10 Take-Aways from Revenue Assurance 2005

TeleStrategies’ semiannual Revenue Assurance Conferences are a treat, because you consistently see the most job-secure employees in the telecommunications service provider space. Revenue assurance programs continue to grow with no slowdown in sight. Here are my top 10 walk-away points from September’s conference program.

1. A New RA Success Metric

SBC’s Wholesale Business Unit has one of the best revenue assurance programs going. Paul Peddicord, SBC director of finance, along with PricewaterhouseCoopers presented what appeared on the surface to be a somewhat counterintuitive RA program success metric. Its message: continue to invest and fine-tune your RA program, and over time the program will see a reduced rate of return on your investment. In short, the low-hanging fruit is gone, and no more is popping up. Or maybe I should say: less desirable fruit is hanging up a little higher and it’s harder to get at.

2. Intercarrier Settlements Are a Mess

The only thing that doesn’t seem to change in RA year to year is the mess surrounding intercarrier settlements. The call processing and transport resources required to hand off a voice call for an ILEC, IXC, CLEC or cellular operator is 99.9 percent identical. Yet the per-minute cost to a wireless carrier to hand off a call to an ILEC is 1 to 2 cents, a long distance carrier would pay 0.5 to 3 cents or more, and a CLEC would pay less than one-tenth of a cent. This situation only leads to cheating among carriers, or walk-away point No. 3…

3. Fraud Runs Rampant

If a service provider changes the jurisdictional field of a call record handed off to another carrier to reduce its intercarrier settlement fee, that’s fraud. A few lines of computer code can change the carrier identification code (CIC) to mask the originating carrier, or change the originating carrier number (OCN) or jurisdictional information parameter (JIP). These things don’t happen by accident; they are intentional.

OK, is this activity happening under the regulators’ radar screen? Yes! WorldCom (now MCI) generated front-page news several years back being accused of such behavior. But yet no one in the industry wants to call this type of activity fraud.

The standards or intercarrier working groups call this fraudulent, manipulated traffic “phantom traffic.” The FCC calls it arbitrage. Whatever you want to call it, the problem is huge. The number thrown around the revenue assurance community is that 5 percent of RBOC traffic received by other carriers is phantom. That equates to billions of dollars of lost revenue. It’s worse for the small independents that can’t afford SS7 probes and monitors that can detect phantom traffic. For these guys, the figure could be as high as 30 percent. Worse yet, they can’t block such calls, because the state PUCs would be on their backs.

Billing World & OSS Today has been covering these issues for years (most recently in July 2005), and everyone concerned knows there is fraud going on—but the regulators do nothing. Only in telecom could this go on!

4. Where Is ISS When You Need It?

There is a lot of discussion about taking revenue assurance to the next level, from reactive to proactive. Why react to a revenue leakage problem a month after the fact and lose all of that potential revenue, when you could stop leakage in its tracks with a real-time analysis capability?

An RA case in point: say an ILEC is interconnected directly to a CLEC. The ILEC’s proactive revenue system—an Intelligence Support System (ISS)—sees a spike in traffic identified as local completed calls. But the ISS kicks in and gets beyond looking at carrier identification codes and looks at calling party numbers (CPNs). The proactive RA or ISS system spots this traffic as long distance termination.

Or how about a marketing application for ISS? A set of customers buy service A, and they also buy service B as evidence of network usage (call detail records). The ISS finds like customers who have bought service A but not service B, so let the sales force have at them. If you buy a book from Amazon.com, this should sound familiar. You order a book and get follow-up recommendations of other books based on other customer purchases of the book you just ordered.

One last example: your security division gets a lawful intercept court order from law enforcement for usage information on a target. Your ISS monitors the customer (the target); you investigate usage (CDRs) and report usage to law enforcement.

So what’s the commonality of ISS among RA, marketing and security applications? ISSs monitor, investigate and report. The only difference is that for RA the ISS is reporting that a CDR is rated incorrectly, for marketing the ISS is reporting or identifying a specific customer, and for security the ISS is reporting the network usage of a target.

The bottom line is that the FCC has mandated lawful intercept or CALEA for all present and future IP-based services that are interconnected to the PSTN and/or delivered via broadband. There is no ISS ROI for CALEA, but there is for RA and marketing intelligence support.

5. Revenue Assurance and Content?

Every wireline and wireless service provider is high on content delivery, along with content owners. Plus you have many new initiatives like mobile TV, IPTV and others that further fuel everyone’s new revenue expectations. But the reality is that new content revenues are small, and when you have small revenue streams you have no revenue assurance programs.

Such is the case with mobile content. In reality there is no such thing today as an effective revenue assurance program for a complex revenue-sharing chain. Wireless service providers sell content to their customers, then pay the content owner-distributor, who then makes many micropayments to artists, producers, writers and all the rest. Today’s content owner-distributors “trust” that the wireless service provider isn’t cheating. But there are no meaningful revenue assurance audit trails! Can or should content owner-distributors trust the same folks that play the phantom traffic game?

OK, you say, why can’t the content owner-distributor host the digital products and deliver the copies to the wireless provider as requested by the subscriber? Now the wireless service provider has to trust the content owner-distributor.

So how can content folks cheat? Here’s one of the many ways discussed at RA Fall 2005. The content provider deliberately corrupts 5 percent of ring tones delivered to the end users. The corrupted ring tones are delivered error-free to the end user, so they count as a sale, but the user can’t play it because it’s corrupted. The user orders again, with a 95 percent chance of getting a good copy the second time. The wireless service provider gets revenue from one ring tone, because the user gets a credit for the first try failure; and the content owner-distributor gets two sales to the wireless service provider’s one.

6. Revenue Assurance and IPTV

All the ILECs are hot to go into video and offer the triple and quadruple play over IP networks. But today bundled IP revenues are small, and—as in wireless content—where you see small revenue streams you don’t see revenue assurance programs.

So here’s the large ILECs’ talk: “We are going to roll out IPTV access over the entire market area but sell our branded IP service to a market of one, and all this is going to be run from one operations center.”

From a revenue assurance perspective, the problem with this vision is that, first, you are not selling an IPTV package to subscribers, you’re selling it even before that to the local franchising authority, of which there are 30,000 in the United States. (Yes, there may be adoption of statewide franchises as in Texas, but this will be rare.) Second, ILECs will have to mirror and top what the cable guy is offering in each market. And third, it will be very difficult (nearly impossible) to run this out of a single call center handling different marketing campaigns.

So here’s the tip of the IPTV revenue assurance iceberg. In some markets a video channel will be free, and in others it’s a pay channel at different rates. So count the possible leaks: reconciliations between billing and provisioning systems, between service providers and content owner (is a free subscriber a subscriber?), and the list goes on.

The bottom line: as an IPTV operator grows, so will its RA problems. The take-away point is, think RA before you leap into a big IPTV pool.

7. Revenue Assurance and Taxation

Typically within a large service provider organization, tax people don’t talk to revenue assurance people and vice versa, even though more often than not they are in the same department, namely finance. On one hand, if new audit control systems are put in place between what the consumer pays you (the service provider) and what you pay to the taxing jurisdictions, the more likely the government tax people will be to use the data from these systems and poke around looking to discover a potential loss of their tax revenues.

But on the other hand, there are revenue assurance problems galore surrounding taxation. Taxes paid to governments typically exceed taxes collected. For example, full tax money may flow to the governments, but down the road customer bad debt, credits or discounts have to be subtracted. The net result is that more taxes are paid than are collected. How much of this is an RA hit? No one seems to know or care!

8. APPU vs. ARPU

The traditional approach of taking a financial snapshot of a telecom service provider is to look at free cash flow, which is ARPU times subscribers less Capex and Opex, where ARPU is average revenue per user. The problem with ARPU from a revenue assurance perspective is that it tells you nothing about profitability. A better measure, therefore, should be average profit per user, or APPU.

Unfortunately, determining APPU in your typical telecom is impossible, because no one knows what it costs to provide service. In other industries you know exactly what it costs to deliver a new product or service. But this is telecom, and no one asks about costs. Why? The focus is still on growth (adding subscribers and increasing ARPU), not on profits (dropping loser services and customers).

9. What’s Long Distance and/or an IXC?

The concept of long distance voice is all but gone in wireless and fading fast in residential wireline. But what about long distance voice for large multinational or Fortune 500 companies? Will long distance go away along with pure long distance players in this market? The answer is yes, and it’s all because of VoIP.

Today’s IP PBXs in the enterprise office space send intra-company traffic over an IXC’s IP-VPN or Intranet services. Most intercompany voice still goes over the PSTN, mainly because of security reasons, QoS and other factors. But these issues will soon disappear as the big multinationals start peering with each other at the many global network access points (NAPs).

The good news for IXCs is that the RA intercarrier settlement and clearing problems highlighted in point No. 3 go away for the enterprise market. The bad news is that the revenue goes away as well.

10. The Revenue Operations Center

Take-away No. 10 is an opportunity to close on an RA bright spot. Subex Systems promoted a new revenue assurance—or more to the point, revenue management—concept at RA Fall 2005 that’s really on the mark. It’s the concept of a Revenue Operations Center (ROC). If service providers have Network Operations Centers (NOCs) with centrally located computers and staff to make sure the network is up and running, why not have a ROC to make sure the revenue is flowing as well?

These are my top 10 revenue assurance take a ways from our fall show. If you need to track developments or successes in revenue assurance, mark March 20-22, 2006, on your calendar, and join us in Nashville at Opryland for our spring show.