Everything's coming Up convergence

Locked in a fierce battle for customers, established carriers and new market entrants alike are looking for anything that will give them a leg up over the competition. Customers, shopping in a marketplace jampacked with data, voice, Internet, video and multimedia offerings, are looking for anything that will help them sort through all the service providers clamoring for their business.

One apparent solution for both carriers and customers is convergent billing.

Most service providers, if they are not already offering some form of converged bill to their business or residential customers, are moving quickly to do so. For one thing, traditional competitive tools such as price and quality have lost their effectiveness. With more carriers crowding into all segments of the communications marketplace, it is becoming increasingly difficult for any one carrier to undercut rivals' prices for a given type of service. In addition, service quality is fast disappearing as a competitive differentiation because advances in technology and network design enable all carriers to offer basically the same high levels of quality and reliability. As a result, many carriers are turning to convergent billing to get a competitive edge, build customer loyalty and minimize churn.

For their part, customers - particularly small and medium-sized businesses - don't like the hassle of dealing with separate bills for individual services. In addition, both business and residential customers dislike the confusing, time-consuming effort required to identify and contact the relevant customer service representative whenever they have a question about a specific service. Many see the converged bill as a way to streamline their interactions with their service provider.

Although carriers may agree on the competitive need for convergent billing, they don't always define that term in the same way. For some, convergent billing means putting multiple services - local, long-distance, Internet access - on one bill. That single invoice shows the grand total due for all services and then breaks down that amount into subtotals, with attendant call detail records, for each component service.

Other service providers dismiss that approach as nothing more than "electronic stapling" of multiple bills. They argue that convergent billing combines back-office and front-office operations in ways that integrate a customer's entire suite of services - and that allows the carrier to offer cross-service discounts. This approach also provides marketing opportunities. With a holistic view of the customer, a single CSR can sell additional services that complement that particular customer's usage profile.

Bundles of service

AT&T has adopted this approach, says Frank Delfer, vice president and chief information officer of AT&T Consumer Services, Basking Ridge, N.J. However, the company doesn't call it convergent billing. Instead, AT&T "bundles" services and offers three distinct tiers of service bundles.

Tier 1 combines multiple services on a single bill with a single point of customer contact. Tier 2 is the Tier 1 structure plus discounted pricing or promotions across those multiple services. Tier 3 is what AT&T calls "an integrated application of services," in which the carrier can integrate - and bill for - multiple communication services in one transparent, easy-to-use offering, Delfer says.

"Probably the best examples these days of Tier 3 bundling are our [wireless] Digital One rates, which include, obviously, local wireless service but also roaming and long-distance, all in one package," Delfer says. "So it's more than just combined billing and care, more than just pricing. The services actually integrate and work together seamlessly to provide more value."

Sprint takes a similar approach to convergent billing and customer care. Currently, Sprint customers can receive one bill for paging, long-distance and toll-free service; they soon will see PCS incorporated within that single bill. Sprint, like AT&T, wants to enhance for customers the overall value of the services to which they subscribe, says Charlie Paelinck, assistant vice president of business systems.

"Ultimately what everyone in the industry wants to do is to create something in which the sum is greater than the individual parts. Obviously that's what something like Sprint [Integrated On-Demand Network] is all about," he says. "We want to pull services together in such a way that the manner in which they are used makes them more important or more valuable to customers than if they were to use them individually."

In fact, the desire to boost the value of the entire package, from multiple services to billing to customer care, is driving many carriers to offer convergent billing. Carriers believe that if customers see they're getting more value in a multiservice, single-bill package, they will be much less likely to switch carriers if they run into a problem with just one component. Billing system vendors are among the most vocal proponents of using convergent billing to minimize customer churn.

Rich Aroian, vice president of marketing and strategic alliances for Saville Systems in Burlington, Mass., characterizes this tactic as "customer entanglement." It involves more than integrating services on a single bill, cross-discounting them and providing one-stop customer service, he says. Equally important is the ability to keep high-value customers in the fold.

"If you have in one place all of the information about that particular customer and the usage of that customer, or how often that customer uses all of the particular services he or she is buying from you, you can be a lot more sophisticated in identifying clients that are most likely to churn," Aroian says. "A truly convergent billing process allows you to communicate with your customers much more effectively."

With competitive carriers in particular, improving customer service is every bit as crucial as service quality and pricing quality. Sophisticated billing systems can help improve the customer experience by guiding a carrier's service representatives through customer calls and alerting them to additional sales opportunities.

"You will see the caliber of customer service reps improve dramatically," says John Kiley, executive vice president of Saville. "They've been limited by systems that didn't give them a total view of the customer."

The kind of detailed knowledge about customers that convergent billing provides also enables the carrier to reward loyal customers and further reduce churn. Convergent billing can do for communications carriers what frequent-flyer programs do for airlines, says Bob Fritz, vice president of the competitive carriers business unit at American Management Systems in Fairfax, Va.

"The whole notion of customer value is something we're working on with our carrier customers. You provide different packages, different offerings, different price points to different customers, depending on how valuable they are to you," he says. "If you can identify a customer who tends to be a hopper, changing providers quite frequently, you attach a low customer value to that customer and you don't offer him or her particularly great deals. If you have a customer who is highly loyal, who stays with you for a long time and to whom you can up-sell and cross-sell a lot, you are willing to invest more in attracting and retaining that customer."

Plus, if a customer buys all services from one provider and gets a single bill, it will cost that customer time and money to switch to separate vendors for all those individual services, Fritz says. Nevertheless, carriers must be careful when relying on converged billing to reduce churn, primarily because of "sticker shock," he says, especially with residential and small-business customers.

"When the bill gets big, people manage it differently. You manage a $50 communications bill differently from the way you manage a $200 to $300 bill," he says.

Not for everyone

Ray Palkovic, senior vice president and chief information officer of Englewood, Colo.-based ICG Communications, says he personally does not like using convergent billing as a means of reducing customer churn. ICG bills and discounts multiple services on a single invoice for its customers, most of which are small and medium-sized businesses, but Palkovic says the main reasons are that customers want the simplicity and single point of contact.

"I've irritated my marketing peers by referring to that [reduce-churn-through-convergent-billing] philosophy as the `tar baby philosophy,'" he says. "It would really bother me if somebody were to tell me they're having trouble with one of our products but is staying with ICG because we've got all these other hooks into them.

"I would much rather deal with my customers by offering them excellent services at a price they consider to be fair and that we can make a profit on," Palkovic says. "And if there is an issue with any one of those services, we are going to resolve it so that they think all of their ICG services are excellent," he says. Superior service reduces churn and induces customers to pick up additional services with a company, he says. "Being able to get those services discounted on a single bill is just icing on the cake."

Echoing that argument is Denise Crane, vice president of customer implementation and billing for Dallas-based Allegiance Telecom. She acknowledges that convergent billing is a competitive necessity today and notes that Allegiance combines its local, long-distance and Internet access services on one bill for its customers, which comprise small and medium-sized businesses; Allegiance soon will incorporate digital subscriber line service (DSL) on that single bill as well. Nevertheless, Crane says she doesn't believe convergent billing is the panacea that some claim, particularly because some sophisticated customers don't mind shopping around.

"A year down the road, it will be less of a differentiation than it is today because consumers are becoming much more savvy," she says. "Communications services overall will become so competitive that people will be able to do very attractive packages with respect to what they pay for their services. And if certain customers don't care whether they pay one invoice or three, they will choose the carrier that provides them the best customer service. "No matter where you go with your billing," Crane says, "the bottom-line differentiater for any carrier in any part of this business is the ability to serve the customer satisfactorily."

Easier said than done

Regardless of their individual reasons for adopting convergent billing, nearly all service providers face enormous challenges in actually pulling it off. Most established carriers have rigid legacy billing systems that were not designed to accommodate a host of new services. Although competitive local exchange carriers don't have that problem, some of them, along with several incumbents, have acquired other carriers and thus must merge billing platforms first before they can produce a converged bill.

One such CLEC is Nextlink Communications, Bellevue, Wash. When Nextlink acquired some small long-distance companies last year, it also acquired some pretty specialized pricing structures that those carriers had been offering their customers, says Christine Walker, vice president of operations support systems. As a result, Nextlink now is determining just how those customized pricing structures work to bring them into Nextlink's billing system, Walker says.

Nextlink expects to combine the billing systems of three acquired companies, including a shared-tenant-services provider, by the end of 2000, she adds. "It's not taking a long time because it's difficult. It's taking a long time because of where it falls on our list of priorities."

Currently, Nextlink offers its customers two separate bills: one for local and long-haul service and one for private-line service. However, the company plans in September to combine both on a single bill. Beyond that, Nextlink is now defining more long-term convergent-billing requirements, including those associated with broadband data services, Walker says.

"When we talk about broadband data today, the requirements are fairly simple. That is, most broadband data is flat rate. But pretty quickly in the future, we will want to do usage-based billing - which means cell-based billing, as opposed to call-based billing," she says.

As Nextlink grows, Walker says the company will develop the billing flexibility to deliver whatever kinds of bills customers want. "You can have separate billing systems and take billing streams from various back-end systems and integrate them a little further in the process, rather than just use one billing platform. We are going to try to do one billing platform. Some very large, older carriers have up to 50 billing systems. Shame on us if we create an environment like that," Walker says. "We don't think we have to."

The right software solutions

Whether a service provider is a CLEC or an incumbent, whether it's merging multiple internal billing platforms, combining internal and external platforms or both, chances are it is looking to outside vendors for software solutions. Bob Marino, president of the Information Management Group at Convergys Corp. in Cincinnati, says his company works primarily with carriers with large customer bases. They generally want billing software solutions that can bring together calls "vertical billers" in either legacy or client/server systems.

"They're not able to bring those together quickly and efficiently to allow multiple-service billing or convergent billing to occur and then tackle the convergent customer care on the front end," he says. "What they want to do is bridge or share common databases and make it transparent to the customer service rep and to the party who's getting the bill. Whether it's totally transparent in the system, in the software or processing, that's another question."

Boston-based Kenan Systems Corp. distinguishes the software solutions sought by CLECs from those that established carriers want. Randy Fuller, a wireline industry marketing manager, says CLECs have neither the time nor the infrastructure to put customized billing systems in place. Big established carriers, on the other hand, "have a tradition of very specific billing systems and therefore expect full customization."

"My personal belief is that the cost structure of using a package like the CLECs are using is an order-of-magnitude better than a custom solution, and it'll be only a matter of time before the incumbent carriers have to come around," Fuller says.

Most established carriers look first for an aggregated solution - that is, one that allows them to pull multiple data streams off a switch and then bundle them to produce a single, multi-service bill, Fuller adds. Later, in a second step, they look for a software solution that integrates and streamlines data to present a more holistic view to the customer-service rep on the front end.

Although a few carriers want to go directly to the integrated approach, aggregation as a first step will be much more successful, Fuller says. "To convert multimillion-subscriber systems to a new system is a two-year-plus project. The success track record of two-year-plus projects is very low. Therefore," he says, "we find that it's much more successful to have it deliverable inside of a year so that you can claim some victory, get something done and then move on."