Email a colleague    

April 2012

From Risk to Robust: Turning the Big Picture Into a Real Agenda for Change in Telecoms

by Eric Priezkalns

From Risk to Robust: Turning the Big Picture Into a Real Agenda for Change in Telecoms

I admit it.  Nassim Taleb is a hero of mine.  I defy you to point to a better agenda for risk management than the one espoused by this best-selling author, former trader and Professor of Risk Engineering.

And yet, I live in a world of parallel realities: one where the ‘black swan’ has become a popular phrase because of Taleb’s efforts to popularize risk management, and one where people stubbornly refuse to adapt to its key message: stop trying to be so clever.  Yes, I just wrote that.  To avoid doubt, I will write it again: stop trying to be so clever.

Bad things happen: we know they will occur, but we are poor at predicting them -- and always will be.

Whether it’s the Titanic, volcanic ash clouds, the Space Shuttle accidents, or the Fukushima nuclear incident, we are prone to being fooled by our intelligence.  Ironically, we even fool ourselves when we think our new-found knowledge has prepared us well for the next catastrophic event.

Overconfidence occurs at all levels, not just with disasters.  The only difference is whether the pain is acute and indisputable, or chronic and barely recognized.  Sarbanes-Oxley was a response to corporate governance failures, accounting snafus, and massive internal frauds... yet nobody really believes that Sarbanes-Oxley guarantees an end to such scandals.

On the upside to risk, you can compile as much marketing data as you like, but only a man like Steve Jobs has the confidence to assert: “a lot of times, people don‘t know what they want until you show it to them.”

When preparing for the future, we will always tend to be somewhat blind and foolish, failing to admit to the unknown unknowns, overestimating our knowledge and resilience.  As much as we pretend to escape risk, in a competitive landscape, risk is inevitable and even desirable.

Okay, about half of the readers who started this article have given up by now.  That does not bother me — I was not writing this for them.  Good luck to them as they set out constructing sophisticated rulebooks and standards that enable them to quantify all risks.  Remember Basel II?  It was a set of standards devised by enormo-brains and super-paids to ensure the world banking system would not collapse under any foreseeable circumstances.  Needless to say, Basel II did not cut the mustard, so the enormo-brains and super-paid have since come up with Basel III.

Let those people amuse themselves; I want to reach out to the rest of you, and remind you that not everything can be predicted, but you can still make your business robust, by following ten principles that Taleb offered in the wake of the banking collapse.  Here are the Taleb’s ten principles, as published by the Financial Times, and how I relate them to telecoms.

1 What is fragile should break early while it is still small.

Deal with risk by letting things go wrong early, before you scale everything up to the scale of a potentially massive calamity.  There are a lot of tactics to do this in telecoms.  Soft launch new products with internal and friendly customers, let it run for a while, and iron out the kinks before you promote the product widely.

When going public, try innovative ideas on only a subset of the market to see how they respond — this will help you refine the pricing and marketing pitch when offering it more widely, or allow a flawed offering to be quickly and quietly removed from the range.  Prototype internal system changes, and make sure you can roll them back.  And when making changes that require people to do new things, you can apply a similar approach by trying out training on a small group to see how well it was understood.

2 No socialization of losses and privatization of gains.

Problems may be suffered in places that are removed from the root causes.  Ensure that costs are where they belong, and if a department — like Customer Services — is suffering increased burden because of failures elsewhere — say due to installation problems — make sure the adverse variance is correctly reflected against the performance measures of the department most responsible for the root cause.

Similarly, recognize where the root causes of leakage lie, and incentivize the responsible department to be proactive and address them, rather than generating a faux ‘business case’ to pay people to fix the mess later on� even if that means the Revenue Assurance department’s business case gets chipped away because there is less leakage left for them to identify.

3 People who were driving a school bus blindfolded (and crashed it) should never be given a new bus.

This advice is obvious but also the hardest to achieve in practice.  A blame culture is a big obstacle to improvement.  When the business suffers, there’s a tendency for people to blame the system and/or ‘play the game’.  Faults occur because employees or managers act selfishly: they seek to be measured on narrow, easily achieved work goals and ignore feedback on adverse consequences elsewhere.  Step back and ask yourself seriously:  it is it worth trusting those people with similar responsibility in the future .  So how do you cure a blame culture?  Well, one way to regain balance is through techniques like balanced scorecards.  This allows you to construct a business that keeps true to its overall interests, and those of its customers.

4 Do not let someone making an “incentive” bonus manage a nuclear plant — or your financial risks.

If narrow measures were not bad enough, rewarding people based on narrow measures is especially dangerous.  It’s easy for people in telecom organizations to merely “tick the box”.  For instance, you can cut corners when installing a service, not take a customer order correctly, or rush through a project or product launch to meet a deadline.

A better approach is to base personal incentives on the real benefits received by the business down the line.  Otherwise people will risk quality to improve the nominal measure that matters to them, and here the lack of “quality” is a euphemism for accepting knock-on consequences typically suffered some time later, and elsewhere in the business.

5 Counter-balance complexity with
simplicity.

Keep the business manageable and understandable, so the connections between cause and effect can be seen and appreciated.  So if you need a complex technology architecture, make sure there is a simple way to compare inputs to outputs overall.

Creating a complex tariff structure for a certain range of services may be entirely justified, but remember: you pay a penalty in long term maintenance.  So as you add complexity, are there ways you can ease the burden, say, by removing some unwanted or unnecessarily complicated tariffs from your historic catalogue?

6 Do not give children sticks of dynamite, even if they come with a warning.

If the relationship between costs and revenues is too complicated to understand and monitor, then avoid creating such a complex relationship.  The closer the relationship between the drivers of costs and the drivers of revenues, the less risk to the business.

Telecoms is already an inherently risky business because the profile of costs does not match the profile of revenues, especially retail revenues.  A telco may spend billions rolling out a network in one big committed spend to: insert new technology, acquire rights to use land, and buy spectrum licences.  On the other hand, a retail customer may or may not make any individual call.  So a big, long-term and one-off expenditure is matched to the impulsive spending habits of millions of people.

The behaviour of millions of people can ‘average out’ somewhat predictably, but if a disruptive alternative comes along (like social network messaging in the Netherlands, or Free Mobile in France) then forecasts are blown away because of the unexpected price competition.  On the other hand, telcos are somewhat insulated from competition — let us be honest about this — by governments intervening in the market.

However, government intervention is not predictable or controllable either.  Whichever way you look at it, the more operators can lay off risk in order to earn lower but more secure margins, the better for the telco, and this trend is behind trends towards network sharing and outsourcing.

7 Only Ponzi schemes should depend on confidence.  Governments should never need to “restore confidence”.

This rule, as stated, does not easily apply to telecoms, because it is based on the observation that there is a baseline of trust between institutions that borrow and lend to each other.  In the financial crisis, that baseline was brought into question, challenging the functioning of the system as a whole.  Could such a baseline of trust be violated for telecoms?

On one hand, telcos already rely on each other with great success — hence calls get connected from anywhere in the world to anywhere else in the world, and the internet works brilliantly!  On the other hand, trust could be undermined due to fraudulent behaviour, and increasingly due to the interdependencies inherent to security and information privacy.  One weak leak in the chain undermines trust in the whole chain.  If telcos cannot keep customer trust, then governments will try to intervene — but we do not want that.

8 Do not give an addict more drugs if he has withdrawal pains.

Taleb’s point is about debt and leverage; reducing debt and leverage is painful, but it is preferable to keeping businesses over-extended by giving them ‘cheap’ alternative sources of debt.  Eventually the debt has to be unwound, and that is painful.  Is there a parallel for telecoms?  Yes, in the form of presumed future returns.  In short, promising lots of money in the future is a way to underpin high stock valuations, and this is especially evident with businesses that focus on social networking.

The dotcom bust helped to clean out some of the bad behaviours.  After all, the Worldcom collapse was caused by an accounting fudge that was an over-extended equivocation between current cash costs and the prospect of future revenues, which in turn was used to prop up an unsustainable stock market valuation.  Investors need the transparent truth that it takes time to convert today’s capex investment into future incomes, and that the further into the future we look, the less reliable those income predictions will be.

9 Citizens should not depend on financial assets or fallible “expert” advice for their retirement.

Taleb pierces the illusion that markets are a guaranteed storehouse of value.  In other words, he reiterates the cautionary maxim that investments can go down, as well as up.  But are investors sometimes engaged in similar speculation when putting their money into telcos?  Sadly, the answer is yes.

As telcos have matured in some markets, we sometimes see them put piles of cash into their own special kind of speculative investments.  An investment is not speculative if the management team has good reasons to believe they will add value by managing any businesses they acquire.  But if they know nothing about running the businesses they acquire, they are gambling on behalf of their shareholders.

Telefonica understood what it was doing when running operations in Latin America, and had a strategy to make the most of those investments.  But other groups have been badly burned when venturing into new geographical markets they did not understand and which delivered no synergy.

The same kind of speculation can also occur when buying into new kinds of products and services.  Cable & Wireless bought into a rising ’star‘ in the UK’s retail ISP market, then spent a lot on ramping up customer numbers, only to make a painful exit some years later because the acquisition never properly complemented the business of the rest of the group.

The same could happen when dabbling in other new areas, like the supply of content or ICT services.  Partnering with businesses that have the necessary management skills is a safer route to success.  And if management really does not know what to do with its cash, it should return it to shareholders and pay down debt, which is exactly what Vodafone Group did when it finally received a dividend from its investment in Verizon Wireless.

10 Make an omelette with the broken eggs.

When eggs get broken, the solution is not just to get more eggs and stick to our original menu.  If the business model is fundamentally broken, do not try more and more patches over the cracks.  That is not risk management, because sometimes you should avoid and exit risks, not merely layer on more and more controls in a bid to limit them.

Black Swan, the Book

When things go wrong, we can learn a lesson and make something that will not break.  For example, if a telco is struggling to make headway in a retail market, perhaps it is best to refocus on a wholesale service and do deals with others who own the retail customer relationship.

We are better off accepting human nature and its frailties, and being prepared to do a quick u-turn when we find we are headed down a down-end (whilst minimizing the embarrassment for the individuals concerned).

In telecoms that means being clear about the value we can generate from the assets we already have: our technology and our people.  If we misjudged them, we can still reuse them in innovative ways, because even a mistake can lead to productive innovation if you respond adroitly.

Or as I prefer to put it: when life gives you lemons, make lemonade.

Copyright 2012 Black Swan Telecom Journal

 
Eric Priezkalns

Eric Priezkalns

Eric Priezkalns is one of the editors and founders of talkRA, the revenue assurance blogging site.  He is the lead author of ‘Revenue Assurance: Expert Opinions for Communications Providers’.

Eric splits his time between freelance consulting and his various passions, which include creative writing.  Eric has specialized in the field of risk and assurance for communications firms since he qualified as a chartered accountant in 1999.

During that time, he has served as Director of Risk Management at Qatar Telecom, Head of Controls for Cable & Wireless Group, Best Practice Manager for Revenue Assurance, Billing and Carrier Services for T-Mobile UK and Billing Integrity Manager for Worldcom UK.   Contact Eric via

Black Swan Solution Guides & Papers

cSwans of a Feather

Related Articles

  • Subex’s New HyperSense AI-Platform Aims to Turn Telcos into Agile, Analytics-Driven Ubers and Rakutens — interview with Rohit Maheshwari — An expert explains why telcos must swiftly adopt the AI/analytics methods of hyperscaler firms.  Giving telco examples where cross-company data sharing can make a difference, he explains the 12 key features of a new platform designed to deliver more agile and collaborative intelligence across a telco.
  • Subex’s COO: Machine Learning, Disruption & Adaptive Biz Models to Impact Telecoms in 2020 — interview with Shankar Roddam — In our dynamic and digital-driven world, telecoms and enterprises face many business risks.  So what can you do to plot a successful future?  Hear 5 prophecies on 2020 telecom trends from the Chief Operating Officer of Subex.
  • TELUS Analytics Users Get Productivity Boost from Internal Team of Data Access & Showcasing Experts-for-Hire — interview with Mange Kumarasamy — How a large organization with hundreds of analytics users gets help from an  internal Big Data team who sources multiple back-end databases; builds tailored reports; and drives campaigns that answer strategic questions for users.
  • Non-Verbal Speech Analytics: Monitoring Voice Calls in Real-Time for Customer Care, Sales, Retention & Onboarding — interview with Yoav Degani — Non-verbal speech analysis studies the emotional context of voice qualities like intonation, tone, emphasis and rhythm.  A pioneer in voice analytics explains how its technology benefits customer care, sales, retention and onboarding.
  • Telecom CVM: From Scattered Campaigns to Unified & Consistent Communication with Customers — interview with Cretièn Brandsma — Despite the many failures Customer Value Management has faced in telecom, CVM’s future is very hopeful.  A carrier expert explains why telecoms have faltered, how customer experience programs can be revitalized, and where telecoms should invest in better tactics and technology.
  • The Key to Driving 4G Profit: Sell Value, Not Bandwidth — by Miri Duenias — Are you struggling to earn a profit on your 4G investments?  Many operators are failing today on the marketing side.  But aligning 4G products with a customer’s personal preferences and desires provides the necessary sizzle to boost sales and earn a handsome ROI.
  • Will Real-Time Decisioning Save Big Data Analytics from Overblown Hype? — interview with Tom Erskine — Telecom analytics is more than just collecting and analyzing data.  It’s also about taking action — correct action — often in real-time and across a complex provisioning environment.  In this interview you’ll hear how next best actions are creating value in retention and upselling through a more flexible, business-process driven approach.
  • A Big Data Starter Kit in the Cloud: How Smaller Operators Can Get Rolling with Advanced Analytics — interview with Ryan Guthrie — Medium to small operators know “big data” is out there alright, but technical staffing and cost issues have held them back from implementing it.  This interview discusses the advantages of moving advanced analytics to the cloud where operators can get up and running faster and at lower cost.
  • The Customer Engagement Era: How Personalization & Backend Integration Leads to a Richer Mobile Biz — interview with Rita Tochner — How does a mobile operator move its subscribers to higher levels of spending and profit?  Fierce competition, social media scrutiny, and the high cost of new networks all conspire against these goals.  In this interview, however, you’ll learn how engaging better with customers, getting more personal, and being more sensitive to their individual needs is the path forward.
  • Telecoms Failing Badly in CAPEX: The Desperate Need for Asset Management & Financial Visibility — interview with Ashwin Chalapathy — A 2012 PwC report put the telecom industry on the operating table, opened the patient up, and discovered a malignant cancer: poor network CAPEX management, a problem that puts telecoms in grave financial risk.  In this interview, a supplier of network analytics solutions provides greater detail on the problem and lays out its prescription for deeper asset management, capacity planning and data integrity checks.
  • Batting for More Churn Reduction and Revenue Assurance Home Runs — interview with Peter Mueller — What’s it like to transform an IT shop to big data and cloud?  In this interview, the CTO of a boutique revenue assurance explains how his firm made the leap.  He shows how project-oriented programs and working with carrier customers to explore RA and churn reduction “hunches” is where much of the action is.
  • History Repeats: The Big Data Revolution in Telecom Service Assurance — interview with Olav Tjelflaat — The lessons of telecom software history teach that new networks and unforeseen industry developments have an uncanny knack for disrupting business plans.  A service assurance incumbent reveals its strategy for becoming a leader in the emerging network analytics and assurance market.
  • From Alarms to Analytics: The Paradigm Shift in Service Assurance — interview with Kelvin Hall — In a telecom world with millions of smart devices, the service assurance solutions of yesteryear are not getting the job done.  So alarm-heavy assurance is now shifting to big data solutions that deliver visual, multi-layered, and fine-grained views of network issues.  A data architect who works at large carriers provides an inside view of the key service provider problems driving this analytics shift.
  • The Shrink-Wrapped Search Engine: Why It’s Becoming a Vital Tool in Telecom Analytics — interview with Tapan Bhatt — Google invented low cost, big data computing with its distributed search engine that lives in mammoth data centers populated with thousands of commodity CPUs and disks.  Now search engine technology is available as “shrink wrapped” enterprise software.  This article explains how this new technology is solving telecom analytics problems large and small.
  • Sharing Intelligence, Services, and Infrastructure across the Telecom Galaxy — interview with Gary Zimmerman — The telecom industry is an industry of sharing.  In fact, the rise of mobile broadband is driving a greater reliance on real-time intelligence, services trading, and infrastructure exchange.  In this article, a leading info exchange provider explains the value of its services portfolio and points to other interoperability and sharing ideas under development.
  • Data Monetization: Why Selling Intelligence is a Hot New Revenue Stream for Mobile Carriers — interview with Joe Levy — Data monetization is a revenue dream come true for mobile carriers: a highly profitable sideshow where the carrier analyzes and sells data it already collects for other purposes.  In this article you’ll learn how operators monetize their data through use cases in corporate advertising and media branding.
  • Harvesting Big Data Riches in Retailer Partnering, Actionable CEM & Network Optimization — interview with Oded Ringer — In the analytics market there’s plenty of room for small solution firms to add value through a turnkey service or cloud/licensed solution.  But what about large services firms: where do they play?  In this article you’ll learn how a global services giant leverages data of different types to help telcos: monetize retail partnerships, optimize networks, and make CEM actionable.
  • Raising a Telco’s Value in the Digital Ecosystem: One Use Case at a Time — interview with Jonathon Gordon — The speed of telecom innovation is forcing software vendors to radically adapt and transform their business models.  This article shows how a deep packet inspection company has  expanded into revenue generation, particularly  for mobile operators.  It offers a broad palette of value-adding use cases from video caching and parental controls to application-charging and DDoS security protection.
  • Radio Access Network Data: Why It’s Become An Immensely Useful Analytics Source — interview with Neil Coleman — It’s hard to overstate the importance of Radio Access Network (RAN) analytics to a mobile operator’s business these days.  This article explains why the RAN data, which lives in the air interface between the base station and the handset --  can be used for a business benefit in network optimization and customer experience.
  • Back Office Streamlining to Enterprise Support: The Many Flavors of Wireline Analytics — interview with Tom Nolting — Mobile analytics gets plenty of press coverage, but analytics is just as crucial for wireline operators.  In this article, a billing VP at a leading wireline operator discusses several diverse uses of analytics in billing, enterprise sales/retention, and network partner margin assurance.
  • Analytics Biology: The Power of Evolving to New Data Sources and Intelligence Gathering Methods — interview with Paul Morrissey — Data warehouses create great value, yet it’s now time to let loose non-traditional big data platforms that create value in countless pockets of operational efficiency that have yet to be fully explored.  This article explains why telecoms must expand their analytics horizons and bring on all sorts of new data sources and novel intelligence gathering techniques.
  • B/OSS Mathematics: The Quest to Analyze Business Problems & Drive Operating Decisions — interview with Matti Aksela — Analytics is the glory of mathematics brought to practical use.  And in telecom, analytics has merely stratched the surface of its full potential.  In this article, you’ll learn how machine learning is being combined with the power of CDR number crunching to optimize mobile top-ups, control churn — and in the future, help telecoms make critical network and operating decisions.
  • Leveraging the RA/FM Platform to Deliver Business Insights to Finance & Marketing — by Amit Daniel — Carrier professionals using RA and fraud management tools are getting requests from internal customers who want the role of RA/FM platforms expanded to deliver up-to-date analytics data for finance and marketing purposes.  This article advocates a cross-product layer to serve such broader use cases.  The effect would be to transform the existing RA/FM platform into a combined business protection and business growth analytics engine.
  • A Mobile Marketer Service: Bridging Personalization & B/OSS Flowthrough — interview with Efrat Nakibly — Marketing analytics is a prescriptive program for driving  actions such as sending a timely promotion to a mobile subscriber.  But completeness demands that you also be able to provision that treatment, qualify the promotion, and keep billing fully in the loop.  This article shows how a managed services program can deliver such an end-to-end process and manage customer life cycles on a one-to-one basis.
  • Science of Analytics: Bringing Prepaid Top Ups & Revenue Maximization under the Microscope — interview with Derek Edwards — Prepaid subscribers are the customers that carriers know the least about.  The operator is not interacting with prepaid customers on a monthly basis.  You’re not sending a bill, nor do you have detailed profiles on these customers, especially in the developing world where customers are buying SIMs at a grocery store.  This interview explains how contextual marketing meets the unique analytics challenge of prepaid customers.
  • Connecting B/OSS Silos and Linking Revenue Analytics with the Customer Experience — by Anssi Tauriainen — Customer experience analytics is a complex task that flexes B/OSS data to link the customer’s network experience and actions to improve it and drive greater revenue.  In this article, you’ll gain an understanding of how anayltics data needs to be managed across various customer life cycle stages and why it’s tailored for six specific user groups at the operator.
  • Profitable 3G: China’s Mobile Operators Monetize Networks with Retailers & Partners — interview with Kevin Xu — Mobile operators are at the center of explosive growth in wireless services.  But to exploit this opportunity requires IT ingenuity and a broader view on how the mobile user can be served.  In this article you’ll learn the innovative techniques Chinese operators use to monetize 3G networks via analytics and partnerships with retailers, social networks, and advertisers.
  • Customer Analytics: Making the Strategic Leap From Hindsight to Foresight — interview with Frank Bernhard — Are your company’s analytics programs scattered?  Is there a strategy in place for customer analytics?  This interview with a leading telecom analytics consultant explains why strategy and planning around the analytics function is crucial to getting your money’s worth.  Topics discussed include: hindsight vs. foresight; an advanced analytics program; and the interface sophistication required to support high end vs. low end analytics users.
  • Meeting the OTT Video Challenge: Real-Time, Fine-Grain Bandwidth Monitoring for Cable Operators — interview with Mark Trudeau — Cable operators in North America are being overwhelmed by the surge in video and audio traffic.  In this article you’ll learn how Multi Service Operators (MSOs) are now monitoring their traffic to make critical decisions to protect QoS service and monetize bandwidth.  Also featured is expert perspective on trends in: network policy; bandwidth caps; and  customer care issues.
  • Analytics Meditations: The Power of Low-Cost Hardware and the Social Network Within — interview with Ken King — Analytics didn‘t arrive yesterday.  Data warehousing and BI have been in the telecom vocabulary for twenty-five or more years.  In this interview, you’ll gain a perspective on why “big data” changes the game and why social network (or social circles) analysis promises the next level of insights.  Other interesting topics include: segmenting the analytics market, engaging with carrier clients, and upgrading from older- to newer-style methodologies.
  • LTE Analytics:  Learning New Rules in Real-Time Network Intelligence, Roaming and Customer Assurance — interview with Martin Guilfoyle — LTE is telecom’s latest technology darling, and this article goes beyond the network jargon, to explain the momentous changes LTE brings.  The interview delves into the marriage of IMS, high QoS service delivery via IPX, real-time intelligence and roaming services, plus the new customer assurance hooks that LTE enables.
  • Shared Data Plans: The Challenge of Managing a Family of Pricing, Revenue Assurance, Fraud, and Network Policy Issues — by Amit Daniel — Verizon Wireless‘ recent announcement of its move to shared data plans for families shook the mobile industry.  In this column, cVidya’s Amit Daniel shines a spotlight on the knowhow and analytics tools that operators now deperately need to offer the right  shared data price plans, ensure bandwidth throttling is handled correctly, and address new fraud concerns.
  • Analytics Guru: Are Telecoms Ready for the Biz Intelligence Explosion? — interview with John Meyers — Business intelligence is evolving from the creation of dashboards and reports to taking action based on a deep knowledge of the environmental context.  The article explores the implications of “big data” in terms of IPTV, storage requirements, hardware, event collection, and deep packet inspection.
  • Social Networking for Telecoms: How To Enlist Friends and Family as Mobile Marketers — interview with Simon Rees — Social Network Analysis (SNA) is about exploiting data on “friends and family” connections to combat churn and win new CSP business.  The article explores how an analysis of the ebb and flow of CDRs, phone calls, and messages, can identify key influencers and drive powerful marketing campaigns.
  • Making the Strategic Leap From Billing to Merchandising — interview with Humera Malik — Today billing/charging technology has progressed to the point where the usage intelligence, the charges, the user behaviors, and the analytics can all come together in near real-time.  This article discusses the organizational and marketing strategies that enable a operator to create a true “merchandising” system that can revolutionize a CSP’s business.