A fair: Soon, an incumbent carrier's competitors will also be its customer. Transaction data

As competition in the telecommunications market increases, so does competitors reliance on transaction information. Myriad state and federal regulations require the exchange of transaction information from incumbent to competitive local exchange carriers as a means of facilitating local exchange competition.

Recent telecom regulation also has accelerated the trend toward carriers offering bundled services, enabling consumers to go to one service provider for local, long-distance, Internet access, cable TV and wireless service. Additionally, regulation has created an entirely new market--wholesale local exchange--in which one carrier sells the use of its network or network elements to another carrier.

To run their businesses, incumbent and competitive carriers will require sufficient transaction data to inform their respective billing systems, operations support systems (OSSs) and decision support/executive information systems. Complicating matters is the need to keep confidential data about CLEC customers away from incumbent carrier personnel involved in selling and marketing to the end user. Combined incumbent and CLEC data also must be confidentially delivered to personnel that manage the incumbent's wholesale network (Figure 1).

OSS interfaces pose many challenges for the industry. And once interfaces are in place, questions remain as to what information will be transferred, in what format, and how it should be used. Ultimately, success will go to wholesale and retail service providers that can powerfully manage these information flows for competitive advantage.

The wholesale market New systems and procedures currently are being developed for incumbents to bill CLECs for unbundled network elements. Even though the Eighth Circuit Court's ruling gives states more say in how wholesale rates may be set to recover costs, pressure from CLECs and competition from alternative local exchange wholesalers in key markets will drive down wholesale rates.

Current guidelines at the federal level recommend that, in setting prices for unbundled network elements, carriers must omit avoidable costs such as the billing costs associated with CLEC customers. Additionally, prices must be structured so that costs are recovered in the same manner in which they are incurred.

To avoid incurring costs they will not be able to recover, incumbents must be able to remove data processing that generates avoidable costs from their business processes. Additionally, wholesale billing will need to consider the actual usage levels of CLEC customers as indicated by incumbents' automatic message accounting data.

It's also important to recognize that CLECs will be offering a bundle of services--wireline and wireless--to customers who geographically may span more than one incumbent service area. These carriers will want consolidated billing and are unlikely to purchase those services from the incumbent because of concerns about proprietary information.

CLECs that have arranged for a third party to do their billing and collection will not want to cover the costs of the incumbent's large-scale legacy rating and invoicing systems. Incumbents must have mediation systems powerful enough to strip out the automatic message accounting data associated with CLEC calls before they generate non-recoverable costs. Such mediation systems, situated near the generating system or switch, allow incumbents to conduct early normalization and preprocessing functions as well as data routing--either to downstream applications, including rating and invoicing systems, or directly to the CLECs.

Properly collecting and handling automatic message accounting usage data also will help ensure that costs for unbundled network services will be recovered as they are incurred. This will be especially important for services such as switching and call setup. As new competitors enter local markets and begin to take an incumbent's unbundled services, the incumbent will encounter significant variability in the nature and quality of CLEC demands.

If CLECs do not adequately anticipate their needs for access to the local exchange network, incumbents could incur substantial costs associated with setup and network congestion. It is important that the incumbent's wholesale operations fully recover these costs and send the right market price signal to the CLECs.

At the same time, incumbents will have strong reasons--tactical as well as strategic--to deliver full data in a timely fashion to the many start-up CLECs entering the market. Shakeouts will be inevitable, and the shrewd incumbent will not want to risk being exposed to either FCC or state regulatory compliance issues or antitrust laws when these "market adjustments" occur.

Network data To offer high-quality service and avoid any claims of anti-competitive behavior, the incumbent as wholesaler must be able to measure the traffic flowing over its network more closely and turn this information into timely and accurate billing to the CLECs. As a result, the number of calls and minutes of use that incumbents will need to measure and process through the billing system will dramatically increase.

What historically may have been flat-rate usage now will need to be measured for wholesale billing and reporting applications, even though the end user may continue to be billed at a flat rate. In addition, incomplete calls that previously went unmeasured and unrated now must be available for billing since they represent an opportunity for the recovery of setup and congestion costs.

For full cost recovery, the incumbent also will want to be able to capture the value added by unbundled network elements as completely and accurately as possible. Incumbents with sophisticated transaction data management systems potentially could adapt these systems to collect and process data from unbundled signaling system 7 and Advanced Intelligent Network services.

With an expanded role, transaction data management mediation systems can be leveraged to augment billing for these important unbundled service components. At the same time, however, carriers will need to take into account the additional strains that this greater functionality will place on existing transaction data management, rating and invoicing systems. Compounding the problem is the fact that incumbents will need to deal with regulations that undoubtedly will vary from state to state.

Successful incumbent wholesale billing will require sophisticated transaction data management systems capable of distinguishing among different CLECs, handling their individual data in different ways, splitting off CLEC transaction data at any point in the data delivery process after the information is gathered from the switch, and measuring and managing the volume increases in calls and other data. The latter will be essential for effective network management.

Changes to the local network will no longer be incremental and could be highly localized. Early signs of this are evident in the unexpected central office overloads that Internet service providers are generating.

Battles for market share among many potential local service providers--70 or more in states such as California--will be intense and volatile. This means that there will be sudden, severe swings in the demands on the network and on the OSS, which handles the transfer of an end user from one carrier to another.

Demands on the network also will grow as markets go through a series of pricing wars and competitive marketing campaigns. More work and more transactions are inevitable when customers switch local service providers.

To manage the overall wholesale network, carriers will need a complete and accurate global picture of network performance. The risks of suboptimization from relying only on traditional network management data--looking at trunk groups individually--increase dramatically with the introduction of many different competitors, all with their own marketing plans. Thus, the combined automatic message accounting data--including incumbent and CLEC traffic--will need to be delivered intact to wholesale network planners more quickly than ever before.

Wholesale competition In major markets and for important customer segments, CLECs will have a choice among competing wholesale local exchange carriers, including other CLECs. The challenge for incumbents will be to turn obligations--regarding provisioning information and services--into opportunities for differentiation and competitive advantage.

For incumbents with a sophisticated transaction data management system, there are key opportunities for differentiation and competitive advantage. Since many of the CLECs may be relying on outsourced billing, there will be opportunities to transmit the relevant billing data directly to a CLEC's billing vendor.

This will help minimize the CLEC's own infrastructure costs and will enable the incumbent to capture the value of a reliable transaction data management system. Truly superior data management could conceivably even make the incumbent a candidate for supplying outsourced billing services--especially if billing can go beyond simple "electronic stapling" of convergent bills to features like cross-product discounting.

Another opportunity for incumbents' wholesale operations is in revenue assurance, especially in areas such as fraud management. With the increase in the number of service providers and the current propensity of many state regulators to lower credit requirements, the potential for subscription fraud is increasing.

Transaction data management will be critical for true fraud management, in which customer care and collection can be as much a part of the overall solution as the often complex fraud detection process itself. And yet many second- and third-tier CLECs will lack the infrastructure necessary to handle fraud.

Thus, this could be a service or feature of the incumbents' wholesale operations even if--as in the case of billing and collection--they are not the primary vendor. Real-time delivery of transaction data to various components of the overall fraud process--regardless of whether they are internally developed by the CLEC, obtained as wholesale network services or provided by third-party vendors--will be a valuable wholesale service.

Validation and verification are two other components of revenue assurance that will have a considerable influence on the CLECs' success. Such systems will be critical to determining the quality and accuracy of wholesale services that retail CLECs receive. Mediation systems will play an important role in providing validation and verification as well as in enabling superior fraud management.

Transaction data management also can be useful in supporting marketing activities. Success at winning profitable market share will depend upon being able to quickly use transaction data for market segmentation and customer profiling and ensuring that convergent service offerings are precisely bundled, priced and targeted for key segments.

The opening of the local exchange market serves as a dramatic example of how competition and competitors' requirements will create significantly greater demands for collection, processing and timely delivery of transaction data. Just as incumbent LECs will be able to differentiate their wholesale operations with value-added information management services, CLECs and the incumbents' retail operations will benefit from the receipt of this transaction information--either directly or through a designated vendor--for marketing, customer care and billing.

Unleashing the power of transaction data will play a key role in determining the winners and losers in both wholesale and retail local exchange competition.