Rest assured on revenue: revenue assurance is a subject that operators need to take seriously if they are to avoid throwing bucketfuls of cash down the drain - Towards Recovery

The casual observer would presume that telecom operator revenue is easy to quantify and collect: a connection is made, the billing system calculates the charge and the user, usually, pays.

The casual observer would be wrong. According to UK-based Analysis, operators are losing--on average--13.7 per cent of total revenue, either through unintentional or fraudulent means (Table 1). This staggering percentage equates to billions of dollars in lost revenue and is the main reason why revenue assurance is slowly but surely moving up the agenda for telecom providers. Whether they offer fixed, mobile or international carrier network services, the emphasis now is on ensuring that revenues are collected accurately and efficiently and that hard earned cash is not being given away.

The sins of omission

Perhaps surprisingly, the main source of revenue leakage for telecom operators comes not from fraud but faulty call detail records (CDRs). Collecting call detail records is the lifeblood of the business processes that underpin an operator's operation; so, every communications event that slips through an operator's switch capture and mediation translation represents a loss in revenue.

How does this happen? Calls can be incorrectly billed across a network because they are incomplete or have been recorded inaccurately. At the most basic level, inaccurate billing is the result of no call detail records being generated in the first place. Even in a well-managed network, up to three per cent of event records may not make it through. Problems include simple issues like incorrect clock settings, which can result in false tariff applications, or incorrectly loaded new product and service codes--these can result in invoicing and new product pricing errors.

Less surprisingly, interconnect accounting is another major area of revenue loss. In the past, operators relied on goodwill and trust to reach reasonable settlements between interconnect partners. However, the advent of deregulation--and new operators and services--has created increasingly complex interconnect arrangements, which leads to the greater likelihood of settlement inaccuracies.

New operators mean new relationships and newly established trading agreements. These can result in significant time and money being lost through delayed or disputed settlements. To streamline the process, operators are increasingly accounting for incoming calls only without attempting to check and reconcile the charges for outgoing calls. This means that an operator's single largest cost is left to the vagaries and inaccuracies of a competitor's interconnect system.

The fraud problem

Fraud is probably the area most people associate with telecom revenue loss. It costs the industry US$35-45 bn annually worldwide, according to the latest research from the Communications Fraud Control Association (CFCA).

It has also come a long way since the days of phone 'phreaking' or defrauding pay phones. Fraud aimed at telecom operators can involve large-scale and sophisticated crime, such as the scams involving pre-paid mobile services and cloned SIM cards. On the other hand, some fraud schemes are not, strictly speaking, illegal. They can, for example, take quite legitimate advantage of weaknesses in interconnect contracts or of differences in tariffs.

Fraudsters, unsurprisingly, focus on the best pickings. This is why, in the coming years, mobile operators will be particularly vulnerable to various forms of 'revenue leakage'. Many have already been repeatedly hit by weaknesses in manufacturing and supply chains that allow terminals to escape into the black market for sale around the world. These problems are only likely to increase, particularly as 3G gains traction, simply because moving towards higher value content and application services brings higher revenues, and, at the same time, higher risks of fraud and leakage.

One of the key problems is that new mobile services create ever more complicated interconnect arrangements and value chains. Mobile operators are also under great pressure to launch services quickly. This haste can introduce further weaknesses--such as security lapses--which can be exploited both internally and externally.

This is not only a threat to the operator, however. Customers can be targeted by fraudsters and, as m-commerce grows, an operator's ability to protect not only itself, but its customers, will become ever more important. The main stumbling block here is that the operator may not have direct control over all aspects of the transactions.

Keeping the customer satisfied

Revenue assurance is often viewed as a back office chore that has little immediate impact on paying customers. However, revenue assurance for next-generation services is closely allied to quality of service (QoS), billing and customer satisfaction. For example, if an operator drops an occasional voice call the customer may be unhappy for a short time, but it is unlikely to impact on their long-term attitude to the provider. But if an operator drops an expensive multimedia transaction the customer will be much more irritated and, if this is an ongoing problem, it will mean significant lost revenue for both the operators and the content providers.

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Next-generation providers are launching new products and services that have to be integrated into revenue assurance schemes, but operators are continually playing catch-up rather than applying proactive measures. The revenue assurance problems of 3G and VolP, for example, were recognised years ago but operators are only acting on this knowledge now.

The reality is that, as the number of services managed by operators increases, revenue assurance processes will need to be much more highly automated and forward-thinking. Many will have to work in real-time. It will be an environment that demands fast response, with revenue assurance processes designed for next generation services and networks from the start. Increasing regulatory demands will not make things any simpler either.

How much will it cost?

No one likes to admit to revenue collection deficiencies or, worse still, fraud on their networks. Revenue assurance departments often do not have full and direct board representation and, therefore, play little role in long-term strategy and policies. Even if companies do take their heads out of the sand, reports on controls and processes are usually linked to cost reductions and can often be counter productive. In the worst-case scenario, cuts can be made in the revenue assurance department itself because those with no knowledge of revenue assurance see it as a cost centre, not an earnings generator. Many operators have a view of revenue assurance as a consultancy project put in place solely to tell them that they are losing money. An added problem is that, to save money through revenue assurance operators need to invest it in the right systems first.

The reluctance to invest in revenue assurance is particularly puzzling when one starts to consider the return on investment the latest systems hold out. Two years ago, service providers were looking for returns on investment in operational or billing support systems within 12 to 18 months. Today, the typical expected payback time is 9-12 months.

Of course, these returns very much depend on the individual operator. Mobile operators often suffer fraud rates of between three and seven per cent of revenue. An operator with a complex network or no switch-bill verification may find that up to three per cent of event records never get produced. Another operator with an inadequate interconnect accounting solution could be under-billing or over paying by five per cent. The issue is that once these problems are identified and a solution is in place all of these items can soon pay for themselves. Nearly every penny of money collected by revenue assurance products is profit!

Some operators will claim that their in-house revenue assurance solutions are doing the job. In reality, many of these systems cannot cope--even when they are costly and bespoke. Operators often fail to realise that many revenue assurance techniques are interrelated and can be much more effectively managed by one department, rather than being dealt with individually.

One way for operators to have such a department while keeping a control on cost and not sacrificing performance is to work with a third-party revenue bureau. These can offer the most up-to-date and sophisticated revenue assurance systems and expertise on a pay-as-you-grow basis. Charges are based either on transaction volumes or a percentage of the savings that service providers will make, meaning that the costs are manageable--something that is particularly attractive for newer entrants. Furthermore, the implementation of third-party bureau systems is often quicker than for stand-alone systems, meaning that the benefits can be immediate. A bureau operator already has the necessary IT facilities and an operations and support team in place, which means that implementation is simply a matter of configuring these resources, training end-users in the application and then setting up access.

This clearinghouse model is viewed as the next significant outsourcing development. Revenue assurance solutions are likely to be run for a country or region, rather than an individual operator, and countries in Asia, the Middle East, Africa and Latin America, with newly deregulated telecom markets, all stand to gain from such a model. Clearinghouses will also be of potential benefit to established telecom operators as next generation services are rolled out and players find they are all dealing with the same content providers, service providers and network operators.

Operators need to protect all their revenues--a truth so obvious that it is often forgotten. At the end of the day, losing money through little fault of your own is bad enough. Not having the systems and procedure in place to protect revenue that you are entitled to is simply giving it away. *

If this subject interests you, visit us online at www.telecommagazine.com

written by * John Cronin

John Cronin, CEO, Azure

(www.azuresolutions.com)

COPYRIGHT 2004 Horizon House Publications, Inc.
COPYRIGHT 2004 Gale Group