Usage-Based Billing

Usage-based billing measures and rates the consumption of a particular product or service and charges the consumer of the service based on the total consumption of the service in the given period, not just based on a subscription fee or a rental amount. Usage based billing is particularly very useful in today’s day and age as it involves charging the customer based on the amount of service they have consumed. This is also known as ‘Pay as You Go‘ charging.

The pay-as-you-go charging allows the customers to use the service with an assurance that they will be charged as per their actual consumption of the service, and not based on fixed amounts or tiered amounts which can cause a major bump in their bills.

The usage billing can be of two billing types – prepaid usage billing and postpaid usage billing. Simply put, if the customer pays to the service provider upfront before using the service, it is prepaid billing. If the customer pays the service provider after utilising the service, then it is postpaid billing.

In prepaid usage charging, the customer is required to top up the account balance in order to start using the service. Once the service is activated, the real time billing component in the usage based billing platform tracks the usage continuously and once the quota on the account (or the account balance) is exhausted, then it will deactivate the service until a new recharge transaction tops up the balance again. The real time usage rating and charging platform is known as the Online Charging System or OCS.

The postpaid usage charging measures and rates the usage consumption for the service, then aggregates and stores the usage charges to be charged at the end of the billing period. In this type of billing the user pays for the utilisation of the service after the fact. The service provider uses the usage rating and charging software to track, measure, rate and aggregate the usage charges for each service consumer. The job that performs this task to measure the usage and rate it is known as the billing mediation.

The usage charges are applied onto the customer invoices in a batch job called bill run and in the end sent to the customers as e-bills (via emails) or paper bills (via post). The user is given a finite period to pay the invoice failing which the service is disconnected.

The diagrams below show the usage-based billing architecture for prepaid usage charging as well as the postpaid usage charging respectively.

In Telecom Prepaid Services, the prepaid usage rating and charging is implemented by using the Online Charging System or OCS. OCS system as shown in the diagram receives the usage from the network equipment or the component such as the UGW (Universal Gateway). It receives the messages containing the information about the usage consumption using either the diameter or the radius protocol.

The Online Charging System decodes the message and resolves the user account, the service and the billable quantity. It checks with the billing system if the quota or the balance is sufficient to continue allowing further usage from the same service. If the billing system responds in the affirmative, then the response is sent to the network component allowing the further usage of the service. If the quota or balance is not sufficient, then the billing system and thus the OCS will respond to the network component to not allow further usage on the service. OCS also updates the quota for the service or the account balance in the billing system in real time.

The postpaid usage rating and charging is illustrated with an example of cloud billing in the above diagram. As seen in the diagram the VMs are connected to a Usage Streaming Application, which is part of the cloud platform. The Usage Streaming Application tracks the start, stop and commissioning or decommissioning of services such as the VMs (or VPCs, File Systems, Databases, SMTP services and more). The data about start date/time and end date/time for each service is sent to a billing mediation engine which tracks hours in use for every cloud resource.

The mediation engine tracks and measures hours in use for every cloud resource. At the end of the billing period, it aggregates these usage records for each user account and the cloud service into chargeable lines (as shown in the above table). The chargeable lines are used by the billing engine to generate the invoices for the accounts using the various cloud resources.

The application of usage rating and charging exists across various business domains.

In telecom, the usage consumption of services such as mobile services, fixed line services, voip services and internet services needs accurate measuring, rating and charging in order to charge the subscribers in a fair manner for their actual usage of the service. Most of the telcos today offer usage based plans and rely heavily on software systems that track, rate and charge the consumption usage of their services.

The ISPs are providing specialised, value added services by offering internet through various channels such as optic fibres, broadband, dish internet, and even e-sim based internet services. Their applications are going beyond simple home use and office use to using such internet connectivity for connecting various smart devices by internet to cloud. The ISP business too started offering prepaid services with specific usage quotas that require tracking usage consumption.

IaaS or Cloud companies use pay-as-you-go pricing by tracking the number of hours a particular cloud resource has been used and charging the customer as per their usage. The billing of a cloud resource has been explained above in the architecture diagram for the rating and charging of postpaid usage.

There are various IoT businesses which employ IoT devices which connect to the cloud based server for transmitting information which can be used from a centralised system to provide customers with value added services. For example, internet enabled cars use IoT devices inside the car to send vehicular health information to the cloud based system. This information clubbed with information such as the whereabouts of the car help with the safety and security of the vehicle. One component of billing for such IoT devices can be usage based by rating and charging the data consumed on the SIMs or eSIMs that go inside the devices.

SaaS providers such as SMS gateway providers, email service providers, various online portals and product offerings come up with billing plans that rely on usage based rating and charging. The SMS and email service providers measure the number of SMS and emails sent by the customers in a month and then bill them based on which bracket or tier they fall in. This is known as tiered pricing in which the customer is charged based on the usage tier.

The utilities such as water and electricity are charged based on the consumption of the resource. For water, typically there is a free tier of quantity after which any additional consumption is charged at a metered rate. For electricity, the consumption of power is measured and there are tiers or slabs of consumption units which decide the rate that will be applied for a consumer for that month. The usage-based billing systems are employed when implementing systems for rating and charging of such utilities.

A number of OTT and Streaming Service platforms have sprung up. The subscribers to this platform use these OTT services on their phones, tabs, laptops and on TV. Their billing can be based on number of hours of usage consumed, or number of download and upload bytes from each user session etc. The OTT platforms typically use a combination of subscription billing and usage-based billing.