Billing Concepts, Inc.

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Billing Concepts, Inc.

7411 John Smith Drive, Suite 200
San Antonio, Texas 78229-4898
U.S.A.
Telephone: (210) 949-7000
Fax: (210) 696-0270
Web site: http://www.billingconcepts.com

Wholly Owned Subsidiary of ABRY Partners LLC
Incorporated: 1985 as U.S. Long Distance Corporation
Employees: 115
Sales: $10 million (2004 est.)
NAIC: 541219 Other Accounting Services; 518111 Internet Service Providers; 518210 Data Processing, Hosting, and Related Services

Billing Concepts, Inc. (BCI) bills itself as the "authentic, proven, trusted" billing clearinghouse for the telecommunications industry. Together with ACI Billing Services Inc., Billing Concepts forms the Billing Services Group of parent ABRY Partners LLC, providing a comprehensive billing system that collects long distance charges from telephone users on behalf of more than 1,300 local telephone companies. The company also provides these services to wireless carriers and Internet Service Providers (ISPs). One of the fastest growing and most profitable companies of its kind in the late 1990s, Billing Concepts was streamlined and restructured in the early 2000s when its software businesses were divested and the billing operations and company moniker were acquired by the investment firm of ABRY Partners.

Deregulation of Telecommunications: 1984–96

The 1984 breakup of American Telephone & Telegraph (AT&T) and of the Bell System revolutionized the operation of the telecommunications industry. Local telephone companies that made up the Regional Bell Operating Companies (also known as the Baby Bells) had to provide billing and collections on a nondiscriminatory basis to all carriers that supplied telecommunication services to their end-user customers. Only the largest long distance carriers, such as AT&T, MCI Telecommunications Corporation, and Sprint Incorporated, could afford the cost of agreements with local telephone companies for direct billing. Several entrepreneurs recognized an opportunity for establishing companies that would enter into these billing and collection agreements to aggregate telephone-call records for local exchange carriers and long distance carriers.

Furthermore, with the 1986 advent of technology that allowed zero-plus dialing (ZPD), customers could use an automated credit card for long distance calls or use the prefix 1 before a telephone number to make zero-minus calls (collect, third-party billing, operator-assisted calling card, or person-to-person calls). These calls were routed away from AT&T to a competitive long distance services provider. Typically, the billing information resided with the billed person's local telephone company. In order to bill for ZPD and zero-minus calls, a long distance services provider either had to obtain billing and collection agreements with LECs or use the services of third-party clearinghouses.

The Telecommunications Act of 1996 dramatically changed the ground rules for competition and regulation in virtually all sectors of the communications industry. After promulgation of the 1984 antitrust consent decree that dismantled the Bell System, major strides had been made in relaxing federal regulation and in ensuring fair competition in the long distance telephone market. But emerging technology for telecommunications led to conflicting interpretations of the Communication Act of 1934 that had prevailed for 62 years. With the Telecommunications Act, Congress set a course that clearly adopted competition as the basic charter for all telecommunications markets for the next five years. The Telecommunications Act cleared market-entry barriers for entrepreneurs and other small businesses in the provision and ownership of telecommunications services.

Origins: 1985–95

While the telecommunications industry was taking shape, in 1985 Parris H. Holmes, Jr., invested $50,000 to start a small pay-phone business in his Houston garage. However, Holmes was not comfortable with the Texas regulatory environment for billing services and he switched into the long distance business by founding a company named U.S. Long Distance Corporation, later known as USLD Communications Corporation. According to Don Sheron's 1997 article in the San Antonio Express News, "from 1986–87 Holmes raised $9.2 million from people who had known him for a long time." Within a few years USLD acquired 11 companies.

Among these acquisitions was the 1988 purchase of Zero Plus Dialing, Inc., which brought with it a portfolio of billing and collection agreements with several local telephone companies. Using these agreements, USLD billed and collected from the local telephone companies for its own operator services. Billing and collection agreements were subsequently made with additional LECs, including GTE and the Baby Bells. Furthermore, USLD marketed its billing and collection services to LECs, arguing that outsourcing the administration of these operations would save time and money. The company also began to offer its third-party clearinghouse services to other operator services that did not have proprietary agreements with the local telephone companies.

By 1989 USLD was a $200,000-a-year business. The company continued its rapid expansion through the early 1990s, especially through the profitable operations of US Billing, Inc., and Enhanced Services Billing, Inc.—companies acquired in 1993 and 1994, respectively. However, the disparate functions of these subsidiaries raised concerns among clients and industry analysts. Was USLD a telecommunications company or a billing company, and was the financial data acquired through billing operations available for USLD to use against its competitors? To allay concerns, USLD separated its business into two groups that functioned independently of each other: The Billing Group and The Telecommunications Group.

Meanwhile, USLD improved its information management services with the 1990 development of a comprehensive information management system capable of processing, tracing, recording, and accounting for telephone-call transactions. USLD was also the first third-party billing clearinghouse to offer an advance funding program for its customers' accounts receivable. In 1992 the company began to offer LEC billing services to providers of direct-dial long distance services. From 1993 to 1995 the company offered enhanced clearinghouse billing and information management services to other businesses, including providers of telecommunications equipment and information, as well as other providers of nonregulated communication services and products (for example, 900 access pay-per-call transactions, cellular long distance services, paging services, voicemail services, and equipment for Caller ID and other telecommunications applications). The billing of nonregulated telecommunication products and services became a significant factor in the successful evolution of USLD's business. Revenues grew steadily reaching $33.16 million in 1992, $46.46 million in 1993, $57.75 million in 1994, and $80.85 million in 1995.

Two New Public Companies Emerge
in the Mid-1990s

By 1996, USLD's two Groups (Billing and Telecommunications) operated profitably in their respective markets. According to Sheron in the San Antonio Express News, Parris Holmes later commented that the Groups "simply outgrew the marriage. This was just a healthy growth situation." On July 10, 1996, USLD's board of directors approved the spinoff of the commercial billing clearinghouse and information management services into a public company. The Billing Group Business became Billing Information Concepts Corporation, and on February 27, 1998, was renamed Billing Concepts Corporation (BCC). The Telecommunications Business Group remained the focus of the new USLD, later renamed USLD Communications Corporation (USLD), which in 1998 was acquired as a subsidiary by Qwest Communications International, the nation's fourth largest long distance provider.

Holmes remained Chairman/CEO of USLD until June 1997. "I felt like the separation process had been completed," said Holmes in a December 1997 interview with Diane Mayoros in the Wall Street Corporate Reporter. "It was a natural progression to move on to focus my time and energy" as chairman and CEO of Billing Concepts Corporation.

Holmes focused on getting a head start for building the information infrastructure of the 21st century by tapping into the opportunities opened up by the Telecommunications Act, which allowed local, long distance, and cable service providers to enter each other's markets. BCC also strengthened its presence in billing services through the June 1997 acquisition of Computer Resources Management, Inc., a company that developed software systems for the direct billing of telecommunication services and was already performing billing for the utility industry. As a single-source, direct-billing solution (also referred to as convergent billing or one-stop billing) for long distance and cellular calls, PCS, paging, cable and satellite television, Internet, and utilities, Computer Resources Management software aggregated all bills on one invoice. In September this new acquisition was reorganized into Billing Concepts as a subsidiary called Billing Concepts Systems, Inc. (BCS); it offered software licensing, equipment sales, service-bureau billing, custom programming, and other ancillary services. Since Billing Concepts Systems was a Premier Business Partner of IBM, the acquisition also brought BCC an alliance that allowed for immediate expansion of its technological resources.

BCC relocated 528 employees to new headquarters, added three industry professionals to its senior management team, and doubled its technical staff. The company defined its products and services as four separate lines of business: Local Exchange Carrier Billing, Direct Billing, Software Licensing and Developing, and Back-Office Services. LEC Billing, the company's core product, consisted of three distinct divisions: U.S. Billing, Inc., Zero Plus Dialing, Inc., and Enhanced Services Billing, Inc.

Company Perspectives:

Utilizing state-of-the-art systems technology, Billing Concepts built a platform enabling the future of billing, clearing and settlement services including authentication and authorization, mediation, invoicing, collection and settlements. Billing Concepts, Inc. (BCI) offers outsourced billing solutions through a wide range of proprietary LEC processing products and wireless Internet clearing and settlement services.

U.S. Billing was BCC's fastest-growing division and accounted for more than half of the company's annual revenue. The division served carriers of direct-dial, long distance companies. This service consisted of billing "1+" long distance telephone calls to individual residential customers and small commercial accounts. The growing volume of these telephone calls soon placed long distance carriers in the position of having to increase their collection rates if they billed through the local telephone companies. U.S. Billing offered these carriers a more effective way to bill and receive payment from residential customers.

Zero Plus Dialing was devoted exclusively to billing and information management services for operator-assisted calls (known as zero-plus/zero-minus calls), such as third-party calls, collect calls, and credit card calls. Zero Plus's customers included private-pay telephone owners, hotels, universities, airports, and prisons. This service was BCC's original form of LEC billing and drove the development of the systems and infrastructure used by all of the company's LEC billing services. Enhanced Services Billing, founded in 1994, billed local telephone companies for nonregulated and enhanced telecommunications services. These businesses included providers of telecommunications equipment and Internet providers; paging and voicemail services; cellular and PCS long distance services; caller ID and premium pay-per-call services (900-prefixed calls), such as weather, sports, and information services. Enhanced Services Billing's profit margins were significantly higher than those of BCC's other core products because fees could be based on a percentage of revenue rather than charged to each processed record.

At the request of its customers, BCC spent the last months of 1996 and the greater part of 1997 developing invoice-ready billing, a product that gave BCC's customers—long distance companies and providers of operator-assisted services—the ability to prepare a customized bill statement. This product was more than a generic statement on which BCC's customers could place their name; it allowed them to personalize the statement with their name, their logo, and/or marketing messages. BCC was the first company, outside of the "big three" AT&T, MCI, and Sprint, to market this product. The first invoice-ready bill was produced in October 1997.

For many of its LEC customers, BCC processed the tax records associated with telephone-call records and other transactions and files, as well as certain federal excise, state, and local telecommunications-related tax returns covering these records and transactions. The company submitted over 1,800 tax returns each month on behalf of its customers and provided customer service to end-users inquiring about calls for which they were billed.

BCC's 1997 acquisition of Billing Concepts Systems (BCS) gave it a head start to bundle services in a direct billing environment. As early as 1988 the subsidiary company had developed billing and customer care solutions. When the Telecommunications Act of 1996 allowed providers of local, long distance, and cable services to enter each other's markets, BCS positioned itself to become a competitive player in the market as a one-stop supplier of convergent telecommunications products and services. BCS developed state-of-the-art billing software, dubbed Modular Business Applications (MBA), to provide a single-source, direct-billing solution that allowed billing for multiple products such as local, long distance, cellular, PCS, paging, cable/satellite TV, Internet, and even utilities. The convergent-billing platform had the capability to produce a "universal bill" whereby multiple services and products could be billed directly to the end-user on one consolidated billing statement. MBA was offered as a service-bureau (back office) or in-house software solution utilizing the IBM AS/400 as the operational platform. BCS was ready for the not-too-distant future when long distance carriers would enter the $100 billion local markets, and when LECs would enter the $80 billion long distance markets.

In addition to billing services, BCC offered customer service, accounting services and reports, data processing, tax filings, and an advance funding program. The customer service center handled over 30,000 calls per day during fiscal 1997. As many as nine taxes could accrue for each long distance call. Each quarter, BCC's tax department prepared over 5,000 tax returns on behalf of its customers. Furthermore the company, predominantly with its own cash, funded a program that proved to be very valuable to customers who could not afford to wait the typical 60-day billing cycle to receive their payments from the local telephone companies. After qualification for this advance funding program, participants were advanced up to 80 percent of their receivables within five days of submitting their call records. When Billing Concepts received payment from the LECs for these call records, the company submitted the balance to customers, less its fees and incurred interest. BCC maintained a $50 million revolving line of credit to fund any growth in this program.

At the end of fiscal 1997, BCC revenues of $122.84 million and net income of $21.86 million were up 18 percent and 22 percent, respectively, from the revenues and net income of 1996.

Toward the 21st Century

On January 30, 1998, BCC distributed a one-for-one stock dividend to its shareholders of record. During the third quarter, actions by the FCC and the Regional Bell Operating Companies on "slamming and cramming" issues led to a temporary interruption in the revenue growth of BCC's business. "Slamming" refers to the unauthorized switching of consumers' long distance provider and "cramming" refers to the practice of billing consumers for unauthorized charges, such as the Universal Service Charge, a new federal tax added to phone bills to fund library and school access to the Internet.

Key Dates:

1985:: U.S. Long Distance Corporation founded; Billing Concepts is a subsidiary.
1988:: Billing Concepts Corporation is launched as separate company.
1998:: Company acquires CommSoft.
1999:: Company spins off three divisions as Aptis.
2000:: Company acquired by Platinum Equity Holdings; becomes Billing Concepts, Inc.
2003:: ABRY Partners acquires company.
2004:: Company is merged with ACI Billing Services, Inc., under the ABRY umbrella.

However, for the first nine months of fiscal 1998, BCC reported that total revenues increased 37.4 percent to $119.7 million from $87.1 million during the comparable period of fiscal 1997. Chairman/CEO Holmes said that BCC was conducting its billing business "in a manner consistent with what the FCC was to publish in its upcoming "Best Billing Practices' document." Furthermore, seven major industry analysts went on record as supporting BCC's strong position in its specialized niche and its ability to maintain a revenue growth rate of at least 25 percent annually over the next several years.

"BCC's energies," Holmes emphasized, "are being focused on competitive local exchange carriers and telecommunication carriers who are diversifying their product and service offerings.… Our competitive advantage is time-to-market and a highly marketable convergent billing solution.… We remain focused on our long-term goals and are excited about our opportunities."

BCC continued to seize opportunities for expansion by providing add-on services to both new and existing customers and by acquiring new business. For instance, during the second quarter of 1998, BCC announced that Intermedia Communications, a provider of integrated telecommunications solutions, chose BCS's Modular Billing Application to replace a number of its billing systems. Another significant event occurred when LCI International Telecommunications Corporation, a subsidiary of Qwest Communications and one of the nation's fastest-growing major telecommunication companies, signed a multi-year agreement for BCC to provide billing services for customers of LCI's operator-assisted services while LCI provided long distance and 800 services for BCC's customers. During the third quarter, BCC signed 26 new accounts and received renewal of 18 contracts. BCS also continued to add new business by selling three in-house systems and signing two service-bureau agreements.

Then, in July 1998, WinStar Communications, Inc., chose BCS to consolidate its multiple billing platforms onto the MBA system, thereby receiving a complete solution set to support WinStar's long distance, local resale, calling card, and enhanced services for retail and wholesale customers. In August of the same year, Philadelphia-based Eagle Communications, entered into a five-year contract for BCC's entire suite of product offerings, which included MBA, BCC's customer service and billing software, and back-office support. Also in August, BCC signed an agreement to acquire 22 percent of the capital stock of Princeton Telecommunications Corporation (PTC), a private company specializing in electronic-bill publishing over the Internet and advanced payment solutions. According to Chairman/CEO Holmes, "this association with PTC is a key to our on-going strategy to grow our solution set. Consumers are rapidly embracing the ability to pay their bills over the Internet and this phenomenon is causing vendors to publish their bills electronically.… Instead of developing these services, we will deliver them through PTC." He went on to say that this way of sharing billing strategies "will not only enhance our investment in PTC, but will catapult Billing Concepts into the emerging Internet market."

In 1998 Billing Concepts purchased CommSoft, a telecommunications software company, for $36 million. CommSoft and two other company divisions were spun off under the name of Aptis in 1999.

Changes in Ownership in the Early 2000s

The new century saw many changes at Billing Concepts. In 2000 the company sold three of its divisions, including Billing Concepts, Inc. (BCI), to Platinum Equity Holdings, a $4 billion holding firm based in Los Angeles. Subsequently, the corporate shell of Billing Concepts Corporation changed its name to New Century Equity Holdings Corporation and got out of the billing services and software industry. It was now essentially an investment firm specializing in technology companies. In 2003 ABRY Partners, a private equity fund based in Boston, acquired Billing Concepts, Inc., Enhanced Services Billing, Inc., and Avery Communications, Inc. Those three companies were then merged together under the name Billing Concepts, Inc. In 2004 BCI was joined with ACI Billing Services, Inc., under the name Billing Services Group LLC, owned by ABRY Partners. The new company was expected to bill and settle over $1 billion annually.

Several new services were also added. In 2001 BCI began offering Revenue Recovery Service, a system in which telecom service providers could collect charges from customers whose local exchange carriers no longer handled local service. In 2003 BCI introduced one of its most promising new services, eZ-Wi. The new service allowed customers with existing ISP accounts to access the Internet from participating hotspots. The hotspot charges would appear automatically on the customer's regular ISP bill. The eZ-Wi service quickly caught the attention of several leading ISPs. Among the companies who signed up for eZ-Wi were Grande Communications, Pacific Information Exchange, and NetNearU Corporation.

BCI remained the leading force in LEC billing. In August 2004, BCI integrated traffic from its sister company, ACI Billing Services, to a common platform. The result meant that the two companies were capturing about 85 percent of the LEC billing market.