Interconnect Billing and Reconciliation

Summary

Interconnect billing is a business function performed between a network operator and its network peers. This billing involves a much smaller 'customer' base (i.e. each connecting network) but with substantially higher transaction volumes and bill values than retail billing. Each interconnect bill exchanged between network operators can represent the aggregated billing for millions or billions of transactions.

Interconnect processing costs can be minimised by not processing individual transactions through the 'retail' billing platform, instead aggregating them upstream (e.g. in rating), before passing the rated totals for bill calculation and subsequent processing. The transactions' supporting details can be exchanged between network operators using files of an agreed format and content.

All transactions performed across the operator's network boundary are likely to require interconnect settlement, either to bill another network for transiting or completing their transaction, or to reconcile another network's bill for completing a transaction that originated from the operator's own network. The activities of billing and reconciliation are complementary, with differences occurring in the direction of cash flow (money paid out versus an outstanding debt) and in the priority of the processing (e.g. performing billing with a higher priority than reconciliation).

What is interconnect billing?

Where transactions require two or more networks for a successful completion, the participant networks share in the retail revenue stream by charging the retail biller (usually the transaction originator) for completion or transit of the transaction across their networks.

The three components involved in interconnect billing are the:

Originating network - The network upon which the transaction 'starts'. The originator will (usually) bill the retail customer for the transaction. Retail customers perform their transactions (e.g. phone calls) with little consideration for the underlying networks required to complete the transaction, and nor should they. The network operators price their network products and services with this in mind. Charges may vary by general destination (e.g. calls to Japan), but rarely by the competing network operators that complete transactions at their destinations.

These transactions are sent to retail billing, though they contain details that can support the reconciliation of bills received from the network operator's network peers. Where a transaction is performed internally within an operator's own network, there is no involvement of interconnect billing. Transactions records indicating an off-network (inter-) connection can be used to pre-calculate and match the charges received from external networks.

Terminating network - The network where the transaction 'ends'. These network operators may charge (bill) the upstream network(s) for completing their transactions. Terminating transactions can be a substantial revenue source for network operators. For example, calls that terminate on a mobile phone network are an additional revenue source for mobile phone operators, only enhanced by the move to mobile phones over fixed phone lines.

Transit network - Where the originating and terminating transactions are routed between separate networks without a common touchpoint, the network(s) upon which transactions 'transit' on their end-to-end path may also charge for their services. The entire business of some network operators is the transit interconnection between retail end-points, though the margins are low and under pressure due to the commodity nature of the business.

Financial Settlement / Accounting

As network operators develop new products and services that require other networks to complete their transactions, the impact to interconnect billing must be considered. Alongside the network interoperability issues of an interconnected transaction, the interconnect billing platform must recognise the new transactions and bill for the network use with pricing specific to each network partner.

Each interconnection of each transaction type can be a matter of negotiated or regulated pricing, including the payment direction, and each part of this must be reflected in the billing platform. For example, reverse charge and toll-free phone calls are billed to the recipient, but the same phone call connection performed without the operator or toll-free intermediate number is billed to the originator. A careful classification of transactions into scenarios allows the appropriate interconnect approach to be taken.

Different prices may be charged at a retail level where distinctions between end network types (i.e. mobile/cell phone versus fixed phone) are possible (e.g. in Australia), but where this is not possible due to shared phone number ranges (e.g. the US), a common rate may be applied. The ability to distinguish between end destinations can also affect the ability to differentiate how interconnect charges are calculated.

A network operator can settle with each network partner directly (Direct Billing) where the originating network is aware of each network involved in the end-to-end completion of its transactions, and can pay each network operator directly for their participation. This approach requires agreements be established between each involved party before interconnect billing can be performed.

An alternative approach is to bill/pay only those networks connected to the originating network directly. Each downstream network then bills its upstream ('originating') network and is billed in turn by their downstream ('terminating') network. This cascades the revenue (Cascade Billing) to the downstream 'terminating' networks. The originating and terminating networks do not need to identify or establish direct billing relationships, and the transit networks can route transactions depending on the prevailing prices of alternative routes.

An international call is an example of a multi-network transaction that could originate on a mobile phone network (#1), be carried from its originating location to the originating country's international point-of-interconnect (POI) (#2), without a direct network connection between the originating and terminating countries the call is passed through (transits) a third country (#3), on 'arrival' at the terminating country it is carried internally from the terminating country's international POI to the local network in the terminating country (#4), where it terminates on the network of the intended phone (#5), establishing a phone call.

Examples of transactions that can involve 'interconnect' billing include:

Long-distance Phone Calls: Domestic and international calls that originate on one (retail) network, are often carried to the destination region / country on another network (transit), and then terminate on the local provider's network associated with the regional / overseas phone number.
Mobile Phone Calls: Interconnect processing connects calls between two mobile (cell) phone networks that have no common point-of-interconnection. Without a transit connection between the two isolated networks, calls could not be completed. Interconnect billing charges for the use of an operator's network as an intermediary, and for the terminating network to complete the call.
SMS: The exchange of short text messages between mobile phones. Originally these messages could only be exchanged between phones on the same provider's network (no interconnect requirement), but as networks came to peering agreements and inter-connected their networks for SMS, mobile phone customers could send their SMS transactions with a higher confidence the recipient could receive it. Interconnect billing is employed to bill for the carriage (transit) and delivery (termination) of these transactions.
MMS: Similar to SMS messages, picture / video transactions are exchanged between mobile phones on different networks. Whilst SMS have a fixed length, pictures and videos are variable in size creating an additional dimension that may vary the interconnect pricing model used in their billing.
Mobile Phone Video-calls: An extension of the phone call now possible on 3G phone networks, these 'transactions' are performed predominantly between phones on the same network (no interconnection), but will over time become possible between networks using the same technologies, necessitating interconnect billing to allocate the revenue stream between the participants.
PTT: Push-to-talk - These are 'phone communications' made between selected mobile phones using an 'always on' walkie-talkie model. Initial deployments have required all selected mobile phones to be on the same provider's network (no interconnection), but long-term the ability to speak (PTT) with any phone will increase PTT's appeal (i.e. just as SMS became more popular when 'any' phone could receive a customer's SMS), establishing the need for interconnect billing.

Interconnect Reconciliation

Network operators will not only send bills for transactions terminating on or transiting their network, but will also be sent bills for their own traffic that terminates on other networks. These bills are super-aggregated to the 'network' as customer rather than totaling the charges by retail end-service. To assure themselves that bills are 'fair and reasonable' (if not accurate!), the network operator must perform some level of validation and reconciliation of the bills' charges against the pricing arrangements made with each network partner.

Operators without a reconciliation capability may pay the network bills if they fall within a percentage of an expected amount calculated using high-level totals of transactions performed. But when bills are measured in million of dollars (Euros, Yen, Rupee, ...), a difference of a few percent can be a substantial amount. Operators who can calculate the actual totals accurately will be in a better position to challenge their bills when they are inaccurate, and pay them confidently when they are assessed as 'correct'.

Where the network operator can capture the details of outbound transactions that terminate or transit other networks, there is scope for 'draft' totals to be pre-calculated and compared to the network bills when they arrive. Where (an electronic file of) details are included with bills received from other network operators, these can also help to confirm the 'reasonableness' and accuracy of the other networks' bills.

The processing effort required to calculate a reconciliation amount is roughly equivalent to the act of billing, but the processing environment does not require the same 'trappings' of a fully-fledged billing system, nor its availability, and this can reduce the costs associated with the reconciliation process. One of the outputs of a reconciliation calculation should include the supporting totals and reports that detail how totals were derived. If a discrepancy in a bill is found, these reports and totals can then be used in an investigation to identify where the error has occurred, justify the bill's rejection and / or negotiate a lower payment.

Tags: Billing, Interconnect, Reconciliation