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The telecom business is easy: just find some investors, buy a network, install a B/OSS, hire some revenue collectors, and rake in the money.
That’s a pretty naïve statement, isn‘t it? Yet a lot of very smart people were fooled into this kind of thinking. I refer to the ones who formed and invested in many of the CLECs that emerged in the last 90’s and early 2000s in the U.S. market.
You know the rest of that story. The vast majority of those first generation CLECs eventually became extinct. Their fatal flaw? A belief that old industry models could serve telecoms in a new era. Combine that myth with the fact that their business processes and systems were very rigid. They simply couldn‘t evolve to a different model than the one they originally put down on paper.
Surprise. Telecom is not a dinosaur museum piece after all. Rather, it’s a living, new-age Pterodactyl that’s been digitized and operates by organic laws, not robotic ones. It’s a business where assumptions must be regularly challenged and where the book of “what works” gets rewritten every day.
So what about your revenue assurance shop? Were its current operating rules conceived in the Jurrasic Age? Is your RA or fraud software merely monitoring old problems? Are the tasks you perform at your job today the same ones handed down to you by your predecessor four years ago?
Without the continuous guiding light of seasoned revenue assurance leaders, even the best teams of RA professionals, technology, and business processes can fossilize and lose their vitality.
Jim Marsh is one of those RA seasoned leaders and we’re pleased to interview him here at Black Swan. Currently a Lead Transformation Consultant at Wipro Technologies, Jim has had many interesting RA and fraud management roles at operators as diverse as MCI, Williams, PCS and Qwest. In the interview he gives us plenty of nuggets to chew on in subjects as diverse as margin assurance, purchasing management, staffing, third party partner management — even fraud management as a marketing weapon.
But the key message he brings is that you can‘t just flip a switch and expect to run an RA or fraud department on auto-pilot.
|Dan Baker: Jim, the large carriers have plenty of RA and fraud experts on staff, but it’s at the small- to mid-sized firms where consultants like you can deliver great value. Where do you typically begin in your consulting with these operators?|
Jim Marsh: Dan, the problem most of the small- to mid-sized carriers have is they often have no assurance specialists on staff. They know that protecting revenue is key, but they care less about margins than they should. Very often they need to think more strategically about their products, risk, and their payment processes.
Purchasing is a good example of an area that deserves more attention. Early on, a small service provider will strike deals just to get its business rolling, such as entering an agreement to process credit card purchases. The problem is the small/mid size operator will not go back and re-look at those contracts. After a period of time, they should look strongly and say, “What am I actually paying for and can I get a better rate?”
The key is to introduce controls to make sure you are routinely reviewing all your expenses. Do you have the proper accounting in place to manage telco expenses and external partners?
In the fraud area, if you pull your contracts together, you may also find that one of your contracts pays $5,000 a month to the sister of somebody in the purchasing department.
|Plenty of expense management firms are out there to help find leakage and earn a commission on what’s recovered.|
Yes, the expense management firms focus on RA because it’s lucrative for them. But I would urge caution.
Some of those firms will earn their 30%+ commission and come back to you a year later knowing full well that the processes that caused the original leakage were not fixed. But if you watch how the expense management firm works, you’ll know whether they are simply patching things up to earn a future commission or truly fixing the underlying process.
Part of their methodology is to schedule a follow-up return visit, say in 18 months, to “see how well you are doing.” If they are lucky, the operator will have a change of management or staff, which means they may not even have a copy of the report from the previous engagement. All of this is wonderful repeat business for the consultant.
|What about billing and other services suppliers? How should those firms be monitored?|
Well, I’ve been amazed at the savings that can be achieved by simply holding vendors‘ feet to the fire.
At one service provider we had three billing providers and nobody had bothered to change contracts in six years. So the first thing I did was go to the billing companies and say “You know, we have increased our traffic to you, and you have charged the same rate for six years, so what kind of discount can I get?”
And without any pushing, we were immediately given a discount. So don‘t be afraid to negotiate. It’s like the many telecom consumers in the U.S. who are still paying 18 cents a minute or more for their long distance service — they have never bothered to research whether they could get a better deal.
Another issue: billing service bureaus often charge on a subscriber basis, then layer other charges on top. For example, credit card processing might be billed at a transactional rate and a percentage. Unfortunately the biller can make a killing here because as your volume increases, the biller’s cost to provide credit card processing goes way down (based on volume) while you are still being charged the original contracted rate.
So at one operator, I moved that transactional cost plus percentage to a straight flat rate cost. By also bidding that process out, we saved over a million dollars a year.
|Margin assurance is getting much attention these days. CenturyLink and TEOCO, for example, teamed to create a data warehouse to measure margin assurance.|
I’m not familiar with that case, but I know that a full-blown data warehouse like that won‘t be effective unless a solid margin assurance culture already exists at the firm.
You need an on-going program to ensure you are protecting margins on your products. And those margins can quickly erode due to bad debt, expenses and cost to the business. So you must either lower your costs or migrate customers into new products that have healthier margins.
As long as you can achieve and protect a margin you are comfortable with, business success is assured. But as soon as that margin slips from your grasp, then you’ve got to ask: “What’s going on here?”
If the team gets totally focused on margins and taking steps to maintain them, you’re building a healthy margin assurance culture. By the way, it also helps to sometimes jolt people with a bit of business reality like: “If we can‘t protect our margins over the next six months, we may need to lay off 10 people. So who wants to be in that lucky 10?”
|Jim, what I’m hearing from you now goes beyond mere business controls to creating new ways to grow the business. But should RA be in the business of pushing new products?|
Dan, whether RA and fraud experts recognize it or not, their broad knowledge of the business puts them in an ideal position to recommend new product strategies that marketing can run with.
At a service provider I worked for, we faced a crisis because most of our revenue was coming in via postpaid billing. When you factored in the acceptance of credit card payments, postpaid was earning us only 70 cents on the dollar. However, in a prepaid environment, we knew we could earn 92 cents on the dollar.
So RA pushed for a strategy to swap that around — turn most of our revenue into prepaid instead. Another benefit of moving to more prepaid was cash flow. Instead of waiting 90 days for all my money to come in, I have most of my money within 48 hours.
The trick was how to transition subscribers to prepaid and make it smooth. Our strategy here was two-fold. Number one, we invested in a very good Interactive Voice Response (IVR) system. Number two, we improved our website to make payments a lot easier. Finally, we marketed the heck out of it explaining to customers why it was easier and simpler.
Even though the cost of the IVR system at the time was $100,000, when you laid it all out, it was a great investment. We did a cost benefit analysis and discovered if we didn‘t have a good IVR, my call center staff costs to handle the increased prepaid volume were $875,000 a year. It turned out to be simple math.
|What about fraud management? Are there ways you can turn fraud management into some sort of business opportunity.|
Actually, we were able to accomplish exactly that on the wholesale side.
It’s routine practice for a wholesaler to send call records to the reseller at the end of the month. But if you do that, the fraudsters would go after those resellers like crazy because they know they had no controls and the underlying wholesaler was providing no protection.
That’s one of the things I changed at a couple companies. Williams was set up as a wholesaler, but I created a fraud management organization which became a marketing tool for them to offer fraud protection to resellers at a time when no one else was doing it.
As a wholesaler, you may not know who the end user is but you can detect an abnormal amount of traffic, so we informed the reseller saying, “you need to look at this customer because it’s very suspicious.”
Now normally a telecom shouldn‘t be giving away a production service like that for free, but the end game was — if you didn’t provide it to the reseller, he was going to go out of business and wouldn‘t be able to pay your wholesale bill anyway. So it you provide protection, he pays your bill and remains a customer over the longer term.
|Mobile operators are living in a totally new world these days. Profitable areas such as SMS are steadily being encroached on by free messaging on smartphones. Then there’s a corresponding requirement to maintain a partner ecosystem.|
The watchword for mobile these days is “revenue optimization”. This action does not pertain to voice or SMS, as that’s usually billed at a flat rate. Today, operators need to ensure they are part of the transactions on the data side — from the apps.
The same principles are in play as existed in the old 900-number or pay phone days. If the third party is charging $2.00 for an app and you’re not collecting the money, how do you know that you’re getting your cut of that two dollars?
How do you audit the number of apps a subscriber downloads? How do you know what is being downloaded? How do you gain revenue yourself if you are not the biller?
So telecom is going through a shift right now. You’re moving from the direct collection of money on a pure transactional basis such as voice to getting a commission from a third party app provider. In the old days, the operator provided the commission as they collected the money. Regardless, the key is to follow the money.
So that is the revenue maximization piece. But how do you handle that? How do you manage your margin? How do you ensure that you either bill for everything that transverses your network, or keep a proper accounting of the processing so you can be paid by the third party partner. At least you should be able to determine if the third party’s payment to you is close to being right.
In the U.S. there are quite a few small, mobile virtual network operators who are reselling service from Sprint, Verizon, or AT&T. So how do these resellers know what’s going on when they have no control over the network? There are many ways to handle that but it requires a knowledge and expertise in how the revenues and usage flows.
|Jim, we know that an RA team can‘t be effective unless it’s supported by the wider telecom organization. So what’s your advice for managing the people side of the practice?|
What’s lacking most at small- to medium-sized operators is an ability to drive a strategy down to the lowest individual. Complicating matters is that Directors and VPs wear multiple hats and are focused on silos within their groups.
Often, by setting a goal of say, dropping costs by X percent, you can begin to pull together the wisdom of the organization to meet your goals.
One way to do that is to initiate roundtables and brainstorming sessions with different groups such as customer service, operations, and billing. RA’s job is seek out these people and get them interested. Pulling people together achieves two things. First, it makes them feel a part of your overall mission. Second, you get perspectives on issues that an RA person may be totally clueless about. Someone has an insight and says, “What if we did this?” Then you suddenly recognize, “Hey, that’s not a bad idea at all”, so you add that to your to-do list.
|Jim, thanks for these wonderful insights. Any final thoughts on the issue of staffing an RA department?|
Dan, staffing strategy really depends on how big a company you are and what expertise is available.
A large company has more options. I have found that people who have a process background with a technical and finance slant are often very successful in RA. Initial staffing should focus on areas of major concern. The best path to success is often to identify the greatest impacts to the company and reassign knowledgeable staff at first to seed the organization.
Once success is felt, growth can come with new personnel, either internal or external. The key is to gain that initial success by prioritizing on critical areas and gaining the respect of the organization.
Staffing RA in a small- to mid-sized telco faces an entirely different order. It’s the whole tendency to say, “this new function will require another person be added to our group,” which very often is a totally unrealistic expectation. It really becomes even more important to create cross-functional communication channels to get everyone out of the weeds and prioritize. If a person is responsible for 30 little processes, they then need to get focused on doing the important ones first. Every time a new issue crops up, you can‘t go out and hire somebody new.
Copyright 2012 Black Swan Telecom Journal