Note 37: Rate Plans and Charging

Posted: 17 September 2007

Who gets charged?

An important part of determining a transaction's ownership is working out which customer is responsible for payment. Once ownership has been established, the rates specific to that owner can be applied. Some networks can have more than one party involved resulting in different parts of a transaction receiving different rates.

Five mechanisms that can influence who gets charged are:

Product rules: Some products explicitly define who will be charged. One example is a toll-free 1800 phone number where charges are directed to the recipient. The rules applied may still vary. Calls to toll-free numbers from mobile phones may charge the caller, though possibly at a reduced rate. Unusual rules that vary per transaction are also possible. e.g. online games may be charged on a 'loser pays' basis.

Product overrides: For some networks, such as fixed phones, customers can indicate how they would like their transaction (phone call) to be performed. Customers can use this method to perform long-distance phone calls over different networks and be charged cheaper prices. Such overrides can be used to actually redirect the call over the other (phone) network (e.g. better quality fax phone lines), or be used only to change how the billing is performed across the same network. (e.g. callback to the customer to indicate a phone call's total price).
Hidden product components: When a transaction is performed, not all elements of it are necessarily visible. Two phone network examples illustrate this. In Australia, customers calling numbers starting with '13' are charged only the cost of a local phone call. Businesses using 13 numbers can be located anywhere in Australia, but encourage customers to call without incurring a long-distance charge. The called business incurs a charge based on where the customer and business are located. A second example is when a phone call is redirected. The caller incurs their expected charge for the call to the original phone number, with the recipient being billed for the costs of the redirected leg of the call.
Product segmentation: A single network service (e.g. a fixed phone line) may be subdivided into different products which are charged to different parties. For example, in the US a fixed phone line can have local phone calls billed to their local network provider, and long-distance phone calls directed to a different carrier. Calls are switched to the appropriate network at the phone exchange. Alternatively, a network provider may wholesale their network to other service providers whilst retaining the calls on their network. In this case, the customer is charged as if separate networks were involved, and the network provider and service provider settle using wholesale (rather than retail) charge rates.
Financial sponsorship / responsibility: There are some circumstances when customers may wish to pay for other people's charges. For example, customer's may choose to pay the bills of their elderly parents, children, or for businesses, their staff. The criteria employed may include all charges, or just specific product families. Parents may pay for their children's mobile phone access but not their call charges, or businesses may pay for domestic long-distance calls made from Monday to Friday.

The combination of identifying what the transaction is, who belongs to the transaction's service and against whom it is 'guided' determines who is charged for what parts of the complete transaction. Where multiple parties need to be charged for one transaction, two approaches can be used. The first approach duplicates the transaction record; the second stores multiple prices against the same record.

Duplicated transactions contain all the original transaction's details, but are differentiated to prevent them landing against the same service (creating a duplicate billing problem). Each duplicate is processed independently based upon who the charged party is, and is guided to different customers and / or services.

Since each duplicated record is processed independently, problems can arise when an error is detected, since all records may need to be found and corrected. This becomes more complicated when the duplicates are processed across multiple billing systems.

Alternatively, a transaction can be rated multiple times (i.e. once per charged party) with the details of the different prices stored within the transaction. The rated transaction record must then be referenced by, or stored against, each of the involved parties.

Details stored on the same transaction record can include the rated price, price components, descriptions, taxes and other details, and can become complicated quickly. Complications arise when each chargeable party is billed at different times. This solution also assumes that all parties are billed on the same billing system.

What are Rate Plans?

Rate plans are a biller's integrated description of how a product offering will be charged. The rate plan describes which atomic products are included, the specific algorithms to be used and what rates will be applied. Depending on the billing system, the rate plans may describe other aspects of a product offering including its financial postings, eligibility rules and bill presentation.

Rate plans can describe the pricing of individual charges, products within bundles, and the products linked to contracts. The more sophisticated the rating function, the more complex the combinations that can be accommodated, and the more difficult the correct configuration can be to achieve. Some pricing combinations may be easily stated (in words) by the biller's business staff, but be prohibitively expensive in processing costs to implement.

Rate plans can be customised and apply to a specific customer (e.g. large corporates), apply across a customer segment (e.g. small business), or be applied against a mass market (e.g. residential customers).

Billing vendors' software and billers' bespoke systems represent rate plans in different ways and at different levels of sophistication. Some require each rate plan to be constructed (configured) from scratch, whilst others allow plans to be built up from reusable sub-plans describing standard rating for specific product groups (e.g. local phone calls). Sub-plan reuse increases the consistency, configuration speed and accuracy of a biller's product offering definitions.

Rate plans must answer five questions:

What products / transactions are included in this rate (sub-)plan?
How many elements of each transaction will be charged for (e.g. an ISP's connect time and data downloads), and what will their measurements be based upon?
For each element, which rating algorithm(s) will be used?
What are the critical measurement levels for the rating algorithms?
How (and if) will non-financial resources (e.g. frequent flyer points, free minutes) be impacted by the rating process?

These questions must be addressed regardless of whether the rates are customer negotiated, market segment defaults, or common rates available to the public at large.

Tags: Billing, Rate Plan, Rating