TDPF Customers Stunned By "Billing Error"; Telerate's Per-Workstation Pricing At Issue

Telerate is raising temperatures all over town by turning up the heat on digital page feed customers. Until very recently, optional service pages delivered via TDPF -- formerly SOP -- were billed by Telerate on a per-line basis. Now Telerate is charging for the services on a per-workstation basis and users, some of whom have received 100% bigger bills, are not happy.

TDPF customers received notification from Telerate that a "billing error" had resulted in understated invoices for optional services. Since retroactive collection would cause "undue hardship," according to the letter, "Telerate is willing to absorb its past revenue loss."

If Telerate's billing department erred, it committed a blunder of epic proportions. By a rough estimation, the revenues Telerate failed to collect in the past year alone -- as per corrected billing procedures -- run into tens of millions of dollars. Because the uncollected funds could have been had for the asking, an unusually high proportion of the lost revenue would have gone straight to the bottom line.

Some users view Telerate's "billing error" scenario as a ploy to increase revenues. One shell-shocked customer disparaged Telerate's supplemental billing as "an example of Telerate's commitment to maximizing profits through periodic reinterpretation of pricing." Others used less genteel language to the same end.

The notion that a company as well-managed as Telerate could overlook millions of dollars in revenue strains credulity. After all, the concept of per-workstation charges isn't alien to Telerate or to TDPF customers. For years, Telerate has been charging TDPF customers a keyboard station fee of $150/workstation.

If Telerate's new billing procedures represent a policy change rather than a billing error, several explanations are possible.

Telerate may be under pressure from the investment community and majority shareholder Dow Jones & Co. to increase near-term revenues.

Telerate began to see a dramatic slowdown in the rate of North American revenue growth three to six months after the October crash, according to Dillon Read & Co. securities analyst William Ritger. The Shearson Lehman's merger with E.F. Hutton alone is said to have reduced Telerate's screen count by several hundred.

In Telerate's last quarter, year-to-year revenue growth was only 11%, and on a quarter-to-quarter basis, revenues for North America were actually down. Ritger lowered his earnings estimates for Telerate in April. Top Telerate executives are due to meet with institutional investors soon after third quarter numbers are released.

Strategically, it is in Telerate's interest to prevent customers from getting too comfortable with value-added TDPF solutions delivered by third parties. Telerate has high hopes for its new ticker-based value-added products and their success could depend on weaning TDPF clients from third-party solutions.

Telerate says it isn't raising prices, but TDPF accounts that are up for renewal are being hit with a 150% increase (from $50 to $125/screen/mo) for user-supplied slave screens. Telerate is discussing ticker-based TDPF alternatives with the same accounts.

One Telerate executive is said to have referred to the TDPF billing changes as "phase one." He declined to discuss subsequent phases.

But Telerate insists that the change in TDPF billing is the result of an honest mistake. "There has been no price increase," says Charles Peck, vice president of sales at Telerate. "When they purchased those services on individual stand-alone terminals and then took on SOP and cancelled individual terminals, they should have been charged per viewer," says Peck.

"We finally discovered what we've been doing wrong. We had been underbilling people and Telerate had been losing revenues. We're not back-billing people and we're finally correcting the billing," says Peck.

The video switch-based systems through which TDPF services are generally distributed do not offer flexible addressability. Telerate now plans to charge for optional services on the basis of accessibility. That is, every workstation with access to a TDPF line is being charged for all optional services it carries, whether the premium pages are viewed or not.

In a letter to one TDPF user, Telerate suggests that if systems integrators could effectively enforce data entitlements, invoices would be reduced accordingly. Flexible addressability has become a priority for switch vendors says Mike Schiffman, senior vice president of marketing at Rich Inc.

According to Telerate's recently published price list, optional service prices for TDPF range from $25 to $750 per month for the first workstation with variable discounts for additional workstations. Optional services are typically invoiced by Telerate, with third-party providers receiving a split. Many optional page series are provided by Telerate itself.

A back-of-the-envelope estimate shows that Telerate could easily have overlooked more than $20 million in TDPF charges during 1987. Assuming 50 TDPF customers, an average of 100 workstations per site, and $400/terminal/mo in uncollected dues, Telerate missed out on $24 million last year.

It isn't clear what, if anything, Telerate proposes to do for third-party information vendors that have been under-compensated for their information services.

Optional TDPF display and retrieval features include a scrolling six-line headline news window and a retrieval facility for wire service stories.

One "optional" feature TDPF customers never expected to pay for is the window feature. The drop window feature, a required element of Telerate screen emulation, was added to the displays of video switched systems at the insistence of Telerate. Now Telerate is trying to collect $55/mo for every workstation with a drop window, and $30/keyboard/mo for retrieval of Dow Jones Capital Markets news service.

TDPF users tend to be primary dealers and other high-rolling Telerate customers. They tend to be early adopters of advanced technology. They are the type of clients Telerate would like to sell its new ticker services to -- the most price-insensitive, and in that sense, the least likely to complain.

They also are the same group of customers that can bring Telerate face to face with direct competition by backing wider distribution of broker prices for Treasury securities.