”Cost analysis of Mobile Charging and Billing” Arturo Basaure November 2005

Contents Cost analysis framework C&B architecture Offline and online C&B architecture OCS, BD Vendors’ solutions Cost assumptions Scenarios: Offline postpaid, offline prepaid Online prepaid, online postpaid Comparison: offline vs. online Operator cases Prepaid vs. postpaid markets Outsourcing vs. investing Analysis and Conclusions

Cost analysis framework Top-down approach: FDC, ABC Bottom-up approach: ECPR, LRIC+ Our framework: ABC/TCO combination

C&B Architecture source: 3GPP

Offline and online C&B processes CTF: charging trigger function CDF: charging data fucntion CGF: charging gateway function OCF: online charging function ABMF: account balance management function RF: rating function BD: billing domain online offline

Online Charging System (OCS)

Need for online More flexible content charging Less financial risk when charging online Use of Prepaid when introducing new services (e.g. games) Enable higher transaction value and higher number of transactions But: Flat rate trend in mobile services (offline) Need for high availability of online system (high OPEX costs of maintenance and personnel) ”Convergence” can take a long time However: Hold two systems is more expensive than one Trends: Outsourcing NO or SO?

In online: Rating is ”real-time” (in the OCS) Fraud management is online (in the OCS) No invoicing if prepaid  Less costs in the BD than before Offline The Billing Domain

Vendors’ solutions Conflict between OSS and BSS vendors: Both OSS (IN-prepaid) vendors and BSS (billing system) vendors are going online. Different implementations. 3GPP model differs from the reality. Source: Am-beo

Even the same vendor can have different solutions for different operators High integration costs when deploying online Easiest: for Greenfield operators. They avoid integration costs. Example: Convergys IN-prepaid extension BD extension

Assumption for cost estimates Results from interviews OfflineOnline Billing system: 5x, CGF (Mediation): x Billing system: 3x OCS: 3x Integration costs :6x Personnel and maintenance costs increase 20% *For CAPEX costs, we assume a payback period of 5 years (equal devaluation)

Main variable cost elements with their drivers In the charging domain, the number of transactions is the main driver. In the billing domain, the number of customers is more important. Variable costs: running, monitoring and contacting customers (personnel). Maintenance, support: related with each element. *Developement (updates): considered as CAPEX, fixed for each year.

Offline Postpaid OPEX related with the billing system: invoicing, personnel In general, we consider the system operation and maintenance as OPEX and the system updates as CAPEX.

Offline Prepaid Hot-billing (near real-time) Fraud management increase personnel costs Prepaid avoids invoicing costs

Online prepaid Integration costs are as much as online CAPEX costs Online prepaid avoids OPEX costs related with the billing

Online postpaid Most expensive scenario Greenfield operator avoids integration costs

General comparison : OPEX, CAPEX, Charging and billing *OBS: We consider integration costs as CAPEX (55%) and OPEX (45%) CAPEX costs OPEX costs

Cost per transaction Online decreases the cost per transaction: Online enables higher transaction value. In this way, the cost per transaction (in percentage) decreases in relation with the total transaction value, even though online system demands a large investment. Online enables higher number of transactions, decreasing the cost per transaction Online has a value system with fewer players than the postpaid-offline model. In this way, the cost per transaction decreases, and the revenue sharing percentage increases. source: Toni Saikkonen, adapted. Offline postpaid payment Online prepaid payment

Case analysis A 2G operator with 3G license B 2G operator without 3G license C Greenfield operator with 3G license D Greenfield without 3G license Cases according to ECOSYS models: Greenfield vs. incumbent operators With vs. without 3G license (SO vs. MVNO) Prepaid market vs. postpaid market

Postpaid vs. prepaid country Postpaid market (e.g. Finland) Using online prepaid for introducing new services (e.g. content and games). Prepaid market (e.g. UK) Switch to online could be faster because it involves more services.

Outsourcing the OCS Example of outsourcing: Paying according to the number of transactions. Source: Am-beo’s ”nCharge” OBS: the pricing curve is not linear. It represents a volume advantage.

Operator cases 2G operator with 3G license 2G operator without 3G license Greenfield operator with 3G license Greenfield operator without 3G license (2G MVNO) (2G and 3G MVNO)

Service usage forecast (millions of transactions/month) Prepaid market: 70% prepaid penetrationPostpaid market: 95% postpaid penetration

Analysis example: 2G operator with 3G license Offline costs increase more linearly. Online has biggest volume advantage.

Results in graphs: a) 2G operator with 3G license

b) 2G operator without 3G license (outsourcing the OCS)

c) Greenfield operator with 3G license

d) Greenfield operator without 3G license (outsourcing the OCS)

Comparison between cases Prepaid operator can avoid OPEX costs related with billing activities. Greenfield operators can avoid integration costs. Charging is more important than billing. The SO plays a major role as compared with the NO.

C&B cost per transaction Online decreases the C&B cost per transaction. Prepaid operators have in all cases a cost advantage. During the first years, Greenfield operators (C&B) have higher cost per transaction. Operators (incumbent vs. Greenfield) do not differ too much in cost per transaction after the adoption.

Conclusions a)C&B is important to operators because it secures the continuous revenue flow. In addition, a proper C&B system enables users to access new services. b)The main reason for going online is the user requirements for security and ease of payment. c)However, user satisfaction is not the only reason for going online. Online systems also reduce the C&B cost per transaction.

Conclusions d) Operators should not concentrate on decreasing the overall C&B costs, but on decreasing the cost per transaction. e) Despite that prepaid operators have a cost advantage; postpaid operators must also deploy online C&B systems to fulfill user requirements. f) The flat rate trend does not stop the migration into online. Even though flat rate is a possible future trend, not all customers and services will adopt it and operators will need an online system.

Thanks!