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Revenue leakage, and how to plug it    
Industry News
 
By Fiona Chau

Telecom Asia
Carriers across the region have finally started to get serious about revenue assurance and are now taking a close look at their processes to uncover often gaping holes in their bottom lines.

Arising from the ashes of the telecommunication's crash following the 1990's boom years, revenue assurance is gaining momentum as more and more carriers are making revenue assurance a top priority and taking a closer look at how it can be used to boost profits.

"Markets have become saturated. New subscriber growth is almost gone, and they have no new revenue streams," says Peter Bagge, principal consultant for HP's Asia-Pacific network and service providers group. "So they have to look at their processes and their revenue flow, and they need the ability to control revenue leakage."

He notes that maximizing revenue by controlling leakage and minimizing fraud will be the next wave of revenue growth for many operators.

Azure Solutions' director for Asia Pacific Vincent Barry claims that carriers have been hiding the issue for years but now are starting to realize that revenue leakage is a serious problem.

"They recognize that every operator has the same problem. It is now a case of measuring the size of the problem, then working out a business case and finding out what the cost of reorganization is and what's the solution," he explains.

How big is the hole?

Currently there are no precise figures of how much revenue has been slipping out of carriers' pocket. But research by IDC, Giga and Deloitte & Touch? estimate the extent of the leakage ranges from 3% to 15% of gross revenues each year, depending on factors such as service type, geography, carrier type and revenue assurance maturity level. The total industry-wide annual loss is estimated at up to $140 billion.

Problems of revenue leakage can cover a multitude of factors such as technical and process issues as well as human error. Other areas include stolen revenue due to fraud or bad debt, and missed revenue stemming from improper marketing or problems with product launches.

Network integrity, credit management and churn prevention are some of the major revenue assurance issues that telcos have to address to get the problem under control, says Chor Khee Yang, vice president of audit at SingTel.

LogicaCMG's chief executive for Asia Kevin Duffey claims that 50% of mobile operators in Asia are losing 5% of revenue from prepaid customers because the platform used to control the sending of SMS and MMS continue to run even after the customer's credit runs out.

An often overlooked issue is frequency of meditation, says HP's Bagge. "There's no real process for handling mediation errors on a daily basis. Operators may not look at their records until at least the end of the week," he says. "They have to do something to resolve the errors, but if they can't be resolved, they just get deleted or ignored. That's revenue out the window."

Another area, according to Vinod Kumar, senior product manager at Subex Systems, is switches not generating call detail records or generating ones with incorrect/incomplete data such as random timestamps, incorrect subscriber invoices due to rating issues or operational errors.

Kumar says a wide variety of strategies and solutions is being used to address these problems. These include using automated revenue assurance tools to verify invoice and rating accuracy, identifying billable activity missing from the bill and ensuring that all orders are being serviced and billed for.

Catching management's attention

A survey commissioned by Azure shows that the core causes of revenue loss continue to be those related to process, integration, and introduction of new communications products and tariffs. But the findings also indicate that fraud is increasingly importance for many in the industry.

The report, which surveyed 100 telcos around the world, found that revenue assurance continues to move up the corporate agenda, and more operators are taking a coordinated team approach to the problem. Kumar says revenue assurance has caught the attention of carriers' top management worldwide. "A critical requirement of a successful RA program - executive sponsorship - is happening now, and we expect this to significantly increase the speed and effectiveness of deployments across the world," he says.

"We are seeing a common understanding of the RA effort develop across operators throughout the world irrespective of the geography, though there will always be differences unique to each region."

He says operators in the US and Europe have proceeded very fast along the revenue assurance route and Asian carriers are now in the process of leapfrogging.

Across the region, the strategy toward revenue assurance varies from operator to operator. In some telcos revenue assurance is coordinated by a dedicated team while others deal with it on as case-by-case basis by department.

"SingTel has had its own revenue assurance team for many years," says Chor. "The team, which covers both the fixed-line and mobile business, is part of the internal audit group, which reports to the audit committee. Apart from the dedicated team, there are on-going initiatives taken by line management across the business to review and monitor revenue assurance activities. Processes are also put in place to control potential revenue leakage."

Kumar says carriers need to have a comprehensive, well-planned and well-executed program if revenue assurance is going to be successful. Such a program needs to be enterprise-wide with automated tools used in conjunction with clearly defined processes, responsibilities and key performance indicators or metrics that will be monitored to effect continuous improvement of the program. "Revenue assurance has to be integrated into the very fabric of the operational environment to be really effective," he said.

The good news is that more and more operators are moving in this direction and looking at implementing a well-designed program that spans multiple operational silos and coordinated by a team with cross-departmental audit responsibilities, Kumar says. "This effort is accelerating rapidly across the world, and we are already seeing many operators investigating and finalizing on a clear and comprehensive plan toward full-scale revenue assurance deployment."

Implementation challenges

However, that's always easier said than done. Operators often confront difficulties in implementing an enterprise-wide program. These include being able to define organizational responsibilities, making process changes and balancing them against business support activities. A lack of backing by top management is also a key factor.

"The key to successfully manage the risk of revenue leakage is to identify, monitor and control the risk," said SingTel's Chor. "This requires commitment from top management, demonstrated by the allocation of enough resources to the cause, and implementing appropriate systems and processes to manage the risk."
Then there is the issue of how to tackle potential leakage problems associated with the advent of new technology such as 3G and IP.

"The development of next-generation networks offers huge potential for revenue generation, but the amount of risk operators will expose themselves to will also increase dramatically," says Jack Wraith, chief executive of the Telecommunications United Kingdom Fraud Forum. "We will start seeing new billing systems based on content, billing systems based services, as opposed to billing systems that charged on traditional kind of activities, which will bring a whole new set of challenges."
Chor notes that implementing new technology invariably carries a higher risk due to teething problems commonly associated with new rollouts and unknown vulnerabilities that could be exploited. "This makes revenue assurance implementation more complex and challenging. In practice, the challenge then is to ensure that a new technology is thoroughly tested, including running network and service trials before launching it completely."

Given the need by telecoms operators to quickly introduce new services to maintain competitiveness, Azure's Barry notes that revenue assurance managers sometimes get a lot of resistance from sales and marketing people who say, "we can't do that because customers might not like it" or "we can't do that because it will slow down the launch and we'll fall behind the market."

And as the market starts to embrace mobile commerce, Duffey from LogicaCMG says it becomes more important to be able to validate that customers have credit before approving a transaction.

There's also the cost issue. Revenue assurance, just like every other business process, has faced an investment squeeze. "That's always a difficult question. I spoke to some operators and they say they won't be buying any IT equipment and won't be adding any new headcount," says Barry.

If they don't have the expertise, then they're not going to solve the problem, he says. "It's a difficult circle to break. Unless they spend money, the situation will be worse."

Kumar says this makes it difficult for operators to identify the key areas of leakage that can be caught and addressed with minimal effort and capex.

"Operators are facing the challenge of sifting through the vast operational data landscape for hidden leakage without having to spend an enormous amount of time, effort and money."

Duffey says that it takes a while to "overcome operators' sensitivities to spending millions" on a platform to curb leakage. But when they are giving away 5% to 10% of revenue, he says they usually respond to a "sensitive and factual approach."
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