Telecom Carriers Weigh in on Revenue Leakage

Revenue leakage: two words that keep telecom operators up at night. But exactly how much revenue is leaked, and where are the biggest holes?

In an effort to gain a better, more accurate understanding of both the cause and magnitude of revenue leakage, as well as the attitudes of the industry, last year Azure Solutions commissioned Analysis Research of Cambridge, U.K., to survey 100 senior managers responsible for revenue assurance at telecom operators around the globe.

The good news is that worldwide revenue loss decreased between 2003 and 2004. But the bad news is that operators are still losing an estimated 10.7 percent of their revenues. That's down from 13.7 percent in 2003, but still a far cry from the "less than 1 percent" that carriers admit would be "acceptable" losses. For North American carriers, the news is even worse. In a geographic comparison, North America is the biggest loser, leading all other regions with a 14.2 percent revenue leakage rate.

With these numbers, it's not surprising that revenue assurance continues to grow in importance and is rising up the corporate agenda. Nearly 70 percent of the respondents said revenue assurance is more important now than in the previous year. Only six out of the 100 companies surveyed said it's less important, with three of those coming from North America.

Areas of Leakage in the OSS
The main causes of revenue loss continue to be those related to poor processes and procedures; poor systems integration; the introduction of new communications products and tariffs; and incomplete or incorrect CDRs (call detail records). Among all of the potential sources of loss, fraud is becoming an increasing concern to operators. This is understandable, as next-generation services will be of higher value and will involve immature and complex technologies communicating across multiple partners, all of which are potentially more susceptible to fraud. To counter this, more operators need to take revenue assurance matters into account when planning new communication products—which is currently not the case, as there is a widening gap in planning.

When it comes to dealing with revenue assurance, the in-house approach still dominates. However, operators are now admitting they are not confident that their revenue assurance solutions are effective. Consequently, more operators are looking for external help in the early stages of implementing a revenue assurance policy, with only fewer than 30 percent saying that they use no external help at all.

Comparing losses by operator type reveals a familiar story: Incumbents suffer the least amount of loss, compared with mobile and alternative fixed operators. This is to be expected, considering that incumbent operators have had more time to identify revenue assurance issues and develop their strategy and processes accordingly.

As mentioned previously, the survey also revealed pronounced regional differences in the implied losses. Surprisingly, North American operators were shown to have the largest estimated losses, at just more than 14 percent. The reasons for this significant difference—especially in view of Western Europe's loss rate, less than 5 percent—are hard to pinpoint. Many experts feel it can be attributed less to technological issues and more to new, tougher corporate reporting legislation. New laws such as Sarbanes-Oxley have forced organizations to become more transparent in reporting profits and losses, and to be more forthright in admitting they have problems. Therefore, the North American carrier representatives surveyed might have felt more at ease in disclosing projected losses.

As in the 2003 survey, Asia-Pacific operators also find themselves losing more revenue than the global average. This is mainly due to two factors. First, in some Asia-Pacific markets there is a very low level of understanding of the concept of revenue assurance. Second, the Asia-Pacific market is a mixture of deregulating markets and carriers operating next-generation networks, meaning that revenue assurance practices are in their infancy for both existing and future networks.

The Effectiveness of Revenue Assurance
With respect to the effectiveness of revenue assurance programs, both in-house and external, the confidence level is low. Just fewer than 50 percent of carriers considered their revenue assurance programs to be effective. Where revenue assurance programs provide less than stellar results, the areas of major concern are poor processes and procedures, new products and pricing, and poor systems integration (see Figure 3). Areas of success include improved controls for CDR processing and improved invoicing systems.

As stated above, the level of proactive strategic planning for revenue assurance still lags. Despite the increased attention paid to revenue assurance practices, just more than 50 percent of respondents incorporated revenue assurance as part of the new product planning stage. The use of revenue assurance specialists also provided a dramatic differentiation in program effectiveness. Where external help was absent, revenue leakage came in at 13 percent, compared with the overall average of 10.7 percent. Where specialists were used, revenue leakage came in at just below 7 percent.

There's a Problem—But It's Not Mine!
Interestingly, carrier representatives participating in the survey reveal both optimism and pessimism. Consider that of the very same group of respondents that helped estimate the overall industry average loss at 10.7 percent, more than 60 percent claimed to be losing a mere 2 percent or less at their own company (see Figure 4). Likewise, the same group that felt almost 50 percent of their revenue assurance programs were ineffective actually characterized their own losses to be just a fraction of a percentage point away from acceptable levels. This paradox reveals an underlying problem: Carriers do not have visibility of and confidence in the numbers that their revenue assurance programs produce.

Summary
During the past few years, revenue assurance has entered the catalog of industry buzzwords—often over-used or used indiscriminately. The experts at TM Forum describe the practice as: Data quality and process improvement methods that improve profits, revenues and cash flows without influencing demand. As a practice that has matured and evolved into a multi-disciplinary approach combining finance, network operations and billing/internal audit, revenue assurance continues to gain footing as a mainstream OSS application.

As demonstrated by this research, some operators are slowly getting a handle on revenue assurance, but billions of dollars are still being lost. By working with recognized revenue assurance experts and incorporating the practice into the planning process, operators can establish best-practice benchmarks to quantify, identify and manage their revenue assurance problem before it spirals out of control.

The full report, "Operator Attitudes to Revenue Assurance 2004," is free to operators. It can be obtained by visiting www.azuresolutions.com/2004survey.

Nick Milner is the chief marketing officer of Azure Solutions, the world's largest revenue assurance company. He can be reached at nick.milner@azuresolutions.com.