Note 35: Transaction-level Pricing (Rating)

Posted: 15 July 2007

Rating marks the transition from an unpriced transaction to a priced charge. Rating combines network information, customer details and marketing (rate) information to determine the specific price a customer will be charged for a given transaction (or set of transactions). The price determined in rating may be modified in later processing to reflect discounts and taxes.

Billers with older systems can improve their pricing flexibility just by adding an enhanced rating system rather than needing to replace all their infrastructure. The biller's existing customer, invoicing and debtors systems can be retained, by upgrading the basis for pricing through an improved rating capability. This approach may also be taken when new networks with more complex rating are added to an existing billing environment.

Pre-paid versus post-paid

These notes are predominantly discussed from a post-paid perspective. The required speed and timing of prepaid rating may differ from post-paid rating, but the core processing, techniques and issues are similar. The performance and availability required to complete prepaid transactions consistently may force engineering solutions that constrain supportable rating options, but the rating concepts employed are the same whether performed pre- or post-paid.

How much does a transaction cost?

This is the question that rating exists to answer. Alternative approaches used in rating to answer this question can be illustrated using a simple story:

"One morning, Lydea left her house and drove to her grandfather's. When she got there she realised that she hadn't set the VCR to tape her favourite TV show and so she called William at home who answered the phone, noted the show's details and taped her show."

"Question: How much did the phone call cost?"

Knowing nothing more about the situation, it is difficult to determine the call's cost. Using determinants, the answer depends on too many variables including:

Technology Choice: Did Lydea call using her mobile, her grandfather's fixed line, her calling card (on a fixed line), or use Voice-over-IP (VoIP)? Perhaps she went shopping and used a payphone instead (i.e. using a standard public rate).

Geography / Distance: Lydea's call could be classified as local or long-distance (assuming no international border) depending on the distance between Lydea's and her grandfather's houses, and the manner in which regulations have divided the intervening geography (e.g. a short geographical distance may be 'deemed' local or long distance by regulation). Some technology choices don't charge based on distance (e.g. VoIP).

The way that each country implements a technology can also be important. The US has applied area codes to mobile (cell) phones allowing calls to be classified in or out of a local area. Australia has taken a different approach using separate mobile phone number ranges. Australian mobile phone calls are charged at the same rate regardless of where the caller and recipient are located.

Charging Approach: Calls may be billed based on caller pays, both parties pay (i.e. shared costs), or called party pays. This affects the amount Lydea pays for her call, and whether another party will also be charged. The charging approach may also vary depending on the technology that both Lydea and William use to connect the call. For example, Lydea may have used a fixed line phone to call his mobile phone, or used VoIP to call his fixed line phone.

Special Calling Products: A technology's charging approach will usually define who pays for a call, but this may be modified by special network products. Lydea may have reverse-charged her call, or used a personal 1800 (toll free) number. Her call would have been free to her grandfather, but charged at a premium to her home phone bill. (Personal 1800 numbers may be overkill for an individual, but the concept generalises to a business' staff or customers.)

Market Segment: Lydea's grandfather may have used a second phone line for his home office, had his calls paid by his employer or his personal small business. A call charged under a business rate plan may be charged differently from that on a residential rate plan.

Call Details: Aside from technology and network specific variables, the call's price may vary based on the call's specific details. The call's duration, date and time can affect what is charged. Some calls will be sensitive to these measures (e.g. peak / off-peak, cents per minute for long distance calls) whilst others may be insensitive and charged at a fixed rate, perhaps at no charge, regardless of when a call is made (e.g. local calls).

Pricing (Rate) Plans: Local calls may be charged at a fixed rate (e.g. in Australia), or be included within a fixed line's basic access fee (e.g. in the US). Some technologies may not charge for calls (e.g. VoIP) when performed on the same network, but charge for calls performed to off-network locations. Customers may purchase customised bundled rates, or use public default rates. In the US, fixed phone lines are billed (in different regions) using monthly recurring access charges with 'free' local calls, or using a lower recurring access fee with local calls charged individually. The cheapest of these two approaches will depend on the customer's calling pattern.

Once a charge's price has been determined, the remainder of billing can be performed using relatively similar processing. Thirty local calls and thirty tollway journeys may be charged at different rates, using different rating criteria, and be presented on the bill differently, but their general processing is similar. Once the bill has been generated, the debt (a product-independent obligation for payment) will be processed in a similar way.

Tags: Billing, Transaction, Pricing, Rating