So why is interconnect so important?

Often the largest single annual outlay operators have to make, interconnect can also be a major source of revenue. For some operators, it is the second largest source of revenue after their retail operations. Other telcos such as carriers’ carriers rely on the margins made from transiting and terminating calls as their main source of revenue. BT’s interconnect revenue from its UK operator partners in the financial year ending March 2001, represented around 15% of its total income.

Clearly even a small percentage increase in interconnect revenues can result in significant new revenues for operators.

Huge sums are being lost

In an era of falling profit margins and slowing subscriber growth, operators need to concentrate on their interconnect strategy. Interconnect can account for between 10-60% of the base line operating costs of a telco and it is usually their second most important source of revenue. Inter-carrier billing has become financially crucial to any operator with multiple interconnect and wholesale agreements. It has also become increasingly complex.

Although it is well known that current inter-carrier relations are by no means a precise art, research carried out by Chorleywood Publications indicates that a lot of inaccuracies and inefficiencies occur in communicating tariff rates, rating CDRs and settling interconnect partner invoices. These are costing telcos huge sums of money – money they can ill afford to lose in today’s climate. With the correct billing strategy, these losses can be minimised.

The challenges of next-generation services

In the IP, 3G world, operators will need to evolve their interconnect and wholesale billing systems to embrace the lucrative revenues content will bring. The Interconnect Evolution examines the way in which the interconnect billing system will be adapted to manage complex wholesale content revenue sharing between partners in the new value web. It advises operators on the steps they will need to take to enact these changes and the functionality they will need to acquire. The report also details some of the wholesale content billing scenarios telcos, content providers, MVNOs, portals and ISPs face.

Interconnect and wholesale – a blurring picture?

Over the course of a century, interconnect billing has evolved from a relationship where operators who billed retail customers – and used other networks to reach the customer – would keep all the revenue from the call, to an intricate process of inter-carrier measurement rating and settlement of invoices. Traditional voice interconnect is the physical means by which two discrete telecoms networks allow customers connected to one network to communicate with another.

Interconnect billing as it is today is a bi-directional process of billing and verification, involving the passing of bills and reconciliation in two directions, between two operators in an interconnect agreement. Interconnect accounting is reconciliation and billing between operators for transport or traffic over agreed points of connection, within regulatory and contractual frameworks. Interconnect is also the process of handling calls for other operators.

Wholesale billing differs somewhat from the interconnect process. It is the supply of airtime minutes, bandwidth or ‘capacity’ provisioned from large incumbents, tier 1 operators and carriers’ carriers and passed on to other telecoms operators, ISPs, resellers and large enterprises. It is essentially the billing of services to service providers, and it must support the commercial relationship with the end service provider and its supply chain.

Wholesale billing is a complex rating, reconciliation and verification process, billing for a small number, of large, sophisticated customers. A wholesaler is therefore a commercial entity that buys services in order to sell them on, providing services to intermediaries, and not necessarily end customers.