Azure Solutions recently commissioned a study by telecommunications analyst firm Analysys Research, which examined levels of revenue loss by operators all over the globe. The “Operator Attitudes to Revenue Assurance 2005” report surveyed 104 global operators. According to the survey, operators believe that overall revenue leakage is around 3.5 percent of total revenues. However, the survey found that actual losses are much greater. The average revenue leakage rose from 10.7 percent in 2004 to 11.6 percent in 2005 (see Figure 1). Perhaps even more startling is that 11 operators said no loss was acceptable, and 47 said acceptable loss rates should be less than 1 percent. These key findings continue to illustrate an operator disconnect between acceptable loss, perceived loss and actual leakage.
The Practice of Revenue Assurance
As revenue assurance (RA) continues to evolve and mature, it’s interesting to look at the role of RA professionals and the practice in general. On average, 61 percent of the operators said the responsibility for revenue integrity lies with a dedicated RA team. However, for RA managers, the scope of responsibility still spreads into core billing, risk management and finance/accounting functions. In areas such as interconnect billing, optimized call routing and fraud management, new practice areas are now being formed to provide increased attention on more focused service.
What keeps RA professionals up at night? According to the study, more than 50 percent said poor processes and procedures were their ongoing nightmare. Growing areas of concern are rating, prepaid charging failure and errors in optimized call routing. Interestingly, despite the challenges of emerging content and IP network plays, operators actually predict they will have less potential loss during the coming year and beyond. Previous areas of concern focused on new product rollouts and pricing, poor processes and systems integration and, looking farther down the road, managing broadband/3G products and continued funding for RA initiatives.
When it comes to proactively preventing revenue leakage at the product planning stage, the news is bad. Despite common knowledge of the potential causes of revenue leakage, an increasing number of respondents said they did not take these problems into account during the new product planning stage (see Figure 2). More than half of operators routinely neglected to implement RA programs to avert the various sources of revenue leakage before new products were launched. For instance, of the 52 percent of respondents that cited “poor processes/procedures” as a source of loss, only 20 percent initiated preventive RA plans to stem losses in this operational area, while more than 30 percent neglected to act during the product planning stage.
Sources of Leakage
Not surprisingly, fraud continues to be a daunting challenge for the telecommunications industry. It is the largest source of revenue leakage globally, responsible for losses of 2.7 percent—a significant increase from 2.01 percent in 2004. As the industry grows, the potential for revenue loss due to fraud seems to increase with it.
Are fraudsters becoming more clever—or is the industry just becoming more aware of the problem? The answer may lie somewhere in between, and may also be partially attributed to the steady growth in the number and size of operators around the world. In particular, Central and Latin America have more operators now than they did last year, and more of those operators participated in the Analysys survey, possibly contributing slightly to the increase in fraud loss levels.
Other significant areas of revenue leakage include errors in optimized call routing, credit management, least-cost routing errors, interconnect/partner payment errors, and poor processes and systems. A growth in confidence among operators in their revenue assurance strategies, as well as regulatory issues, may contribute to an increase in reporting of revenue leakage caused by internal issues over last year.
When it comes to dealing with revenue assurance, the in-house approach is still slightly more favored than outsourced solutions. Operators are a little more confident in the efficacy of their RA solutions than in previous years, although approximately 40 percent believe they do not have the tools to tackle specific problem areas. As a result, a growing number of operators are looking for external counsel in the early stages of implementing a revenue assurance policy, with fewer than 30 percent saying that they use no external help at all. Some operators continue to hesitate to use an external revenue assurance solutions provider, for a variety of reasons, but those fears and the number of operators still harboring them seem to be dwindling.
Comparing losses by operator type, the story is a familiar one, with incumbents suffering 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. Understandably, fraud is a major issue for mobile operators, since they can be targeted by something as simple as individual subscription fraud, as well as highly sophisticated scams by criminal gangs.
A Global View
Regional differences in the levels of revenue leakage continue to grow, as well. Losses for North American operators have increased from just over 14 percent to about 15 percent. This increase might be attributed to the effect of new regulations, such as Sarbanes-Oxley, which have forced organizations to become more transparent when reporting profits and losses. In addition, new regulations may have caused operators to step up their efforts to address revenue leakage issues over the past year. It’s safe to assume that North American carriers felt more at ease in disclosing projected losses, but the data indicates they have been able to find solutions to problems exposed by Sarbanes-Oxley.
Operators from the Middle East, Africa and Central/Latin America are losing the most amount of revenue, due not only to fraud but also internal process difficulties. As these regions grow in the number of operators, coverage and services, some challenges are to be expected with the implementation of new networks and infrastructure. The key to the success of these efforts will be how the operators respond to leakage issues in the coming years.
However, some regions saw an improvement. Asian operators were able to reduce revenue leakage between 2004 and 2005, from nearly 15 percent to 12 percent, thanks mostly to improvements in operational efficiencies and effective revenue assurance planning. The same can be said of operators in Central and Eastern Europe.
In summary, the “Operator Attitudes to Revenue Assurance 2005” report demonstrates both the continued seriousness of the revenue leakage problem and growing organizational buy-in into RA initiatives. Stand-alone RA departments are now the norm, and technical solutions continue to make headway against the old-guard, manual processes. Fraud and plain-old poor processes also contribute to loss levels, with emerging issues like call routing and interconnect management gaining steam as problems to watch.
Nick Milner is chief marketing officer at Azure Solutions. The full report ”Operator Attitudes to Revenue Assurance 2005” is free to operators. It can be obtained by visiting www.azuresolutions.com/survey05.
