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New Faces Pepper Billing Industry

When Tele-Communications Inc. announced in August 1997 that
it would replace its longtime billing services vendor, CableData Inc., with CSG Systems
International Inc., it sent shock waves throughout the cable industry.

Competitors of CSG wondered if the huge contract would
create a billing services monolith while MSOs had a related concern: If there were fewer
viable vendors, would that mean fewer choices and higher prices?

In the 16 months since then, contrary to some expectations,
the billing services sector has developed as a spicy brew of well-seasoned veterans and
peppery newcomers.

In a relatively short time, the industry has seen the
restructuring of a key player to be more competitive and the emergence of several vendors
fairly new to domestic turf. In fact, the prospective convergence of cable, telephony,
high-speed data and other services has inspired international competition and hastened new
product development and introduction, giving the billing services sector its liveliest
profile in years.

For CSG, the 15-year, 13-million-subscriber TCI contract
has been the bonanza everyone expected it would be. For the first nine months of 1998,
revenues rose 36 percent to $167 million, while adjusted net income increased 56 percent
for the same period. In the third quarter, revenue grew 47 percent, while adjusted net
income rose 83 percent.

Moreover, the conversion of TCI systems from CableData, a
prospective nightmare that could have adversely affected everything from work order
processing to handling customer phone calls, has gone smoothly.

"It's been a case study of how to do it right,"
said CSG president Jack Pogge about the conversion, which is scheduled for conclusion in
the first quarter of 1999. "It's been a fascinating process. I don't know how it
could have gone better."

For CableData, the results were formful as well; its parent
company, USCS Intl. Inc., is losing a customer that provided 14 percent of its $246.5
million in revenues through the first nine months of 1998.

But Robert McKenzie, vice president of strategic
development for CableData, said his company has rebounded, noting that USCS revenues
excluding TCI were up nearly 19 percent for that nine-month period.

The price of USCS stock, which had been trading at about
$35 a share, plunged roughly 50 percent with TCI's defection. But by the middle of last
week, the stock had rebounded to $34.

In an Oct. 29 research report, Merrill Lynch issued a
strong long-term "buy" recommendation for USCS stock and raised its 1998 and
1999 earnings forecasts for the company.

"The transition and drain-off of TCI bill processing
subscribers is having a more modest impact than we had forecast," the report
indicated. "USCS is replacing that business rapidly."

McKenzie said losing TCI has "given us the opportunity
to focus a lot of resources across other customers and new customers. Where we had
resources to specifically meet TCI needs, we have the opportunity to start developing new

In part, the blow of losing TCI was cushioned by the
continued strong performance of CableData's sister company, Information Billing Services,
which concentrates on production, packaging and mailing of billing statements and inserts.

Tom Roberts, vice president of marketing for IBS, noted
that his company serves more than 50 percent of cable households and about 40 percent of
cellular phone users.

And, Roberts said, MSOs are using their customer statements
more creatively. A number have adopted the IBS Signature Series, an enhanced billing
format that provides a selection of fonts and shadings as well as multipage capacity and
expanded messaging space.

"As you have more and more of a competitive
environment, more [MSOs] focus on customer service to improve communications with
customers. They're making [their bills] look better," Roberts said.

While audiences may have been captivated by the drama of
industry titans dueling for TCI's favor, there were developments only slightly less
dramatic helping to reshape the billing services sector.

One was the emergence of Convergys Corp., which was created
in August when Cincinnati Bell Inc. spun off two of its billing services units, CBIS and
Matrixx Marketing, through an initial public offering. Cincinnati Bell retained 80 percent
of Convergys stock but plans to spin that off to its shareholders by the end of the year.

Convergys is a heavy hitter, with $997 million in 1997
revenues (when it was still a Cincinnatti Bell unit), and Cox Communications Inc. and
certain Comcast Corp. and Time Warner Cable systems among its customers.

"The creation of Convergys provides our new company
with a very directed focus," said Curt Champion, director of cable and broadband
marketing for Convergys. "For Cincinnati Bell, their primary focus now can be
telephony in their service areas. It's really taking each and allowing them to have a
focused approach to their individual markets."

Two privately held players that have emphasized
international operations are quietly building higher domestic profiles. Proxima Systems
Limited, a Montreal-based company founded in 1986, counts among its customers Look
Communications in Canada, KabelMedia Holding in Germany and TVD Radio Public in Belgium.
Emboldened by perceived opportunities here, Proxima is assembling an Atlanta staff and
office, its first full-scale U.S. location, said Ginette Yapetty, Proxima's director of

"We thought all that was keeping us from being a big
player is that we're keeping to a small market. Functionally speaking, there's no doubt
that we have a very strong competitive product compared to other vendors," Yapetty

Kenan Systems Corp., a Massachusetts company that serves
such European giants as British Telecom and France Telecom, swooped in on the domestic
market and plucked a prize -- the contract for @Home Networks Inc., the high-speed data

"We're moving into a different age where not only is
there increasing competition, but you also have to look at the multiservice angle,"
said Justine Williams, Kenan's broadband industry marketing manager.

The same forces that are helping reshape the communications
industry are driving the proliferation of players in billing services. As cellular and
direct-broadcast satellite services mature, they provide opportunities for new players --
and a springboard for vendors who cut their teeth in those industries and now are ready to

Such is the case with Convergys, a force in cable to be
sure, but also a pioneer in cellular billing. Convergys has amassed a staff of more than
30,000 while serving 49 of the 50 top domestic cellular markets.

Perhaps even more important is the prospect of convergence
and its impact on current billing systems. When cable companies accelerate the
introduction of telephony and high-speed data services, they'll need more flexible billing
platforms to accommodate customers who could be purchasing as many as three distinct

"You can't go forward with a video-based system any
more," said CSG's Pogge.

Both the veterans and the upstarts in billing services are
developing products to meet the demands of multiple-service platforms.

Kenan, for example, offers "iCARE," a product
that allows customers to access their bills via the Internet and initiate certain service
changes without the intervention of customer service reps.

Proxima's Pro-Cable system centers on customers rather than
using the traditional cable approach of focusing on addresses. It enables companies to
track customer history through as many service choices and physical relocations as the
subscriber may make.

"You can follow the customer, target campaigns and
promotions to a customer rather than an address," Yapetty said. "One CSR will
know everything about a client because they'll have all the information around this

The expansion of opportunity across national and
continental borders is energizing research and development that has resulted in a number
of new products, such as Kenan's iCARE and CableData's CyberCSR, and will yield others.
Among the most intriguing products in the pipeline:

CSG is beta-testing a product called CSG Workforce
Management that automates the dispatching of technicians to their trucks. Also coming from
CSG is an as yet unnamed convergence product that provides up to three different customer
accounts for three different services. "We believe cable will go from
subscription-based pricing to transaction-based pricing over time," Pogge said.

IBS has taken the first steps toward the
introduction of billing via the Internet. "It's going to change the world
substantially," said IBS' Roberts. "It's also very complicated from a consumer
adoption point of view. For anybody that bills for things, it's going to be both a major
opportunity and a major pain in the butt."

Building on CyberCSR, CableData is beta-testing a
related product that will provide account access to technicians, allowing them to upsell
or refresh converters while in customer homes. In 1999, CableData plans to demonstrate a
companion feature that would provide the same capabilities for use in retail stores.

Convergys, which has provided outsourced customer
service operations for financial services and direct response companies, is hoping to
pitch the concept successfully to cable operators.

While MSOs traditionally have been reluctant to provoke the
ire of franchising authorities by handling customer calls at some distant center, the size
of Convergys' staff -- the bulk of its 30,000 employees work at more than 30 call centers
-- indicates that the concept can work.

"There are so many benefits associated with it, such
as the level of training and the consistency of information," Champion said.

If it's clear that new players and products have infused
the billing services sector with vigor that's perhaps unprecedented, it's also clear that
the industry leaders are likely to remain the kingpins for the foreseeable future.

"As operators roll new services out, you need
significant support capabilities to help them do that," said Neal Hansen, CSG
chairman and CEO. "The ideal system to support next year's billing plan can't
possibly exist because for the most part, these folks haven't identified what the real
business model is going to be. What that said is you need some very significant critical
mass to put resources into it and be responsive to customers."

He added, "If we talk about outside competitors, there
will be some niche things that always occur . . . If anything, you will see some
consolidation in our market rather than proliferation. It would be real difficult for new

Yet those new players bring pluck, an innovative spirit and
considerable international experience to the table. In a billing services sector of
expanding opportunities, expect them to get their share.

"The big players have quite a chunk of the market, but
we think we have a strong chance because of our product," predicted Promixa's
Yapetty. "When we hit the market, we know there will be interest."