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Over the past few weeks, we’ve touched upon the concept of cloud services and the parallels of how managing those expenses correlate to the management of telecom expenses.  In this blog, we’ll provide more insight into the various types of billing options and specific charge dependencies that are often associated with some of the most common types of cloud services such as compute, storage, database application, network and security.  For simplicity purposes, we will refer to telecommunication products and cloud services interchangeably to help you better understand the overall parallels and inter-relationships since many cloud services are accessed via mobile-enabled devices over a telecommunications network.

Billing Options

When it comes to billing, both traditional telecommunication and cloud services offer a broad spectrum of options for their products and services.

• Pre-payments – an in-advance billing method where a fixed reduced fee is often negotiated in exchange for a specific term commitment. Cloud Service Providers (CSPs) offer additional discount incentives for advance payments. In this sense, “discounts” are like pre-paid coupons that are dynamically assigned to active services. The CSPs often refer to this as “reservation commitments”. The value of negotiating termed-based commitments is derived from aggregating all the forecasted services across the entire enterprise. Levels of discounts will vary based on full upfront payments, partial, or no up-front payment. (See examples in Tables 1 and 2 below.)

Table 1: High-level summary of publicly available pre-payment discount types available from the top three CSPs.

Table 2:  Below is a summary example of the types of governance related to each type of reservation commitment.

• Post-payments − conventional in-arrears method of billing where the service provider creates a monthly invoice with a specific due date of payment for products and services consumed during the previous timeframe. A typical invoice includes the full spectrum of recurring, non-recurring and usage charges.
• Roaming Charges –additional surcharges that apply to mobile telecommunications and are incurred when a customer initiates a call outside of their primary service provider’s network. Mobile charges can be related to voice and data. Although cloud services can be accessed from anywhere and anytime, it’s important for enterprises to understand how and where their employees are accessing cloud services to avoid unnecessary roaming charges.
• Convergent Billing – integration of the invoiced charges from multiple service providers into a single customer invoice. Typically, this happens when organizations outsource the management of their telecom and cloud services and receive a single unified bill or have the IT department facilitate the role of the service broker and provide secure portal access for each cost center owner to review their respective charges.

Pricing and Rate Plans

Every national service provider offers some type of portal access to their service catalog which defines all the publicly available rates for each type of transaction. The non-regulated highly competitive industries of cloud and mobile motivates service providers in these industries to be very creative and dynamic in their pricing options. Each billable service often encompasses a suite of inter-related sub products. For example, the use of a compute server encompasses the use of the specific server as well as the associated data storage, business applications, security and network capacity to manage the upload and/or downloads of data from the server (as summarized in Table 3 in the section below).

Charges may vary by country, location, (i.e., data center or office location) and by each negotiated agreement. Types of recurring, non-recurring and consumption charges which may be associated with a service include:

• Initiation Charges − one-time charges that are assigned upon installation or activation of a service.
• Periodic Charges − typically recurring charges, which can be applied on a monthly, bi-monthly, semi-annual or annual basis for a lease of accessing the service.
• Termination Charges − one-time charges which can be applied because of early out, or in some cases, an out-of-contract service modification or termination.
• Suspension Charges − one-time charges which can be applied if a service is suspended due to non-payment or for some other reason initiated by the client. It is very common to temporarily suspend cloud services to avoid usage charges during non-work hours.
• Re-activation Charges − one-time charges which may be assigned upon reactivating a suspended service in lieu of initiation charges. Most cloud service providers accommodate on-demand reactivations with no charge.
• Usage Charges –metered units of consumption which are calculated from the actual usage of a service. Metered charges are scaled to measure the specific type of service operation. For example, a telecommunication call may be measured per minute or per second, whereas a storage service may be metered by gigabyte (GB)/minute or GB/hour, of stored data.

Understanding the Variables of Service Charges

Like airplane tickets, it is very common for consumers to pay different rates for the exact same service, or for an enterprise to pay different rates for a specific service from a single CSP. As previously mentioned, the rate for a particular service may vary based on the location of the origination, and/or termination of a service, and/or location of the service provider (e.g. data center).

A typical use-case example for storage illustrates how the differentiation of .001 per GB between two different data centers can aggregate and result in a substantial end-of-month variance in periodic invoiced charges. For instance, the storage of 10TB of data for 31 consecutive days results in a net charge difference of $7,440 in storage charges (i.e., 10TB * .001/GB * 24hrs * 31 days) based on the selection of two different data centers.  There are common scenarios such as data redundancy which require leveraging services from multiple data centers.

The table below summarizes some of the discrete characteristics of a cloud service, along with the inter-dependent support elements, that underpin and contribute to providing a single instance of an IaaS (Infrastructure-as-a-Service) compute server.

Table 3: Shows characteristics of a cloud service and the interdependencies that make up a single instance of an IaaS compute service.

The plethora of procurement options and examples are fairly common and underscore why every enterprise needs collaborative oversight to ensure they are optimizing their technology investments. In the next blog we will provide insight into the common pitfalls to avoid costly mistakes. In case you missed our previous blog on “Becoming a Strategic Enabler for Cloud Requires IT Leaders to Orchestrate Holistic Near-Time Insight”, click here.