1st Quarter
2002

Squeezing More From Current Revenue Streams

BY VINCENT VU

Even in a slow economy, most communications service providers (CSPs) are nevertheless scrambling to pump out an array of packaged offerings and incentives to retain customers and continue growing by acquiring new customers. What these CSPs often forget is they can offset the high cost of acquiring and retaining customers and network build-outs, and still continue to grow by focusing on money lost via a lack of processes, tools, and proper management to help plug "revenue leakage."

Revenue leakage refers to revenue lost due to incorrect or incomplete call detail records, an inability to attribute records to specific customer accounts after an account change or new feature activation, and a lack of back-office integration of processes or data format changes, among other problems. How much money is currently leaking out of CSP coffers varies widely, and often depends on the maturity of a CSP's billing and mediation processes, but estimates show that eight to 15 percent of revenue is lost annually.

BLACK BOX SYNDROME
Why does the revenue leakage problem exist? Primarily, it's because of a lack of validation and reject quantification and recycling processes otherwise known as "Black Box Syndrome." This syndrome is characterized by a CSP's inability to quantify billable volumes of records through the collection, rating, loading, and billing processes. Switches don't quantify rejected records; they simply send those records to a billing system via a mediation tool. Mediation interfaces and billing systems, therefore, must be up to this task. Ultimately, without a clear picture of each record as it passes through each processing step, CSPs simply can't correct and recycle rejected records into billable revenue.

Revenue leaks tend to spring from one of three sources: The carrier's switch, customer acquisition and service mistakes, and billing system administration issues. Bad data fields, for instance, can be created by simple file transfer corruption at the switch. And incorrect service order data can be generated when CSPs activate services for a customer through the switch, for example, but don't update the billing system with customer information while the CSP is waiting for the credit approval process.

Also complicating matters is the wireless industry's migration from 2G to 2.5G and -- in a few years -- 3G converged voice and data services. While still in its infancy, CSPs are testing rate plans and raising complex questions about pricing and billing for wireless services. They must, for instance, be able to determine data from voice call records to properly bill subscribers. Wireless CSPs now starting to test price plans for broadband IP services, for instance, won't be able to get a clear picture of whether to use usage-based or flat-rate monthly charges without adequate revenue reconcilement.

With the migration to 3G, for example, the use of streaming video content will create the need for revenue sharing with content providers, which translates to a much greater need to accurately reconcile revenues. In addition, the advent of multiple wireless subscription services creates new room for errors and revenue leakage, especially for CSPs who haven't implemented revenue reconciliation tools or automated provisioning.

At the same time, the emergence of Mobile Virtual Network Operators (MVNOs) -- wireless voice and Internet services providers who lease network switching infrastructure from network operators -- further obscures billing and revenue assurance for wireless CSPs. While the first MVNOs started in the UK and Scandinavia, industry observers expect this new wireless services marketing opportunity will create a quick way for brand-name institutions in the US, such as America Online (www.aol.com), Walmart (www.walmart.com), or Disney (www.disney.com), for example, to enter the wireless subscription services arena.

And unless CSPs and emerging MVNOs invest in top-notch billing and revenue reconciliation systems and processes, there is no way they will be able to manage the tricky mediation and billing processes they will share. Remember, MVNOs won't own the switching infrastructures, but will need to provide detailed information from carrier switches to accurately bill for Internet and voice services they offer.

REDUCING THE PROBLEM
Luckily, there is a way to reduce most revenue leakage problems. Revenue reconcilement tools and processes can help. Strictly speaking, revenue leakage reconcilement is the process of validating call detail records (CDRs) and IP detail records (IPDRs), quantifying record rejection levels and the reasons for those record rejections, and correcting and recycling rejected records into billable revenue.

In fact, revenue leakage reconciliation breaks down each step in the mediation and billing processes into components that provide in-depth information, which enables CSPs to create reports that quantify the number of call detail records processed, and how many are rejected.

These tools enable CSPs and MVNOs to combat black box syndrome by:

• Validating data using network mediation tools;
• Performing accurate reconcilement via provisioning and billing system processes; and
• Promoting the rapid integration of data/format changes into back-office systems by implementing solid management policies.

TREND ANALYSIS
Trend analysis is relatively underused today, but is crucial to understanding what contributes to 100 percent of any CSP's revenue pie. The reason is primarily because of a lack of understanding of the importance and value of trend analysis. Most CSPs don't use trend analysis because of the black box syndrome, the lack of proper network mediation tools, and less-than-stellar management policies to promote trend analysis.

Trend analysis can be used monthly or over any set time period to check if the number of rejected CDRs is growing or shrinking. This type of analysis is also used during the pre-commit phase of the billing process to make sure the month-to-month trends for billable charges -- including fees for roaming, long-distance, and local charges -- don't change dramatically.

Basically, when invoices are generated, there are numerous statistics that can be generated from a billing run. Through trend analysis, CSPs can analyze the amount of minutes billed across different days or different hours, and what portion of billable charges come from recurring and non-recurring charges. By understanding what pieces make up all portions of a CSP's "revenue pie," it's much easier to detect when there's a problem in a billing run. Detailed trend analysis provides a far more efficient process for managing revenue streams, which is especially important as CSPs move from one type of service (voice) to multiple services, including voice, data, video, and Web content.

There are some CSPs who don't use trend analysis, however, relying instead on a few sampling data -- collecting billing run data from a randomly selected group of customers and performing some analysis to ensure "all is well." But this method simply doesn't work.

One of our clients, a wireless CSP, previously thought sampling was adequate. But the client learned only after implementing trend analysis that usage charges for home territory minutes of use (MOU) record files and long-distance MOU record files were repeatedly overwritten at the switch by (valid) roaming charges. As a result, the client's customers were only being charged for roaming, and they weren't being charged for home territory MOUs and long-distance MOUs. Those customers should have been charged for all three: Home territory, long-distance, and roaming.

Industry analysts agree CSPs are sitting on mountains of customer data they currently don't know how to access for historical analysis, for example, or to help them determine high and low-value customers. Paul Hughes, director of billing and payment application services for The Yankee Group (www.yankeegroup.com), states that revenue assurance and trend analysis are still new concepts for most wireless CSPs.

According to Hughes, trend analysis also can improve campaign management, or the CSP's understanding of responses from customers to new pricing and other incentives. And in customer relationship management (CRM), trend analysis can help CSPs sell more services to current customers based on what they currently use.

CONCLUSION
As broadband services evolve and CSPs move to 2.5G and 3G networks, the advent of "always-on" connections and content from multiple sources will create an influx of data and call detail records. And CSPs simply must track these records - to meet new metrics for quality of service as IP telephony grows, and to accurately share revenue with content providers and brokers.

Now is the perfect time to step back from wide-ranging expansion plans to more closely examine and reap the rewards of improved revenue reconciliation. The slower economic climate should be used to help drive CSPs to focus on shoring up current revenue. Ultimately, CSPs can't afford to procrastinate, or ignore the opportunity to squeeze more from current revenue streams.

Vincent Vu is CEO and co-founder of Sentori, a developer of multi-service billing and customer care solutions. The Sentori Billing and Customer Care system is designed to help guard and protect a company's greatest assets - its customers, through powerful, flexible billing and customer care solutions. Visit the company's Web site at www.sentori.com.

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