”Cost analysis of Mobile Charging and Billing”

Arturo BasaureNovember 2005

ContentsContents• Cost analysis framework• C&B architecture

• Offline and online C&B architecture• OCS, BD• Vendors’ solutions

• Cost assumptions• Scenarios:

• Offline postpaid, offline prepaid• Online prepaid, online postpaid

• Comparison: offline vs. online• Operator cases

• Prepaid vs. postpaid markets• Outsourcing vs. investing

• Analysis and Conclusions

Cost analysis frameworkCost analysis frameworkTop-down approach:

FDC, ABC

Bottom-up approach:

ECPR, LRIC+

Our framework:

ABC/TCO combination

C&B ArchitectureC&B Architecture

ONLINE CHARGINGONLINE CHARGINGOFFLINE CHARGINGOFFLINE CHARGING

WLAN PDG

BGCF

MGCF

MRFC

SIP AS

AS

CRF AF

CDF

TPF

MSC

SGSN

GGSN

CGF

IMS GW

P/S/I-CSCF

S-CSCF

Billing Domain & Operator Backend Systems

B*

B*

Gx

Rx

OCSOCS

CDF

CDF

CGF CDF CAP

CGF CDF

CTF

CTF

CTF

CTF

CTF

CDF

CTF

CTF

CTF

CTF

Ro

Ro

ISC Ro

Wo

Gy

Ro

CAP

Wf

Rf

Ga

Ga

GaB*

Bc CTF

CTF

NOTE: Please note that the WLAN architecture is not final and is still under discussion within 3GPP SA5 SWG-B

source: 3GPP

Offline and online C&B processesOffline and online C&B processes

CTF: charging trigger function

CDF: charging data fucntion

CGF: charging gateway function

OCF: online charging function

ABMF: account balance management function

RF: rating function

BD: billing domain

online

offline

Online Charging System (OCS)Online Charging System (OCS)

Need for onlineNeed for online• More flexible content charging• Less financial risk when charging online• Use of Prepaid when introducing new services (e.g. games)• Enable higher transaction value and higher number of transactions

But:• Flat rate trend in mobile services (offline)• Need for high availability of online system (high OPEX costs of

maintenance and personnel)• ”Convergence” can take a long time

However:• Hold two systems is more expensive than one

Trends:• Outsourcing• NO or SO?

In online:

• Rating is ”real-time” (in the OCS)

• Fraud management is online (in the OCS)

• No invoicing if prepaid

Less costs in the BD than before

Offline

The Billing DomainThe Billing Domain

Vendors’ solutionsVendors’ solutionsConflict between OSS and BSS vendors:

• Both OSS (IN-prepaid) vendors and BSS (billing system) vendors are going online.

• Different implementations. 3GPP model differs from the reality.

Source: Am-beo

• Even the same vendor can have different solutions for different operators

• High integration costs when deploying online• Easiest: for Greenfield operators. They avoid

integration costs.• Example: Convergys

IN-prepaid extension BD extension

Assumption for cost estimatesResults from interviews

Assumption for cost estimatesResults from interviews

Offline Online

Billing system: 5x, CGF (Mediation): x

Billing system: 3xOCS: 3x

Integration costs :6x

Personnel and maintenance costs increase 20%

*For CAPEX costs, we assume a payback period of 5 years (equal devaluation)

Main variable cost elements with their driversMain variable cost elements with their drivers

In the charging domain, the number of transactions is the main driver. In the billing domain, the number of customers is more important.

Variable costs:

• running, monitoring and contacting customers (personnel).

• Maintenance, support: related with each element.

*Developement (updates): considered as CAPEX, fixed for each year.

Offline PostpaidOffline Postpaid

• OPEX related with the billing system: invoicing, personnel

• In general, we consider the system operation and maintenance as OPEX and the system updates as CAPEX.

Offline PrepaidHot-billing (near real-time)

Offline PrepaidHot-billing (near real-time)

• Fraud management increase personnel costs

• Prepaid avoids invoicing costs

Online prepaidOnline prepaid

• Integration costs are as much as online CAPEX costs

• Online prepaid avoids OPEX costs related with the billing

Online postpaidOnline postpaid

• Most expensive scenario

• Greenfield operator avoids integration costs

General comparison:OPEX, CAPEX, Charging and billing

*OBS: We consider integration costs as CAPEX (55%) and OPEX (45%)

0

20

40

60

80

100

120

140

160

180

Offlinepostpaid

Offline prepaid Online prepaid Onlinepostpaid

Billing

Charging

0

20

40

60

80

100

120

140

160

180

Offline postpaid Offline prepaid Online prepaid Online postpaid

OPEX

CAPEX

CAPEX costs

OPEX costs

Cost per transactionCost per transaction

Online decreases the cost per transaction: • Online enables higher transaction value. In this way, the cost per transaction (in percentage) decreases in relation with the total transaction value, even though online system demands a large investment.

• Online enables higher number of transactions, decreasing the cost per transaction

• Online has a value system with fewer players than the postpaid-offline model. In this way, the cost per transaction decreases, and the revenue

sharing percentage increases.

source: Toni Saikkonen, adapted.

Offline postpaid payment

Online prepaid payment

Case analysisCase analysis

A2G operator

with 3G license

B2G operator

without3G license

CGreenfield

operator with3G license

DGreenfield

without3G license

Cases according to ECOSYS models:

• Greenfield vs. incumbent operators

• With vs. without 3G license (SO vs. MVNO)

• Prepaid market vs. postpaid market

Postpaid vs. prepaid countryPostpaid vs. prepaid country

Postpaid market (e.g. Finland)

Using online prepaid for introducing new services (e.g. content and games).

Prepaid market

(e.g. UK)

Switch to online could be faster because it involves more services.

Outsourcing the OCSOutsourcing the OCS

Example of outsourcing:

Paying according to the number of transactions.

Source: Am-beo’s ”nCharge”

OBS: the pricing curve is not linear. It represents a volume advantage.

Operator casesOperator cases2G operator with 3G license 2G operator without 3G license

Greenfield operator with 3G licenseGreenfield operator without 3G license(2G MVNO)

(2G and 3G MVNO)

Service usage forecast (millions of transactions/month)

Service usage forecast (millions of transactions/month)

transactions of prepaid m arket

0200400

600800

1000

tim e (years)

m t

x/m

on

th

onlinetransactions

of f linetransactions

transactions postpaid market

0200400600800

1000

tim e (years)

M t

x/m

on

th

of f line txs

online txs

transactions, Greenfield, prepaid market

0

200

400

600

800

1000

2006 2007 2008 2009 2010 2011 2012

tim e (years)

M t

x/m

on

th

online transactions

of f line transactions

N of transactions, Greenfie ld, postpaid m arket

0

200

400

600

800

1000

tim e (years)

M t

x/m

on

th online transactions

of f linetransactions

Prepaid market: 70% prepaid penetration Postpaid market: 95% postpaid penetration

Analysis example: 2G operator with 3G license

Analysis example: 2G operator with 3G license

• Offline costs increase more linearly. Online has biggest volume advantage.

Results in graphs:a) 2G operator with 3G license

Results in graphs:a) 2G operator with 3G license

020406080

100120140160180

cost variation

(%)

2004 2006 2008 2010 2012

time (years)

2G with 3G license, postpaidFinancial & accounting

billing personnel

invoicing

billing integration costs

billing system

charging personnel

charging integration costs

rating function

ABMF

online charging funtions

online mediation

mediation

CTF/CDF

2G with 3G license, postpaid

020406080

100120140160180

2004 2005 2006 2007 2008 2009 2010 2011 2012

tim e (years)

cost

var

iati

on

(%

)

Charging

Billing

Total

020406080

100

120140160

cost variation

(%)

2004 2006 2008 2010 2012

time (years)

2G with 3G license, prepaid

financial & accounting f.

billing personnel

top up

invoicing

billing integration costs

billing system

balance magt& top up

charging personnel

charging integration costs

rating function

ABMF

online charging function

online mediation

Mediation

CTF/CDF

2G with 3G license prepaid

0

20

40

60

80

100

120

140

160

tim e (years)

cost

var

iati

on

(%

)

Charging

Billing

Total

b) 2G operator without 3G license (outsourcing the OCS)

b) 2G operator without 3G license (outsourcing the OCS)

020406080

100120

140160

cost variation

(%)

2004 2006 2008 2010 2012

time (years)

2G without 3G license postpaid

Financial & accounting f.

billing personnel

invoicing

billing integration costs

billing system

personnel

integration costs

mediation

OCS outsourced

CTF/CGF

2G without 3G license , postpaid

020406080

100120140160180

2004 2005 2006 2007 2008 2009 2010 2011 2012

tim e (years)

cost

var

iati

on

(%

)

Charging

Billing

Total

0

20

40

60

80

100

120

140

cost variation

(%)

2004 2006 2008 2010 2012

time (years)

2G without 3G license, prepaid

financial and accounting f.

billing personnel

invoicing

billing integration costs

billing system

top up

charging personnel

mediation

charging integration costs

OCS outsourced

CTF/CDF

2G without 3G license, prepaid

0

20

40

60

80

100

120

140

160

1 2 3 4 5 6 7 8 9

tim e (years)

cost

var

iati

on

(%

)

Charging

Billing

Total

c) Greenfield operator with 3G licensec) Greenfield operator with 3G license

020406080

100120140

cost variation

(%)

2006 2007 2008 2009 2010 2011 2012

time (years)

Greenfield with license, postpaid financial &accounting f.billing personnel

invoicing

billing system

chargingpersonnelRF

ABMF

online chargingfunctionsmediation online

mediation offline

CTF/CDF

Greenfie ld w ith license, postpaid

0

50

100

150

tim e (years)

cost

var

iati

on

(%

)

Charging

Billing

Total

0

20

40

60

80

100

120

cost variation

(%)

2006 2007 2008 2009 2010 2011 2012

time (years)

Greenfield with license, prepaid financial andaccounting f.billing personnel

invoicing

billing system

charging personnel

RF

ABMF

online chargingfunctionmediation online

mediation offline

CTF/CDF

Greenfield with license, prepaid

0

20

40

60

80

100

120

2006 2007 2008 2009 2010 2011 2012

tim e (years)

co

st

va

ria

tio

n (

%)

Charging

Billing

Total

d) Greenfield operator without 3G license(outsourcing the OCS)

d) Greenfield operator without 3G license(outsourcing the OCS)

020406080

100120140

cost variation

(%)

2006 2007 2008 2009 2010 2011 2012

time (years)

Greenfield without license, postpaid

financial and accounting

billing personnel

invoicing

billing system

charging personnel

mediation offline

OCS outsourcing

CTF/CDF

Greenfie ld w ithout license, postpaid

020406080

100120140

tim e (years)

cost

var

iati

on

(%

)

Charging

Billing

Total

0

20

40

60

80

100

120

cost variation

(%)

2006 2007 2008 2009 2010 2011 2012

time (years)

Greenfield without license, prepaid financial andaccounting f.billing personnel

invoicing

billing system

charging personnel

CGF outsourced

OCS outsourced

CTF/CDF

Greenfield without license, prepaid

0

20

40

60

80

100

120

tim e (years)

cost

var

iati

on

(%

)

Charging

Billing

Total

Comparison between casesComparison between casesTotal C&B costs for 2G operators

020406080

100120140160180

tim e (years)

cost

(%

)

2G w ith licensepostpaid

2G w ith licenseprepaid

2G w ithout licensepostpaid

2G w ithout licenseprepaid

reference of f line cost(100%)

Total C&B costs for Greenfield operators

020406080

100120140160

tim e (years)

cost

(%

)

Green. w ith licensepostpaid

Green. w ith licenseprepaid

Green w ithoutlicense postpaid

Green w ithoutlicense prepaid

reference of f linecost (100%)

• Prepaid operator can avoid OPEX costs related with billing activities.

• Greenfield operators can avoid integration costs.

• Charging is more important than billing.

• The SO plays a major role as compared with the NO.

C&B cost per transactionC&B cost per transactionC&B cost per transaction

0

0,001

0,002

0,003

0,004

0,005

0,006

0,007

0,008

time (years)

co

st

(€)

2G with license,pos tpaid

2G with license,prepaid

2G without license,pos tpaid

2G without license,prepaid

C&B cost per transaction

0

0,002

0,004

0,006

0,008

0,01

0,012

0,014

0,016

2006 2007 2008 2009 2010 2011 2012

time (years)

cost

(€)

Green. with license,postpaid

Green. with license,prepaid

Green. without license,postpaid

Green. without license,prepaid

• Online decreases the C&B cost per transaction.

• Prepaid operators have in all cases a cost advantage.

• During the first years, Greenfield operators (C&B) have higher cost per transaction.

• Operators (incumbent vs. Greenfield) do not differ too much in cost per transaction after the adoption.

ConclusionsConclusions

a) C&B is important to operators because it secures the continuous revenue flow. In addition, a proper C&B system enables users to access new services.

b) The main reason for going online is the user requirements for security and ease of payment.

c) However, user satisfaction is not the only reason for going online. Online systems also reduce the C&B cost per transaction.

ConclusionsConclusions

d) Operators should not concentrate on decreasing the overall C&B costs, but on decreasing the cost per transaction.

e) Despite that prepaid operators have a cost advantage; postpaid operators must also deploy online C&B systems to fulfill user requirements.

f) The flat rate trend does not stop the migration into online. Even though flat rate is a possible future trend, not all customers and services will adopt it and operators will need an online system.

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