Service providers around the world are investing considerable resources to upgrade their networks and offer an impressive lineup of next-generation services. These investments are justified by the goal of attaining a higher-value business model. In light of the commoditization of many legacy services, there has been much discussion on how to prevent this from reoccurring and to safely work towards the ideal next-gen model. One of the strategies mentioned most frequently is individualization or personalization.
The keys to personalization will be variety and flexibility. That is, variety in the type of service bundles, content, and pricing schemes offered, with flexibility for subscribers to change or adjust their selection to fit their individual needs. Rather than serving as a commoditized data pipe, service providers aim to leverage the next generation to become a higher value one-stop-shop for quality communications services. With benefits attractive to both users and providers, this is certainly a viable strategy to increase market share and potential value.
However, even under this new model, competition is sure to remain tight and maintain pressure on providers to keep an eye on the margin. In fact, even with the best services and premium content and quality, an inefficient operator will have much difficulty maintaining profitably in this market. Yet, after investing the time and resources in these new next-gen offerings, many providers will not even be collecting a significant portion of the revenues they are supposed to generate. This revenue leakage may be one of the most wasteful errors they can make, but fortunately, once the issue is recognized, it is also one of the most easily avoidable.
Revenue leakage is by no means a new issue. Already, cVidya’s market experience has revealed that revenue leakage typically claims between 1-3% of a service provider’s total revenue for voice services, and 10-15% of revenues for data services, while figures as high as 20% (see the Financial Times, July 11, 2006) have been published elsewhere. Revenue leakage arises from any number of human or technical errors which can then lead to customers which are mis-billed or entirely unbilled, as well as stranded assets. Rating and billing — the processes in which call records and other usage data are associated with the appropriate plans and charges — can be a significant source of these errors.
Given these average rates for revenue leakage across the market, there are a number of factors which can further influence the actual level found at any operator. For example, the period following any change in billing schemes, such as a new pricing plan or promotional discount, generally sees an increase in leakage until the errors are slowly caught and corrected. This applies not only to provider-initiated changes, but to any plan change or alteration made by subscribers as well. Leakage rates can also be influenced by the level of complexity of a provider’s offering. In a legacy environment dominated by flat-rate and unlimited use subscription plans, rating and billing errors was not of critical importance to the bottom line. As a provider offers more content, services, and pricing plans — and as the rules that connect various service bundles and billing options become more dynamic — legacy rating and billing systems may be overwhelmed and levels of revenue leakage are liable to increase.
With current leakage patterns behaving this way, it should be clear how the proliferation of next-generation services will have an impact. If added billing complexity already increases vulnerability to revenue leakage, then revenue assurance should be all the more so a strategic consideration for any next-gen service provider. Providers will offer content and services to cater to all needs, from business to entertainment, and will package them in various plans that appeal to all user classes. This must entail various pre- and post-paid options, on-demand and flat-rate options. On top of the variety of plans available for the subscriber to select, the providers will also want to be able to offer any number of promotional schemes and discounts to encourage adoption of their more advanced services. Complexity on this scale would increase leakage through rating and billing errors and overwhelm many of the more traditional revenue assurance activities still used by providers, but new revenue assurance technology has been developed precisely for this situation.
Rating and billing verification technology has been incorporated into the more advanced revenue assurance systems which can provide the capability to support the complexity of these offerings. Through a process of sophisticated selection and analysis of usage data, rating and billing verification systems have the flexibility to support any number of price plans, services, and other options. These systems are quite efficient as they require only a sampling of subscriber transactions, without compromising on accuracy. By correlating the data samples according to service, plan, discount/promotional option, user class, or almost any other criteria, these systems can identify sources of leakage rapidly and thoroughly.
In addition to supporting the general complexity of the offerings, rating and billing verification also addresses the rapid pace of change expected in this billing environment. It can already be seen in legacy systems that any change in the provider’s offering or the subscriber’s selection will be followed by a rise in leakage rates, which then gradually return down to average rates as in-house revenue assurance mechanisms are updated. In this new, dynamic situation, this pattern will be further exaggerated, as the existing revenue assurance practices simply will not be able to keep up. However, this is not a problem for the newest rating and billing verification technology, for two reasons. First, providers now have the option to select systems which are based on xDR data. Many providers may not update their own revenue assurance mechanisms for any new service or plan until some time after its rollout, but xDRs are there from the beginning. Therefore, a system that operates this way is capable of keeping up with any change immediately. In fact, some of the more advanced systems can simulate and analyze any new offering before its initial rollout. This approach allows operators to identify many potential sources of leakage in advance, effectively providing a proactive revenue assurance capability.
The complexity for billing and revenue assurance for next-gen providers also involves more than simply the number of services or plans offered; certain services, particularly IPTV, bring another set of considerations. Many of these new services are primarily focused on content, and therefore involve longer and more complex revenue chains. For simpler voice or data services which consist more of providing a connection, without supplying content, revenue assurance systems could easily monitor the entire revenue chain, since all interactions were confined to the service provider and the subscriber. Now, the revenue chain includes the subscriber, the service provider, and other third parties such as content providers and aggregators. This has two implications. First, it raises the stakes for revenue assurance, as leakage may now also include erroneous payments to content providers, rather than being limited to neglected income. Secondly, it broadens the scope of relevant data. For example, many factors in the pricing of an on-demand selection — such as title, length, release date — may reside within a 3rd party rather than the service provider, and therefore any effective revenue assurance solution for IPTV and other content-heavy services must expand to cover the entire revenue chain.
Finally, revenue assurance for next-generation service providers contains an element of churn minimization as well. For low-value legacy service, billing inaccuracies were likely to be very minor, if not entirely unnoticed, to the customer. However, as they adopt higher-value next-generation services, subscribers’ tolerance for errors — whether in QoS or billing accuracy — becomes stricter. Any service provider pursuing an image as being on the cutting-edge of communications technology should ensure their billing accuracy to help preserve that reputation.
In order to succeed in the next-generation market, providers will need to show a degree of personalization and flexibility which may overwhelm legacy rating and billing systems. Due to tight competition, even when operating in a higher-value business model, providers will still need to keep an eye on the margin. Fortunately, Rating and Billing Verification technology incorporated into a provider’s revenue assurance systems bring the capability to support an unlimited number of bundles, price plans and options, allowing service providers to satisfy consumer demand and grab market share without unnecessary revenue leakage. Additionally, providers entering the IPTV market can deploy systems to monitor and ensure data integrity over their more complex revenue chain. The tools are already available; if operators make revenue assurance a strategic consideration in their next-gen service rollouts, they will be able to offer a complicated and flexible array of service bundles and plans, ensure accurate billing, keep the widest possible profit margin, and position themselves as a high-value, one-stop-shop provider for personalized communications services.
Alon Aginsky is the President, CEO and co-founder of cVidya Networks. For more information, visit the company online at www.cvidya.com.