Ericsson's proposed acquisition of LHS has put the cat amongst the pigeons, but what does it tell us about the billing industry as a whole, how can the rest of the market respond – and do they even need to? Keith Dyer finds out.
The mobile industry divided itself last month. Those involved in entertainment, content, messaging and such boring stuff headed down to lame old Monte Carlo, to casually wrap a cashmere sweater round their necks to protect against the 20°C evening chill as they discussed the future of mobile entertainment and messaging. Those racy souls who drink in the spit ‘n' sawdust saloon bar of billing headed to Olympia where 20°C was achieved only by the temperature of the coffee at the catering outlets.
Yet it was in Olympia, we bet, rather than boring old Monaco, where the action was to be found (at least that what we told ourselves as we headed off to West London). Here the billing world was in turmoil with the news that Ericsson had bought LHS for something like $310 million.
The cash offer represents a premium of 33% to LHS' one month average share price until June 4, clearly indicating the value Ericsson puts on adding LHS' rating and mediation capabilities to its portfolio. Ericsson was quick to trumpet the acquisition as giving it a " leading offering in revenue management with a fully integrated convergent charging and billing solution and expands its customer base."
The interesting bit here, of course, is the "fully integrated". Just buying a company and taking on its customer base does not make its products and yours fully integrated. But that Ericsson chose to highlight that aspect of the deal shows where they want attention to lie.
Carl-Henric Svanberg, President and CEO of Ericsson, says, "Operators are quickly moving towards convergent charging and billing solutions to enhance their relationship with consumers, improve cost efficiency and limit financial risk. Ericsson and LHS form a strong constellation of prepaid and postpaid solutions ready to immediately capture this opportunity. Ericsson's leadership in real-time charging and mediation, together with the leading billing and customer care solutions of LHS, make the two companies a leading player in revenue management and strengthen our overall multimedia offering."
The multimedia market is quickly evolving and converging: industries, (telecom, media and internet), technologies and payment options. Operators are adapting in order to leverage the opportunities modern networks enable and on consumers' growing demand for new services, in a cost-efficient manner. End-to-end revenue management solutions must be able to handle convergent technologies including IP-based broadband services, a variety of business models and partner relationships, as well as be payment-option agnostic.
Certainly market research and analyst Analysys thinks that the deal is indicative of a broader shift, in which billing is shifting more towards a telecoms IT model.
"The BSS/OSS world is changing rapidly in response to demand-side drivers that are having significant and wide reaching effects on the supply-side of the market" according to itslatest report Billing and OSS trends: the transition to telecoms.
"Drivers of change in the telecoms industry are creating new business imperatives that impact on service providers' IT," says Danny Dicks, co-author of the report. "In fact, few of us would deny that there are currently major changes taking place in the demand side of the global telecoms market, which are now being felt on the supply side. Ericsson's announced acquisition of LHS Telekom is indicative of an ongoing transformation in the vendor landscape that we have predicted and described in our research during the last 18 months."
According to Analysys, changes are being stimulated by three major sets of change drivers:
- Commercial – Examples include the effects of shareholder pressure, increased competition, globalisation, market consolidation and ‘green' IT policies
- Technical – The move to next-generation network technology; convergence, both in the sense of convergence towards IP technology and in terms of fixed-mobile convergence; and the advent of complex next-generation services
- Legal and regulatory – Deregulation and significant legislation such as the USA's Sarbanes-Oxley Act and the EU's data protection and data retention legislation.
"These change drivers are having significant effects on the business processes of service providers, and the systems that support these processes," says Dicks. "Increasingly, telecoms service providers are being benchmarked by their investors on how efficient, how agile and how customer-centric they are – business goals that have to be supported and enabled by their IT architectures.
"The problem is that legacy IT systems and architectures are far from optimal and are preventing service providers from delivering these goals. This is stimulating major reform, consolidation and re-architecting of back-end systems," he concludes.
For others responding to the Ericsson acquisition, the question of why was perhaps understood. Instead the focus moves on to, "And how does it affect us". For those who partner with Ericsson in an OEM way, especially those with ratings and meditation products, the question was, "Will Ericsson still need us when it has LHS?" For those who compete with LHS, the question was, "What will Ericsson give them that we can't". But certainly, in a segment where acquisitions are done monthly, signals can be misconstrued, and just because every venture-capital backed billing "best of breed" company looks like its desperately seeking a big daddy to come and quote it happy, it doesn't mean it is.
It does force them into more and more partnerships, however, and certifications and "pre-integrated" relationships, as the smaller players ape their bigger competitors by stitching together their own version of the end to end portfolios being assembled by Oracle, Amdocs, Ericsson and the rest. And the will argue, with good reason, that this is what they have been doing already.
One such example that takes a bit of this, a bit of that, and puts it together is the partnership announced a good two weeks before Ericsson swooped for LHS between Ceon, a provider of product lifecycle management software; Highdeal, a provider of pricing and rating solutions; and Visionael, which provides IP service automation and delivery management software and services. These three companies joined forced to announce a joint end-to-end B/OSS solution. The combined solution is intended to allow service providers to launch and manage new and combined multi-play offerings quickly and cost-effectively.
Operators face significant challenges when implementing service bundles that might include video content, mobile transactions on top of the data and voice services. These include high customer expectations for service quality, and the need to manually make wholesale changes every time a new offering is introduced. The solution includes components for service and resource inventory, sophisticated pricing configuration, product lifecycle/catalog management, provisioning and rating/billing.
"Introducing new products quickly and efficiently will require operators to configure, manage and process technical and commercial product data more seamlessly across all the systems that support their key business operations," said Peter Burke , CEO of Ceon. "The combined solution from Visionael, Highdeal and Ceon eliminates inconsistencies and gaps in critical resource, pricing and product information, and provides all the key components to enable operators to rapidly deploy new offerings."
From a "billing" point of view, the solution uses Highdeal's Transactive product, which can be used for defining price plans in the rating application, and rating utilized services.
Highdeal high-ups think that this best of breed solution is the right way for companies like themselves to proceed – for themselves and operators. "Our joint best-of-breed solution provides operators with the right toolset to react rapidly and efficiently to market demands for new and innovative services, products, and packages," said Eric Pillevesse, Co-founder and CEO of Highdeal.
This focus on how best to support converged services with convergent billing mechanisms has lead Orga Systems, to present new convergent online charging mechanisms to handle charging of context-aware mobile services. The presentation was made at the international workshop on "Service Oriented Architectures in Converging Networked Environments"(SOCNE 2007), with the results shown achieved within the ongoing research project "Local Mobile Services" (LOMS) being part of the ITEA program on Information Technology for European Advancement.
Orga's key challenge to overcome was finding a way to allow Mobile Network Operators (MNOs) to open up networks to third party service providers, a necessary factor to delivering innovative services quickly and effectively, yet retain a single bill for all services. A special focus was put on innovative personalized and context-aware services, which include location information and preferences of the mobile user. Orga Systems proposed a series of interfaces to allow third party service providers to charge their customers via the MNO's existing charging and billing system. The presented interfaces are build upon international standards like IP Multimedia Subsystem (IMS) and Parlay X and are implemented as Web Services, and are applicable in SOA-based environments.
Within the LOMS project Orga Systems is teaming up with several other companies and research institutes to define and develop open service architectures for seamless deployment of localised mobile services.
"We believe that easy to use convergent online charging mechanisms will boost the revenue of MNOs when offering context-dependent third party services for dedicated user communities." says Dr. Jürgen Tacken, Project Manager Research & Development, Orga Systems.
Open interfaces allowing third parties access to the existing billing and charging mechanism? Who would have thought it back in the old days of the "design it and build it yourself" back office fiefdoms. Now that back office has become the engine not just of revenue assurance and management, but actually of commercial offerings and the success of them. It is that switch, as operators work with more partners and more diverse customer bases, that is driving the changes we are saying.
And despite all the mergers and rumoured mergers, who is to say that dedicated specialists offering open interfaces may yet not have a role to play in an industry which otherwise seems to be heading towards an IT-like world of a select few huge players, each defending their own spheres of influence?
THE CASE FOR OUTSOURCING
Another way of meeting operators' clamour to deliver new services is to outsource the billing function, says Andy Wilson, Vice President of Sales & Marketing, CTI Group
At the same time as mobile operators look to provide complex value added services to end users, the end users themselves are increasingly calling for simpler, more transparent billing. Consequently, telcos face a host of challenges with the introduction of every new service. They now have to manage the intricate billing relationship between multiple parties while ensuring none of their revenue ‘falls between the cracks', and present this complex billing information transparently in a user-friendly format.
Although transparent billing is fundamental to intelligent customer service, cutting costs and rapidly launching new services, it is still not being provided to the end user in many cases. Why? The answer lies in its complexity and cost.
The traditional voice model had only two players – the service provider that owned and operated the network, and the end user who paid for the service. However, the advent of data turned this model on its head and now billing systems have to be able to manage five parties: the network operator, service providers, content providers, value added application providers, and the end user. The ability to bill these multiple parties has now become absolutely critical to a Telco's success.
At the same time that bills are becoming ever more complex. With 2.5 and 3G, the mobile bill is no longer a simple list of voice calls and tariff charges, it now includes information, entertainment and additional communication services such as downloaded ring-tones, games, premium text services, video clips and even football highlights.
The secret to bill transparency is presentation of the bill data – providing comprehensive analysis of all this phone activity in a format which is easy to understand. In many cases this type of functionality cannot simply be bolted on to legacy systems – doing so would actually make bills more inflexible and exacerbate the problem. However, his does not mean that a wholesale rip and replace is necessary, with the associated investment of time and capital it would take to build a new, comprehensive billing system. By using a third party to provide specialist billing services, legacy systems can focus on creating the bill itself, and the post-billing functions.
Despite this complexity, Telcos in Europe have traditionally not outsourced any of their billing function, often regarding it as a key strategic area of competence. However as the telecoms industry struggles to cut costs, outsourcing is increasingly being seen as a way to ensure a high level of efficiency without the prohibitive expense of running billing operations in-house.
The right partner has the potential to not only deliver the benefits of reduced cost and improved business agility to the Telco, but also prove instrumental in winning and retaining customers.