Issue No. #15 28 February 2003 ISSN: 1532-1886

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Block Of Time Rating by Carl Wright

Ten years ago most voice communications were priced one at a time. The total might be discounted based on total volume or other kinds of parameters, but each transaction had a separate price. Since then bundling (see previous newsletters) have become an important part of voice telecommunications market offerings. Service providers have bundled services into Block of Time Plans where classes of calls (i.e. domestic long distance) for certain time periods (i.e. evening and weekend) are paid for as a pool of prepaid minutes. This approach increases revenues for service providers. Here we examine the complexity involved in rating these blocks of time.

Defining A Block of Time Rate Plan

Block of time plans (BOTs) support a complex group of alternative definitions. While they are simpler than normal telecommunications rates, they can work several ways.

Block Of Time Rate Plan

The basic idea of a block of time rate plan is to sell a given amount of services for a single price. This block can be simply for traditionally metered services, e.g. long distance calling, or for a combination of normally fixed price services, e.g. local access, plus a measured service, e.g. local toll calls.

The buyer sees a lower average price for the whole package and the provider gets a commitment of revenue. The plus side for the service provider is that they can charge in advance for measured services that are usually charged for in arrears. Service providers may also see increased average revenue per minute when consumers fail to use their purchased block of time. This is similar to "breakage" in the prepaid calling card market.

Overage Rates

Overage rates define the amount to charge for a service included in the block of time when the block of time is completely consumed. All of the examples above include overage rates for services that exceed the bundle sold in the block of time.

Overlapping Versus Simple

When a block of time has two or more categories of usage that can apply to a specific usage event, you have overlapping blocks of time. This is shown graphically with the stacking of block of time definitions from left to right. The first two examples on the previous page show overlapping block of time plans.

Prioritized Versus Non-prioritized

Prioritization is important when overage minutes for different types of services have different prices. When applying the block of time plan to pay for services, you may wish to prioritize its consumption to pay for one type of service before paying for another. When the overage price for one service is higher than another, then customers want you to apply their block of time first to the more expensive service.

The rate plan is non-prioritized if you use the block of time minutes in the order that the services are performed. This means a consumer pays a lower bill if they consume the expensive type of service earlier in the month. Their bill goes up if they use up the block of time with a less expensive service and pay overage fees on the expensive service.

The first and fourth examples on the previous page show prioritized blocks of time.

An Example Block of Time Plan

The following diagram shows an example combination of block of time plans that might occur in real life. It is important to note that block of time plans rarely include every kind of service that a caller can use.

This diagram shows the wide range of possible services as a white box on the left of the diagram. For all the services used, the rate plans to the right of the "services possible" box show how these services are rated.

Whenever possible the services are rated with the block of time plan, but failing that, they are priced with traditional telephone rate plans.

Please note that the two block of time rate plans cover different kinds of call. They do not overlap each other.

Within each block of time plan there are overlapping definitions of the transactions that are covered. For example, domestic direct dialed phone calls consume evening or weekend minutes before "anytime" minutes are consumed. The rate plan is also prioritized because some overage minutes cost more than others.

Additional Complexity

The actual processing of block of time plans involves significantly more complexity when you allow the accumulation of minutes from previous billing months and/or when you have adjustments or late billed transactions.

Several carriers have had to settle lawsuits related to the processing of late billed transactions. Verizon Wireless, VoiceStream Wireless, and Cingular Wireless are among those with lawsuits that cover this problem. These disputes were reported in the 2 May 2002 issue of USA Today newspaper.

What will you do when calls for a previous billing period arrive? Will you send out a new bill? Will they be free? How will you show this correction on telephone bills that are already notoriously complex and confusing?

When you allow the use of unused minutes from previous months, do you consume the current month's minutes before using the previous month? Will you expire unused minutes after a period of time? Are unused minutes a liability of the balance sheet of the service provider? When do they become revenues?

How will you prorate the block of time plans when a customer changes plans during a bill period? Some service providers might just change you over for the whole month without regard for the day on when you changed. This could be a windfall for the clever consumer. Don't forget that the block of time is charged in advance and you will have to refund prepaid amounts when a plan changes.

Summary

Block of time bundling provides a method for service providers to increase revenues while making the decision-making process for buyers simpler. Imagine the difficulty of comparing the traditional telephony rate plans where the price varied by the jurisdiction of the origin and destination, the distance between them, the time of day of the call and the day of the week of the call. All of these variables were involved in charging for a single call in the United States.

This bundling scheme is effective at communicating a simple deal to the consumer. The problems arise in operations when things change.

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The subjects that I cover in Rating Matters are driven by my personal interests in rating and billing. These are limited by the breadth of my personal experience. Please let me know about items you want to hear about or you'd like explored further. Send me your requests at .

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