|Asia-Pacific IV 2001
|Revenue Leakage in the Digital Revolution
|Price water house Coopers
The Internet revolutionises the way service providers do business-for better and worse. Sayers and Knight, partners in PricewaterhouseCoopers, Australia, argue that as revenue-raising opportunities appear in one area they disappear or reduce elsewhere. The latest opportunities are in bandwidth-heavy services such as video streaming, web-based applications and IP-virtual private networks. But telecom companies need to replace margins lost on local and long-distance services. Internet-based technologies allow carriers to revolutionise back offices and find growth in revenue assurance.
The Internet promises to revolutionise the way communications service providers do business. Internet Protocol (IP)-based services have the potential to become a crucial component of many telecom companies’ revenue. Executives must therefore understand how this technology affects one of their company’s most important functions: billing. As margins for traditional services like long-distance telephony diminish and International Settlement rates decrease, offering lower-cost IP-based services represents a logical step for communications service providers. While a great deal of attention has been devoted to next-generation services, such as videoconferencing, less consideration has been given to the challenges and opportunities implicit in collecting revenue generated by these new offerings. We have found that many telecom companies regularly write off between 2 and 5 per cent of their revenue, a large portion of which is recoverable. This percentage could rise dramatically as companies begin offering value-added services that they are not equipped to support with their current Operational Support Systems (OSS) and Business Support Systems (BSS). Revolutionising back office processes and revenue assurance operations will assist in ending this leakage by improving capability in the following three areas necessary for effective revenue assurance: · becoming a ‘revenue-responsible’ organisation; · implementing essential automated tools; · embedding dynamic technical and organisational change into day-to-day processes. This article will first provide an overview of Internet-based networking and how IP mediation and billing considerations differ from those of established circuit-switched networks. Next, we will look how the data revolution is impacting International Settlement agreements and rates. Finally, we will outline how the IP-based technology presents an opportunity for carriers to revolutionise their back-of-house operations and find growth in revenue assurance operations. Packet-Switched Networks versus Circuit-Switched Networks Traditional circuit-switched networks are built to accommodate one type of transaction: a call. In order to connect a standard telephone call, a portion of the network’s capacity is dedicated to that call. Once the call is ended, that capacity is ready to be used for another event. In contrast, packet-switched networks dispense with dedicated connections and instead break a transmission into discrete blocks known as ‘packets’. A portion of each packet, called the header, contains basic information identifying the packet’s origin, creation time and destination. The actual message being sent over the network is reassembled in proper sequence once the packet reaches its ultimate destination. These two delivery techniques have different implications for business support systems. Details describing a call placed over the circuit-switched network are recorded in the form of a Call Detail Record (CDR). The CDR accounts for who called whom, what time the call was placed and how long the call lasted. These records are periodically downloaded to a separate billing system, where the calls are rated and stored until an invoice cycle is run-usually once per month. Maintaining revenue assurance during the course of this cycle depends on carriers being diligent about ensuring end-to-end reconciliation of their billing process. In its most simple form this is done by determining if the number of calls placed and handled by a network equals the number of calls invoiced at the end of the month. IP-based telephony may require that billing systems process a greater amount of data than circuit-switched systems. This is because IP billing accounts not only for connection time and the amount of data transferred, but also: · who used the service; · network route packets used to complete the usage event; · the application used in any given event (eg, fax over IP); and · quality of service. Further, IP billing systems must be able to collect and mediate data from a wide variety of network elements, such as routers and traffic assessment devices, in order to be able to account for all services rendered. IP versus Circuit: Elements of a Detail Record One example of an IP business support system compiles usage information from data concerning network events, such as transmission beginning time, the amount and type of data handled, and the time the event ended. This information is then formatted to create the IP equivalent of a CDR and read by billing software, or formatted and processed directly by billing software. From this data, invoices are created and sent to consumers. While these steps greatly increase the complexity of IP billing systems, they are integral to a service providers’ ability to collect all potential revenue from value-added services. When able to collect a wide amount of data, carriers can determine what services are most popular, and what offerings merit premium pricing. International Settlements International settlement processes have long been thought of as a ‘cost of doing business’, and have thus been largely ignored. Our experience has shown that the processes are not usually well-controlled-international traffic is often an overlooked segment of business, and management focus is limited. In addition, numerous complexities such as changing rate structures and numerous contractual arrangements make control difficult and potential leakage great. The traditional model for international settlements was developed in the days of largely state-controlled monopolistic operators, based on bilateral agreements between these operators. These agreements were established to reflect circuit-switching traffic patterns, resulting in high rates on lesser-used routes. This tended to benefit many of the smaller monopoly PTTs, and consequently the economies of some of the smaller countries, including many in Asia-Pacific. This means pricing and settlement are moving to a more commercial model, eroding the benefits enjoyed by these smaller Asia-Pacific countries. Liberalisation and greater competition have already affected significantly the high settlement rates that prevailed. Political considerations have also played a part in eroding the traditional settlement model, with the US government being highly influential in driving down rates. The increase in data traffic as opposed to voice and the increased use of Internet telephony will perhaps be the final nail in the coffin. Firstly, Internet telephony and packet switching enable traditional routings, and traditional operators, to be by-passed. Secondly, the principal driver of the growth in data traffic is the use of the Internet. Whilst user numbers in Asia-Pacific are growing perhaps faster than anywhere else in the world, the vast majority of Internet sites are still hosted in North America. Consequently, data traffic is US centric, and it tends to be asymmetric with US-hosted content being accessed from elsewhere in the World. Much of it is carried by the small group of ‘tier 1′ data carriers, which disadvantages carriers in Asia. Thus, the patterns of data traffic (taken together with the increase in capacity) are driving down prices and changing the balance between originating, transit and terminating carriers. This will undoubtedly impact on the revenues of domestic and gateway operators in some parts of Asia-Pacific. For some economies, the short-term impact of this may, in relative terms, be significant. It is therefore important to ensure all available remaining revenues are completely captured and billed. Revenue Assurance – Identifying and Capturing Revenue Leakage Many telecom companies miss out on expected growth and increased shareholder value by ineffectively implementing one of the most attractive sources of revenue growth available to them: a low-risk, high-reward revenue assurance strategy and plan. For many companies, improvements and cost reductions achieved through a focused, organisation-wide campaign to stem revenue leakage may equal or surpass revenue growth achieved through mergers or restructuring. In a deregulated, highly-competitive telecom industry, a holistic approach to revenue integrity will become increasingly important. The combined pressures of shareholder demands for earnings growth and the rising cost of margin-growing initiatives will compel companies to aggressively capture leaking revenue. What’s lacking at most companies is the concerted will to recover leakage, combined with an inability to calculate a service’s value proposition. A solid revenue assurance methodology, described in the following paragraphs, coupled with quantifiable monitoring mechanisms, will be valuable tools in resolving this problem. The core elements: 1. Revenue Responsible Organisation A revenue-responsible organisation is characterised by four qualities: · executive support, with budgetary and personnel commitment; · incentivised, measured participation at all levels of management; · continuous focus on improvement; · tangible change achieved through new processes and new skills. It is important to ensure that revenue assurance teams remain in place and are not convened on an ad hoc basis. With new billing systems, new pricing plans, new customers and new interconnect relationships, telecom companies create new sources of revenue leakage every day. 2. Essential Automated Tools The right tools empower employees dedicated to revenue integrity to create more value. Automated revenue integrity monitoring tools are information systems that provide employees and customers with real-time views of all revenue assurance data. Six mission-critical monitoring tools available today are: · automated billing validation; · end-to-end usage reconciliation; · international settlement reconciliation; · interconnect verification; · provision verification; · network integrity. These essential automated tools attack the greatest areas of revenue leakage, and while manual billing validation and provisioning are too costly to justify for an effective revenue integrity programme, in the world of IP-based services manual labour becomes even less of an option. Real-time, web-based account information and customer self-provisioning are just two examples of next-generation services that will be expected of carriers and preclude manual execution. 3. Day-to-Day Processes While automated reporting tools will indicate inconsistencies in data; they will not execute a plan to remove the problem’s underlying causes. Revenue-responsible companies must install managers with the task of converting evidence of leakage into enduring fixes. To capture maximum revenue, day-to-day processes should be characterised by: · clearly defined work steps; · elimination of duplication and gaps; · individual management and account-ability; · measurability of results-metrics must be established, measured and analysed. 4. Monitoring Mechanisms What gets measured gets done. All aspects of a company’s revenue integrity strategy must be surrounded and infused with quantitative metrics. Further, the organisation as a whole must understand how the performance of key indicators influences the rate of revenue capture. Relevant revenue assurance managers need a broad range of data, such as provisioning status, invoicing and churn ratios. Conclusion Devising a strategy for understanding IP-based services is no longer optional for telecom companies. Deregulation and technological innovation have slashed profits from traditionally profitable services, forcing incumbents and start-ups alike to innovate or fall behind. The flexibility and efficiency of packet technology make it a prime medium for forward-thinking companies seeking to distinguish themselves with compelling, value-adding services. IP services provide an invaluable opportunity for carriers to make revenue integrity an integral part of their day-to-day operations. Why? IP-based OSS and BSS promise a level of precision, accuracy and speed for internal systems monitoring that has otherwise been impossible. This will be critical for service providers in several ways: · Data collection and reporting systems will enable carriers to determine what new services to provide and how to charge for them. · New automated revenue assurance mechanisms will confer increased levels of precision for internal support systems. · IP-based systems will equip carriers with the building blocks for next-generation support systems such as Web-based customer interfaces that provide real-time account information and do-it-yourself service provisioning. The Internet offers telecom companies tremendous capacity to deepen customer relationships, create new services and monitor internal operations. Establishing best-practice revenue assurance operations will be the key to making these possibilities a reality. It is now up to telecom companies to determine how they will maximise the opportunities available to them. With Luke Sayers, Roger Knight is responsible for developing PricewaterhouseCoopers’ assurance and business advisory services to companies in the telecommunications section in Asia-Pacific, focusing in particular on North Asia. Mr. Knight (MA, FCA, FHKSA) is a partner with PricewaterhouseCoopers, Hong Kong. After gaining an honours degree in Mathematics at Cambridge University, he joined Coopers & Lybrand in 1976 in London, qualifying as a chartered accountant in 1979 and becoming a partner in the United Kingdom firm in 1986. Subsequently, he worked extensively in Hong Kong and joined Coopers & Lybrand, Hong Kong, in 1994. His principal focus has been assisting international companies investing in Hong Kong and the Mainland, particularly in the telecommunications sector. He is the telecommunications sector leader within the firm’s Technology, Information, Communications and Entertainment (TICE) industry group. He has also been heavily involved in developing the firm’s services to start-up high technology enterprises.