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From `RAGs' to riches
April, 05th 2007
Revenue Assurance Groups as key differentiators for Telcos

Revenue assurance is the process of monitoring, auditing and assuring that the telco revenue management chain is functioning at high degree of efficiency and effectiveness. It could become a key competitive differentiator and a key driver of sustained growth in terms of profitability.

A spectre is haunting telecom companies (telcos) all over the globe that of four Cs:

Competition increasingly getting intense and ruthless;

Change and its rapidity technological and socio-economic;

Convergence technical, business and company; and

Churn consumer loyalty is fleeting and volatile.

The telecommunications sector is one of the most competitive. The effect of the four Cs is felt more by telcos than by any others even within the services sector. As business pressure increases, many telecom operators are trying to blend their growth-based business model, where number of subscribers and ARPU (Average Revenue Per User) are central, to a value-based model where margins and profitability matter. This is especially evident in more advanced countries where the telecom market is fast reaching maturity in terms of tele-density. The value-based model usually focuses on cost production and new high margin services that can enhance revenues. Yet, this alone will not manage the 4Cs spectre.

Every yin has a yang, and vice-versa. Metaphorically speaking, if there is a spectre there is an angel too. Telcos are realising that effective differentiation in a value-based model requires looking elsewhere too. Those who did are discovering another area where profitability can be significantly improved with minimal investment. This is revenue assurance (RA).

Numerous surveys by international agencies such as Global Billing Association have shown that the bottomlines of telcos can improve by 5-15 per cent by implementing RA strategies. Another market research report that surveyed 36 telcos in Europe, Asia and Africa states that revenue loss due to defects in the switching, mediation and billing systems could be as high as 20 per cent of the total revenues generated.

In today's competitive world, this would have a huge impact on the performance of any telco. RA addresses the challenge of increasing profitability while other parameters remain as they are. The focus here is on improving operational efficiencies, thereby increasing productivity and reducing revenue leakage. RA in a nutshell is the process of monitoring, auditing and assuring that the telco revenue management chain is functioning at high degree of efficiency and effectiveness. It could become a key competitive differentiator and a key driver of sustained growth in terms of profitability.

In the area of convergence (technical, business and company) with hybrid telecom operations there are multi-level handoffs which require carriers to mediate over billing and tariff data. RA has a significant role here too. Even rivals can derive synergies based on a uniquely designed RA platform. Thus, RA can be both a broad business model and also a niche revenue model that has a direct impact on profits, revenues and cash flows.

The broad spectrum of RA activities includes:

RA as a set of process mapping techniques similar to other finance control objectives like accounting integrity. (This is similar to the requirements of the Sarbanes-Oxley Act as laid down in Clause 404 regarding accounting integrity, financial auditing and reporting, etc. Sections 5 and 8 specifically talk of documentation for effective internal control and evaluation of internal control deficiencies and reporting. Although this act of the US is not applicable in India we could derive some path-breaking ideas from it in the context of RA.)

RA as a form of pro-active automated data interrogation that seeks to unearth anomalies in data transactions.

Although RA is a very broad term and there are too many views on it, a consensus on its goals is at least clear.

These goals relate to improving financial performance by eliminating mistakes and errors in the process of transaction data. This commonly relates to billing and collection of revenue.

Causes of revenue leakage

There could be many causes for revenue leakage. This may be due to error or wilful fraudulent activity. Some of the more general causes are:

Corrupted records of actual services utilised by customers;

Lost call records (from own network or from third party network provider);

Incorrect rating;

Missing components or surcharges on customers' bill;

Inconsistency between services assigned to a customer per network and billing; and

These can occur any where in the revenue generation value chain of telcos.

Another fundamental concern is the gap between an operator's Business Support System (BSS) which is customer facing and the Operational Support System (OSS) which is networking facing. It has been a legacy that the BSS, which includes billing, and CRM have always been distinct from OSS systems such as service activation, provisioning, fault management, etc. This lack of integration across functions has an adverse impact on speed-to-market in the delivery of new services, errors between ordering and activating services, etc., which affect both the operator and its customers.

Need for RA Groups

It is evident that RA is primarily a finance function. However, as in every type of `convergence', the finance function overlaps with that of operations and IT.

The very nature of RA requires such a cross-functional group, the members of which perform their designated role. The RA group (RAG) must consist of representatives of the finance, techno-commercial and billing divisions of a telco.

These groups are best constituted zonally or in an operational area co-terminus with a state. This would ensure that the members of the group are personally responsible and also accountable in delivering results.

The focal concern of the group pertains to a part of each member's functionality. Although the objectives and the roadmap to them must be clearly defined, the nature and functioning of the group must be a blend of Keritzu and a Quality Circle (QC).

It must be a `headless combine' where there is no leader or manager. Each member of the group is a leader and an innovator onto himself/herself.

The group must meet at regular intervals and such meetings must be a platform of exchanging ideas, formulating operational tactics and deriving short-term and long-term action plans. The group must essentially derive operational efficiencies in the revenue chain management.

Mandate for every RAG

In an environment of hectic schedules, overlapping responsibilities and inter-dependent activities, especially in the case of telcos, each RAG must set its role, responsibility and roadmap clearly. In general, the activity of a RAG must involve the following:

Deriving baseline reports of each individual operational system in the revenue generation chain in order to verify how they are functioning.

Generating monitoring reports which are more specific in nature and probe into each system in the revenue generation chain such as switching, mediation, billing, settlement, roaming reconciliation, voucher management, collections, dunning (outstanding pursuit).

Conducting special audit checks in an attempt to confirm the integrity of the processes being executed. These audits can be: a) process specific, focusing on important and crucial processes; b) event triggered, which follow the implementation of new rate plans, new service deployment, network configuration changes, etc; and c) random audits, which would instil a sense of caution and an attitude of vigilance among functionaries.

Intrinsic Value of RA

The intrinsic value of RA pertains to three areas: i) intervention plugging the leakage of revenue; ii) pre-emption prevention of such leakages before they occur; iii) correction recovery of lost revenue or costs (issuing additional bills for services rendered, chasing uncollected payments, etc).

Many telcos have benefited from implementing RA interventions. Some of them have managed to successfully integrate all operational activities in the revenue generation value chain with a state-of-the-art system of neural networks and data warehousing.

Verizon was once faced with a problem of high net bad debts and collection costs. It was treating all delinquent customers alike. With appropriate RA strategies, it began precise determination of risk and segmentation of accounts for a more focused application of resources. This resulted in both enhanced revenue realisation and collection costs savings in the very first year.

Another telco began identifying risks better and refined its process of treating cohorts of customers. This resulted in improved collection efficiency. A top ten global telecom company reduced its bad debts by 38 per cent in wireline in the very first year of implementing RA strategies. It also enhanced its customer acquisition by selectively targeting best prospects among wireline customers for cross-selling in the wireless segment. Another top company in wireless segment began acquiring low risk prospects which rejected a particular activation fee and selectively offered them a customised package to suit their needs.

Telecom companies in India have a long way to go along the path of RA. Some have begun viewing the path. The 4Cs mentioned earlier are reason enough for them to not just tread on the RA path but sprint on it as of yesterday.

N. Kalyan Sagar
(The author is DGM and Faculty, National Academy of Telecom Finance and Management, BSNL. The views are personal.)

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