Note 38: Rate Plan Scope

Posted: 27 September 2007

Rating's Product Scope

Each billable transaction, whether usage, a recurring or non-recurring charge, must be included in a rate plan for a price to be determined. To avoid ambiguity, each of a customer's charges must be covered by only one rate plan, though that rate plan can differ by product type, by charge type, by service, or many other determinants that provide differentiation. A prioritisation approach is required when the customer qualifies for multiple rate plans.

Rate plans can be defined using different criteria (determinants) used to select the appropriate rate plan. Rate periods, discussed later in these notes can be used to simplify the selection process (e.g. time-of-day, day-of-week). Multiple determinants can be used together to select the specific rate plan that will apply (e.g. small business / mobile phone / international call plan).

Rates for bundles and contracts can also be driven by a rate plan. In each case, the identification and ownership processing must identify for each 'service' how the product is to be rated. Each customer, and indeed each of a customer's services, can be charged on a different basis. This flexibility supports the range of billing offered across different market segments and to specific customers.

Transactions may be rated individually, or be processed within a bundle. An example of this is an all-day tollway pass that charges for a day's 'bundle' of journeys (i.e. a usage charge aligned with time-limited access rather than use). Any tollway journeys on the specified day will be included under the one charge, which will not vary depending on how many journeys are performed. The individual journeys may still be captured and processed, possibly with a zero value, so that they may be presented on the customer's bill.

Transaction Elements

Transactions, whether usage, a recurring or non-recurring charge, can be described by their different measurable dimensions. For example, a dial-up connection to the internet can have measurable dimensions such as 'connect time' and 'data downloaded' measured and passed to rating. The biller can then choose which aspects will be charged for, and how those charges will be calculated.

The decision about what to charge can be different by rate plan. In this example, the biller could choose to charge only for connect time, only for data downloaded, both or neither (e.g. charging a monthly recurring charge and nothing for usage). Each combination may be used in market offerings targeted at different customer segments and /or price points.

Where multiple elements are charged for, each element is rated and then aggregated to form the collective price for the transaction. The details of how each element was rated may be captured and stored within the transaction to allow problem resolution, and assist in explaining how a charge was calculated. Details of a charge's calculation may also be presented on the bill.

Each element may also be divided when it crosses timing thresholds used to calculate the price. For example, a long phone call may be made across a peak/off-peak threshold and have the times apportioned between peak and off-peak rated at different rates. Another example is a quarterly water measurement measured across a January 1st rate change apportioned using a prorata allocation by date range.

Rate Calculations

The algorithms outlined later in these notes are used to select the basis and parameters of the rating calculation for each transaction element. Often this decision reduces to the balance between applying fixed and / or variable rating components. The three options employed are:

Fixed amount only: This is used for events measured in terms of 'counts' or 'instances of' rather than 'quantity' (all other criteria being equal). Examples include untimed local phone calls (of any duration), tollway journeys between specific entry/exit points, tollway bridge crossings, call surcharges, and non-recurring (e.g. installation) charges. It can also be used for a recurring amount charged each month.
Variable rate only: When charges are proportional to the quantity of a network resource consumed, the choice of variable rate links the price to the quantity consumed. Examples include international phone calls charged per minute, electricity charged per kilowatt hour (kWh), and cents per megabyte downloaded from the internet.
Fixed amount plus variable rate: This approach administratively combines the elements of the two previous options. The biller ensures that a transaction always collects a fixed amount, whilst exposing the biller to proportional benefit based on the customer's network use. Examples include telephone calls with a flagfall (fixed) and a per minute charge (variable), or out-of-town internet connections that levy a fixed amount for the first hour including a specific download amount, but charging a per minute rate after the first hour and a per megabyte charge for each additional megabyte over the included limit.

Rate calculations may include additional variables in the calculation of the transaction's price. e.g. gas' 'heating factor' links the volume of gas consumed to the price per kilojoule.

Specialised mathematical functions may be employed in some circumstances, though not usually for the mass-market where being understood is usually a key requirement. The three calculation options listed above, when combined with rates against several dimensions, can support the majority of a biller's billing needs.

Tags: Billing, Rate Plan, Rating