as competitive intelligence? Will withholding information lead to other
issues–unfair trade practices and antitrust, to name two?

In the new telecom world, customer churn could become a billing quagmire on the local
front as customers leapfrog from one LEC to the next. Can local and long distance
providers rely on other providers to bill and collect on their behalf? And, assuming they
are willing, will the players’ systems be up to the job? No clear solutions exist yet, and
opinions about progress run the gamut.

History Doesn’t Always Repeat Itself

Billing is unlike other deregulation issues analogous to those that arose during
divestiture, says Jef Morrow, director of corporate and product marketing, Axiom Inc.,
Moorestown, N.J. When AT&T was divested, the regional Bell operating companies (RBOCs)
became the keepers of the keys and owned the end customers. But the RBOCs had billed for
AT&T’s long distance service before and continued to do so after divestiture, so the
process was in place, and because the RBOCs provided only local service and AT&T only
long distance, competitive issues never arose between the two provider groups. The
environment then was quite unlike today’s with service and product cross-marketing and the
creation of "all distance" companies that someday could supplant the local and
long distance nomenclatures.

Let Them Eat Cake

It’s tough to say who is a CLEC and who isn’t these days, says John Hart, vice
president of marketing for Saville Systems, Burlington, Mass. "The competitors are
getting much better at negotiating contracts with the incumbents," Hart says.
"The incumbents are easier to do business with because they’re also competitive in
other regions. We’ve even heard rumblings that some of the ILECs are talking about opening
up their operational support systems (OSS). Now, at least they’re at the table talking
about it. I think next year we’ll actually see OSS contracts between ILECs and

He notes the incumbents are in a you-can’t-have-your-cake-and-eat-it-too position as
they begin to offer services out of region. Their cooperation, then, may be the result of

But, Hart says, ILECs likely will draw a bright line when it comes to billing. "I
think there still are some privacy issues there. If I were an ILEC, I probably would not
turn my billing over to my competitor." However, from a marketing view, Hart says if
he were a CLEC who was refused LEC billing, he immediately would spread the word that the
incumbent was unable to bill for him.

The Way It Is

Others don’t share Hart’s opinion on current progress. It’s getting more difficult,
says Rick Box, vice president of San Antonio-based HOLD Billing Services. Moreover,
contract prices are on the upturn, and billing and collection (B&C) agreements include
built-in "out clauses" to cover unmet conditions. Increasing minimums would be
problematic for resellers and IXCs that want to buy a LEC billing agreement, Box says. The
solution, in many cases, means turning to clearinghouses.

So, while incumbents are raising the stakes, B&Cs with CLECs are not being pursued,
he says, because it doesn’t make sense to try to contract with 50 local providers per
state knowing all along that the CLEC is going after that business himself. "It’s a
real mess," Box says. "They’re already playing the game, but nobody knows how to
keep score yet. I get calls almost daily from people getting into local dial tone and
wanting to bill it through the local regional Bell operating company–that tells me they
don’t know what they’re doing."

Box sums up what should be obvious: "People who want to play in the local business
must have billing capabilities on their own, because they lose that with the LECs when
they hold themselves out as a provider."

Alan Saltzman, president of San Antonio-based Billing Concepts Corp., says he, too, has
seen less cooperation, higher prices and increased minimums. Moreover, the incumbents once
were more flexible to revenue-neutral proposals proffered during contract negotiations.
"Now it’s more, ‘this is our price so take it or leave it,’" Saltzman says.
"It may not mean anything financially in the end, but it’s just an attitude of being
willing to negotiate or work through issues as compared to ‘this is the way it is.’"

Saltzman credits heightened customer sensitivity as the reason for some incumbent
reluctance to enter B&Cs. He says the RBOCs specifically, are trying to repair bad
service reputations, having realized the customer base is now an asset critical to
survival. "They’re becoming nice and gentle with their customers as compared to maybe
being tough on collection issues. They are taking postures that ensure they don’t have any
confrontation with their customer base."

Little Johnny’s School Telephone System

Moreover, what happens when a small long distance carrier that offers affinity
programs, decides to bundle and resale services that include dial tone, local and long
distance to, say, a school district? Saltzman asks.

The school district makes the discount package available to parents. At this point, the
district’s billing system is likely rudimentary.

Now, if anybody makes any sort of casual call from a remote location–collect, 10XXX,
third-party bill–it’s going to look like the RBOC’s number to another network. "But
you’re going to send your calls into the RBOC only to discover it’s Little Johnny’s School
Telephone System," Saltzman says. And Little Johnny’s doesn’t have the resources or
the capability to handle its own billing requirements much less anybody else’s, including
the long distance provider’s. "There will be more and more of these guys creeping
into the system that will never have the capability of billing," Saltzman predicts.

Even a larger long distance company that decides to bundle dial tone by reselling the
incumbent’s number will be handling a potentially unbillable casual call. It’s easy for
companies such as LCI International to add a line item to their bill, since it’s a bundled
product with their customer. That doesn’t mean, however, they are going to develop an
interface to bill for the likes of AT&T or Billing Concepts, Saltzman says. "They
may say they just want to control their customers, and their customers don’t care if they
get collect calls." And, because the provider doesn’t have the ability to implement
collect call screening under this scenario, the caller never gets billed, and the long
distance provider never gets paid.

It’s a really tough issue with a really simple solution, Saltzman says: Change the law.
Require all local service providers to provide nondiscriminatory billing and collection.

A Wrenching Certainty

A final consideration: local number portability (LNP), a wrench soon to be thrown into
an already shaky telecom environment. LNP allows customers to keep their telephone numbers
when they change providers, location or service. Several insiders say LNP will create a
billing nightmare regardless of whether cooperation exists among competitors.

"The latent issue that can create the biggest nightmare in either
scenario–cooperation or no cooperation–is local number portability," says Richard
Nespola, president and CEO of The Management Network Group Inc., a telecommunications
consultant group based in Leawood, Kan. "LNP is going to destabilize everybody,
particularly in the billing area."

Nespola says nobody has taken an enterprise and flowed through the impact of LNP from
beginning to end and determined exactly what LNP means to each department or supporting
vendors. "Mostly, the LNP focus has been on technical issues and not on process and
customer issues," he says.

It is extremely difficult, if not impossible, to code applications or develop processes
when so many issues remain undefined. Nespola says incumbents and new entrants alike will
face the same challenges collectively with the result being destabilized service and an
ever increasing amount of inaccurate billing, followed by the resultant explosion in the
level of accounts receivable and customer complaints.

Currently, there is nothing to prevent LNP administrators from allowing service
providers to dip (for a fee) into an ANI/line number database and match it against a
subscriber address (BNA) and, then, send that information downstream for use by the
service provider. However, there could be some privacy and/or economic barriers associated
with this process. Nespola says such a nationwide database could be one solution to
unbillables, a huge threat to the industry that insiders say could increase exponentially
once competition hits the residential market.

However, the necessary information must be available in the first dip, Billing
Concepts’ Saltzman says. A second dip requirement could cripple the network. "We bill
more than 90 million calls a month. At our current size, I probably couldn’t have a fast
enough network to do 90 million second dips just to be able to bill it in a timely

Moreover, Saltzman says the combined volumes of Billing Concepts with the top long
distance providers’ volumes, all attempting a second dip, would create an enormous
bottleneck that could bring the network to its knees.

Code 50–It’s Not Ours

Beyond the information necessary to bill once LNP implementation is completed, other
issues arise that potentially can be resolved through the creation of a neutral
clearinghouse. Answers may lie in using a database to alleviate code 50 issues–unbillable
or uncollectable accounts generally the result of customer churn–which insiders predict
will snowball once local competition targets the residential market. The information
gleaned from such a clearinghouse would be stale, but a bill sent 30 days out has better
odds of being paid than one never sent.

On the other hand, even if the need for cooperative interaction becomes imperative, it
likely is not yet possible, some suggest, particularly when it comes to billing. "The
ILECs have extremely limited capability at best, because their systems weren’t made to be
in the billing business. They’re in the name and address business," Nespola says.
"They are pinning the tail on the donkey–that’s what an ILEC does. ILECs control the
physical location and the address. The only way you’re going to pin the tail on the donkey
is by using them."

Moreover, many CLECs have just begun to turn their focus to the back office, so they,
likewise, face system limitations.

"In the short run, that’s the biggest problem," says Ron Evans, accounts
manager, OAN Services, Van Nuys, Calif. "If the new CLECs even want to, a large
number of them can’t. It’s like any other new development in telecom that we’ve seen in
the past, where infrastructure has been built on the transmission side, but the back
office and billing and a lot of the other processes have been afterthoughts. It’s pretty
much true with the local exchange companies."

Others say attempts to establish a code 50 clearinghouse are premature. "Right
now, they’re having meetings about market share and everything else," Billing
Concepts’ Saltzman says. "Billing collection is just not on anybody’s radar. But we
know, ultimately, if you can’t bill and collect for it, then it’s not a product."

Nelson Thibodeaux, president and CEO of Universal Directory Services Inc. (UDSi),
Hurst, Texas, agrees, and he should know. Thibodeaux explored the possibility of
establishing such a clearinghouse and abandoned the idea. "We know there is a
significant amount of revenue loss. But it’s a moving target, and it doesn’t appear that
anyone has gotten his arms around it," he says. "We’ve gone on to other battles,
because what we’re looking at is to potentially back into it through a directory
assistance, live operator plan in the future where we not only have the information in a
directory assistance environment, but we know where the information stems from."

OAN’s Evans notes the large players are developing the back office and billing
processes pretty quickly, but one notable–AT&T– has no intention of allowing another
bill on its sheet. "Where AT&T is going to suffer is it is going to need
reciprocity from the other new entrants, and I rather seriously doubt those other players
are going to be willing to bill for AT&T in their envelopes if AT&T is unwilling
to do the same for them," Evans says. "At that point, AT&T has got more to
lose than they do in terms of the numbers of calls that are going to end up being

The Envelope, Please

Clearinghouses such as OAN and Billing Concepts may find the current billing
environment ripe with opportunity, Nespola observes. Both companies confirm they, like
everyone else, are exploring those possibilities. "We’ve been working on this problem
for two years. We’ve gone up and down saying, ‘Yeah, this may be a big opportunity,’"
OAN’s Evans says. "But it’s only a big opportunity if we can lock down a way of
billing all of this in a way that makes sense to the carriers in terms of returns on what
they’ve billed. A lot of the solutions we’re seeing these days are outside the LEC
envelope. We don’t know that everything is going to be billable in the local exchange
envelope, especially if the new CLECs don’t have the capability of even putting anything
in their envelope other than their own calls."

OAN is working on arrangements with incumbents to identify the new local providers, so
calls can be billed even when the customer switches. The factions may agree to such an
arrangement because they have no alternative. "It’s in everybody’s best interest to
keep casual calling a viable option, but without such agreements, casual calling will be
dead," Evans says. "No provider is going to carry a casual call if it can’t have
some certainty of being able to bill it."

The Fox Guards the Hen House

Billing contracts, it would seem, turn on mutual trust–or the lack of it. "We’ve
spent a lot of time working with the Bells and trying to convince them they are in the
best position in the industry to interface with the competitive LECs, especially with the
resale LECs," OAN’s Evans says. "They already have contracts. They already have
some leverage in negotiating, because they’re selling access, in essence, to them in other
services. It’s a matter of trust," he continues. "It depends on whether you can
trust the incumbents to separate the retail from the wholesale side of their own

But, "the competitive LECs tend to be as rigid in their thinking as the RBOCs in
their own way," Evans says. "Getting anything to change is a monumental task,
not because of the size of the individual bureaucracies, but because there’s so damn many
of them."

Moreover, "there’s too much apprehension still," Evans says. "There
could end up being cooperation, but I don’t know what’s going to ease everyone’s minds and
let them feel comfortable."

Put It In Neutral

A neutral third-party or direct billing appear to be the only viable solutions for now.
Direct billing, however, is not really practical. The phone companies have done such a
great job educating customers to the one-bill concept, that to revert likely would be

Neutral third parties, then, may be the best answer for two factions whose distrust
makes it nearly impossible to negotiate between themselves. "The companies that are
generating the new numbers–the CLECs–are battling so many issues between
interconnectivity and lack of responsiveness from the ILECs to provisioning of customers,
it is an environment that breeds distrust and, frankly, can make you a little
cynical," UDSi’s Thibodeaux says. "The bottom line is these issues illustrate
why companies are so distrustful and why there’s not a cooperative spirit here. There is
no question that the incumbent LECs are remarketing back into companies that have left
them. If that’s the case, and you get a customer, hell, you become paranoid. Even paranoid
people have enemies."

The Incomplete LNP Solution

Despite the current climate, however, the FCC has mandated implementation of LNP, and
providers must seek solutions to challenges it will bring. They’re planning for both the
best and the worst with expectations of something in between. "We’re doing a lot of
things related to local number portability," OAN’s Evans says. "We are setting
up the means to bill into the CLECs that are capable and willing to do the billing.

"AT&T, however, is just completely shut down to us. What we’re doing because
of that is also setting up capabilities to direct bill using billing name and address as a
backup. At least in the short run, I don’t think anyone is going to have a complete
solution that doesn’t include direct billing," he says.

Planting the Seeds

Patchwork solutions likely will be applied to critical areas until something better
comes along. "It’s a wild and woolly time in the industry, but there will be
solutions coming in and taking root," says Axiom’s Morrow, who adds data management
will be key. "Information along with standards is one of the most fundamental
enablers of that marketplace. And, you don’t need one answer. A competitive market never
relies on one answer. But none of this will happen without the proper tools for data
management. And those tools will not be any good unless they can interconnect a wide range
of different carriers, each of which has different switch types and represents different
media. The final need for competitive billing and customer care solutions will require all
the data be brought together in a common format in a very timely fashion and with complete

Being There

In the meantime, everybody plans for the issues they can anticipate. And, all eyes are
on the industry newcomers to see how these fledglings will affect what was just two years
ago a stable and maturing market. "You’ve got to wonder whether some of the new
smaller independents are ever going to get beyond just being there on paper," OAN’s
Evans says. "I suspect some of them are there just to sell their assets before there
are any."

Targeting the issues with exactly placed solutions will remain problematic for some
time, Billing Concepts’ Saltzman says. "We’re all trying to hit a moving target, and
in some cases we’re not even using the same weapons, because everybody has a different
focus in what they’re trying to do.

"It’s going to be very, very difficult," Saltzman continues. "There’s
going to be some fraud; there are going to be some losses; and there are going to be some
products that are almost stillborn because they can’t be billed."

Power Billing Requires Muscle

Billing systems must be capable of more than billing and collection (B&C) or
customer care processing to include such tasks as remittance processing for payment
posting and associated reconciliation.

Bill Pearce, vice president of sales and marketing for Teleflex Systems Inc., Boca
Raton, Fla., says it takes a flexible billing system to survive in today’s telecom world.

For example, agents once received their commissions only after the provider had money
in hand. The trend now is to pay up front with a caveat that those dollars will be backed
out if the customer fails to pay. These "superheated agent programs require good,
fast and efficient operations to be able to do that," Pearce says.

Fast is crucial, for other reasons. The more expediently unresolved billing issues
between the provider and the consumer can be corrected and resolved, the more likely the
customer will pay his bill–and the more likely everyone in the food chain will be paid.

Moreover, a system must be flexible enough to allow providers to select by product and
services how money paid in will be applied. This can be critical in an age of multiple
vendors, bundled services and products, and various timelines by which invoices are billed
and late payment penalties are assessed. "There are things you want to pay when they
hit," Pearce says. "There are other things not as critical."

Risk-Free Local

There’s a soothing sibilance to the words "risk free" in an environment
otherwise fraught with danger as competitors stalk cutthroat customers who will jump ship
faster than Candice Bergen can say "10 cents a minute." Fraudsters with
automatic dialers search tirelessly for an easy pick that can snap a phone company’s
bottom line like a twig. And local number portability implementation has begun, a sure
sign, some say, that Armageddon cannot be far behind.

Prepaid local dial tone should start sounding good about now to local service
providers. It’s also a value-added service long distance providers might consider.
"There will always be billing issues to wrestle with like cooperation from
incumbents, timeliness of data and compatibility of billing systems, but these issues can
be resolved with prepaid services," says Ed Metcalf, director of marketing for
Vancouver, Wash.-based Cashel Communi-cations, which also provides the software and
hardware platforms necessary for prepaid one-plus and wireless services.

In addition to risk free, because the customer pays his service bill at the point of
purchase, prepaid local dial tone provides an alternative for providers who want to avoid
some of the current billing issues.

Metcalf says that in addition to using prepaid to serve people who have been shut off
or who pay late, prepaid also may be used with a per-call surcharge to recoup bad debts.
It’s an alternative that can retain and increase your customer base and, perhaps, get rid
of a few billing headaches.

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