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REVENUE MANAGEMENT - Stopping the leaks
If operators are to build profitable content-based service businesses, they will need to address unacceptably high levels of avoidable revenue loss, says Geoff Ibbett
Year on year telecom operators lose about 12 per cent of their revenue to avoidable leakages. Clearly, operators have a great opportunity to show immediate improvement in their top and bottom line performance if they can successfully tackle this revenue leakage.
And there is some good news too. Revenue maximisation programmes managed by CFOs deliver best results in containing revenue leakage. Undoubtedly, telecom operators can show dramatically improved results if they implement an enterprise wide revenue management programme effectively managed by, and reporting to, the CFO.
And there is some good news too. Revenue maximisation programmes managed by CFOs deliver best results in containing revenue leakage. Undoubtedly, telecom operators can show dramatically improved results if they implement an enterprise wide revenue management programme effectively managed by, and reporting to, the CFO.
Unfortunately, over the years, operators have deployed BSS/OSS systems with an eye on the immediate needs of the business without necessarily analysing the impact on existing systems within the chain. This has often had the effect of fragmenting the operations chain into seemingly impregnable silos. An executive can access a lot of data but very little actionable information.
In addition, telecom operators are stepping into the exciting world of content-driven services. These new services will help telecom operators combat the problem of rapidly commoditising voice-based services that suffer from high rate of subscriber churn and falling ARPUs.
These next-generation services will have an even more complex revenue distribution and settlement chain associated with them, involving partners and resellers. Telecom operators will find themselves cast as trusted partners for product delivery and related payment receipt. This new role will sharply bring into focus the impact of revenue leakages. In the conventional voice-based services environment, operators could treat revenue leakage as opportunity loss. In the content-driven service environment, however, operators will suffer real loss because an operator is liable to pay the content provider even if he does not or cannot collect matching payment from the subscribers.
The greatest challenge, for a telecom operator is to establish a strategic framework to foster sustained profitable growth. This is easier said than done. The industry is fiercely competitive, demands rapid response from operators to ever changing business and technology environments but offers little leeway to experiment, let alone make mistakes, and this is where the next generation of revenue management platform comes in.
Revenue management in its broader context though, is much more than just assuring revenue, reducing fraud and managing credit risk. It should provide a mechanism for actively managing the performance of an operator's business.
Of course it should monitor, control and ensure revenue integrity within all of the various revenue chains, but also provide the ability to manage the cost base associated with service delivery to allow profitability and product margin to be managed rather than just revenues alone. This is because not all revenue is good revenue; at least if it costs an operator more to deliver the service than is received in receipts from its customers. Often this information is simply not available to the business manager.
But the holy grail of revenue management is to provide a single, consolidated, real-time view of the overall performance of the business that supports business managers in their day-to-day decisions, making it a role that directly impacts the performance of their business.
Next generation revenue management moves beyond just managing leakages, it needs to address profitability and even track subscriber behaviour so that the assets of the business are put to optimal use.
One of the biggest hurdles to overcome in achieving this is in bringing information together, from the traditionally separate systems that exist today, and providing a visual representation of this information from a business perspective.
The concept of the Revenue Operations Center (ROC) is in doing just that, and presenting it in a manner that enables issues that are affecting business performance to be easily identified, investigated, diagnosed and corrected.
Modelled on the Network Operations Centre (NOC), it is intended to provide an equivalent view to the financial community of the operational effectiveness of a telecom operator's revenue network, as the NOC itself does for network operations.
A Revenue Operations Centre, though, is much more than just another dashboard; it should be underpinned by an integrated suite of revenue management solutions, providing multiple levels of drilldown to support the day to day activities of different levels of business management.
To support the goal of assessing and quantifying business performance and revenue integrity, the Revenue Operations Centre also needs to provide comparative analysis of revenue operations. The full power of the ROC can be realised when business performance can be tracked at key stages of revenue realisation.
Six such stages have been identified for monitoring by a ROC:
• Forecast Revenue, based on revenue targets usually derived from a company's business plan.
• Predicted Revenue, based on revenue projections of the current subscriber base together with estimated ARPU and AMPU.
• Expected Revenue, based on the provision of service within the network and service usage recorded within the network
• Invoiced Revenue, based on actual billed revenues
• Collected Revenue, based on the revenue actually received by the company
• Reported Revenue, based on how those collected revenues are reported in the accounts and summarised in the company's annual report.
In an ideal world all of these revenue stages should give the same value, but of course they never do. For example, the difference between Expected Revenue and Invoiced Revenue can be accounted for by revenue assurance losses and internal fraud, and the different between Invoiced Revenue and Collected Revenue can be accounted for by external fraud and bad debt.
By comparing these key revenue perspectives, the operational effectiveness of a business can be determined and, by combining information from a telecom operator's various monitoring system, gaps between the revenue stages can be quantified and a business is able to understand whether there are any gaps that cannot be explained.
The process of investigating these gaps will reveal hitherto unknown issues, such as revenue leakages, stranded and under utilised assets, inflated operating costs and inefficient systems and process amongst other things.
It is the Revenue Operations Centre that will become a key business solution that will enable a business to manage its four levers of profitability, namely, price, cost of service delivery, product portfolio and targeted customer effectively. Those businesses that can achieve this will be able to maximise profit growth within an increasingly competitive and complex industry.
Geoff Ibbett is Director, Product Management, Subex Azure
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