Note 17: Basic Building Blocks

Posted: 04 July 2006

Atomic building blocks

Billing is constructed from just three 'atomic' charge elements: non-recurring charges, recurring charges, and network usage charges. Used individually, in combination, and at different levels of granularity, they can describe all billable charges. Examples of each building block are:

Non-recurring charges: At the macro-level, these occur 'once' and are not based on the use of a network. e.g. installation charges, penalties and credit rebates. At the micro-level, a non-recurring charges includes a flagfall at the start of a phone call.
Recurring charges: These charges repeat for the duration of a customer relationship, or for the duration that a specific product offering is used by the customer. e.g. monthly cable TV subscription, monthly charges for caller-id on a landline phone, quarterly water access charges
Usage charges: These charges arise from the customer's direct use of a network. e.g. downloaded mobile phone ringtones, SMS messages, individual tollway journeys, a tollway day pass, and utility consumption of water, gas and electricity.

The following notes describe the basics of these building blocks with later notes illustrating how they can be used in combination to form more complex billing structures:

Individual Charges: Future notes will describe how simple billable charges can be assembled using the different charge types as building blocks, alone and in combination. A wide range of complexity can be constructed at the individual charge level.
Bundles and Contracts: After covering charges in isolation, notes will show how individual charges are combined to form bundle and contract arrangements. Bundled arrangements attract and bind customers to billers (e.g. mobile phone contracts) and can capture incremental revenue (e.g. cable TV packages). Contracts combine purchasing commitments over a time period with rebates and penalties. Customers both large and small can be 'locked-in' to a minimum spending pattern in return for better pricing, terms and conditions by linking negotiated rates with spending levels, rewarding contractual terms when they are met, and penalising when they are not.

Once formulated, a billing structure must have the appropriate rates applied. Future notes will describe different rating and pricing methods, including different strategic approaches to pricing that influence how a biller constructs different market offerings.

Non-recurring charges

The most common use of non-recurring charges is for one-time installation (connection) charges that seek to 'cost recover' money spent connecting a new customer. At the macro-level, non-recurring charges may also charge for areas such as:

Configuration: Customer-specific configuration performed when connecting a network to a specific location. This charge may be based on a 'time and materials' calculation.
Surcharges: An additional amount incurred on otherwise standard network connections performed 'out of hours', 'in a hurry' or at a 'remote' location.
One-time purchases: Equipment purchases placed on the bill for consolidated billing and payment.
Penalties: A charge levied against a customer due to an action or omission associated with a contract clause. e.g. a canceled appointment with a network technician, an early termination charge levied when a mobile phone contract is broken before term.
Compensation: A credit given by the biller applied to the customer's next bill due an action or omission by the biller. e.g. an installation technician missing an agreed appointment window, customers of an ISP with poor system availability given compensation to offset their regular (subscription charge).
Rebates: A reward given to customers who generate business (e.g. new connections) to the biller's network. e.g. A customer who recommends two friends may receive a credit rebate after they have been connected for three months.

Note: Non-recurring charges can be employed for any of a biller's activities, with additional examples only limited by the terms of the biller's contract with the customer. The non-recurring charge's two defining characteristics are that they are not expected to repeat over time, and that the charges do not directly depend or vary based on the customer's use of the biller's network. Charges that break either of these characteristics are more likely to be recurring charges or network usage.

Tags: Billing, Charges, Recurring, Usage, Non Recurring