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You’re CFO of a large multinational telco and you’re scared to death of the risks you face. You own telecom operators in a dozen countries. You know your revenue leaks are many, but you’re not exactly sure where or the extent of the damage.
Plus, you’ve got thousands of wireless services deployed but no clue as to which are profitable and which are bleeding red ink. So whom do you call for a solution?
Well, one person who would certainly love to hear from you is Tom Steagall, head of Revenue Assurance at Ericsson in North America, because he’s got a few war stories to share on the issues you face. At Ericsson, Revenue Assurance encompasses fraud management and operational risk management services provided to operators, and Tom has global experience in providing these services.
Before coming to Ericsson, Tom worked for Bull Information Systems and its consulting arm, Integris, which had a substantial practice in Latin America. From there he went to Convergys where he led the first implementation of the Infinisys billing system in Brazil.
Today Tom is a lead in this Ericsson practice area, probably the largest RA services practice in the telco world. And owing in part to Ericsson’s heritage as a leading mobile network equipment provider, Tom and his team are offering RA with a decidedly stronger NGN (Next Generation Network) twist.
In this interview, Tom discusses: how Ericsson goes to market, its big win at Telefónica, where software firms may miss the mark, flexible business models including risk-and-reward contracts, and the long-range prospects for RA as a profit center.
|Dan Baker: Tom, as you look at operators around the globe, what’s your take on Revenue Assurance as an area of investment?|
Tom Steagall: Well, I can tell you that some of the numbers I have seen by market research firms seem inflated to me. I’ve read estimates like 7 percent of revenue can be recovered — even 15 percent — but I’m still challenging anyone to give me a solid customer reference where they have recovered above 3 to 4 percent. We think 0.5 to 2 percent of net revenues is more realistic because any operation losing 15 percent of its revenue is probably going out of business anyway.
It’s interesting: When you look at the data by region, the differences are quite dramatic. A big type of leakage in Brazil or Chile is not the same as it is in the U.S. For example, the impact of analyzing voice usage is much greater in Latin America, whereas in the U.S., with its huge bucket voice plans, most of the risk is gone because people don’t even make 60 percent of the voice minutes they are allotted.
Maturity changes, market changes, and business model changes all have an effect.
Boil it all down, for every dollar you invest in RA activities, on average, you should get your dollar plus another 70 cents back. It’s an extremely profitable investment for the carriers.
|Is senior management at the operator on board with Revenue Assurance? Do they understand its significance?|
The awareness we see is not as aggressive as we believe would benefit the operator. In many cases, there does not seem to be full visibility to the value added by the RA function.
More key questions need to be asked. Do you think the cost of staffing 60 people performing RA activity is really paying off? Is it mitigating the risk? The RA team is typically focused on making sure there is synergy between departments and coordination, with full visibility and accountability for the revenue being collected and processed. A very large RA team may indicate there’s potential risk or exposure within the operator. So when we bring our program perspective to the CFO, he’s generally very interested in that. Plus, at a time like this when CAPEX is tight and telecoms don’t have much extra capital to invest, getting 1 or 2 percent of net revenues is a lot of money. That kind of money can seed investments in other areas, like investing in developing and delivering innovative new services that will give them a real competitive edge.
|Tom, exactly how does Ericsson work with operators in revenue assurance? How do you conduct your consulting and integration engagement?|
Well it usually begins with the operator hiring us to do a complete assessment of the carrier’s performance and financial health from an RA perspective. And from that investigation we build a blueprint that guides us to potential opportunities to bring money to the bottom line.
The cornerstone of our consulting program is our assessment, plus the three pillars of: process and procedure; tools and technology; people and organization.
We look at: What are my key risk areas? How much revenue is at stake and how much can the risk be mitigated? Then we go the next step and ask: What are the specific actions needed in each risk area to recover that money; what are the short and long term benefits. In other words, what’s the game plan?
We have delivered this program to a number of operators and it’s usually the entry door to deploy our full program to build a center of excellence at the carrier. And the way we do that is to work alongside the RA department chasing a yearly target that we both commit to.
So we say, here’s the potential to recover X millions of dollars in 12 months. And by the way, here’s the funnel of opportunities that’s going to lead to the recovery of this amount. Here are the short- and long-term opportunities and benefits this is going to bring. And here’s the effort versus the benefit potential of each opportunity.
So we never give them some arbitrary 2 to 5 percent of revenues as a target. It’s always a number that is substantiated by facts that would lead you to the target number. Then Ericsson puts some skin in the game. We come in, we commit to that success and we make the operator successful.
We’re not coming in and saying, “You need to purchase a tool.“ Ericsson does not provide a revenue-assurance tool or the software itself. We provide integration services and support of the top five RA/fraud software vendors in the market. RA for us is a professional services consulting practice. We begin by conducting an assessment and data analysis with the operator, to first verify that actual leakage surpasses the capital investment for the program overall. We then have these findings validated by the operator’s own groups. For instance, if we’re looking at improvements in the sales commissions area, we’re going to have the people looking after commissions rubber stamp what we say.
|Why were you selected by Telefónica?|
Telefónica was an interesting case with 18 country operators across Latin America. We were competing alongside the expected names among the other major consulting firms. And Telefónica made it very clear that they wanted to reward the selected firm based on results. Once those terms were fully understood, some of the vendors dropped out of the bidding, saying they were not prepared to participate with such aggressive terms. However, we were confident. We understood the risks involved. We were already a major partner of Telefónica in several areas. Plus, when it comes down to a complex provisioning issue, I can snap my fingers and have four specialists on the case tomorrow.
At Ericsson, telecommunications is at the very core of our business, and we are also considered the leading telecom professional services company in the world. We run telecom operations for big companies like Sprint and other major operators in Europe — across lots of markets: wireline, wireless, triple play — you name it.
A lot of competitors can look at the systems and determine: Was it billed correctly, was it provisioned? Well, that’s simply table stakes now. Where we’re going with RA is answering questions like: When the customer goes overseas and an executive can’t use his phone, are you able to detect that and take action? That’s where all the service assurance and analytics comes into play as well. This is an added dimension of the same underlying problems found in risk management; our solutions can also improve customer experience management, churn, and various strategic/operational risks.
So it’s about doing more with your already existing infrastructure and spending less money but delivering a high level of service quality. And that goes way beyond finding a lost record in mediation.
|Even still, Tom, it’s a gutsy move to take this sort of risk. What gives you the confidence that you’ll be able to find the money you’re looking for?|
Because we do an assessment up front. We make these commitments because we know it’s a safe bet. We know very well the terrain we’re coming into it. We have an established and mature practice and a lot of experience with these types of RA engagements.
Now before we agree to the terms in the case of an aggressive business-model approach, or sign a risk-and-reward contract, we need to put a number of things in place. First we need to be comfortable with our relationship with the operator. We believe this is a joint engagement; it cannot be Ericsson alone conducting this process. Remember that risk and reward can be very easy to sign, but once leakages are found, the operator needs to pay a reward on them. Bottom line, this must have C-level sponsorship at the P&L level inside the operator, and there must be commitment to the success and to the terms of the engagement.
I’ll tell you this, we have 40 RA engagements around the world and we have never walked out of an operator empty handed, saying we haven’t been able to find anything.
We know there’s a lot out there to find and we know we can’t do it by ourselves, so this is why it’s important for the operator’s own team to validate our findings. Otherwise they would say, “Ericsson is only saying we have this much opportunity.“
|Finally, I’m curious how you work with software companies, and what’s your assessment of the value they bring?|
We have partnerships with many of the RA software firms, but we never go into an RA program with a particular RA tool in mind. We let the client decide that. Then we support their decision from a business case and technical perspective, and integrate the tool into our engagement approach.
The technology behind RA is very important and the software companies know a lot about their tool.
We combine Ericsson’s ability to automate RA controls into any area of operation — without creating overhead in IT or adding unnecessary hardware or software. This combined outcome allows the resources to be fully integrated into the operator’s environment. Our experience as a telecom technology company and our technical expertise in hardware and software operations allows us to strategically integrate the RA tools. We can guarantee what we bring into production is a fully leveraged and efficient RA practice, able to deliver the promised results.
A Tier 1 operator approached us and said, “We want to integrate various switch output and have traceability to the actual bill. However, we don’t want to replicate all our data again because we already have a data warehouse and five other systems replicating the data. So how do I do that? My RA software vendor is telling me I have to replicate all the sources a sixth time?“
So we showed them an effective way to taking the data and building solid statistics behind it, doing the reconciliation on a much smaller amount of data and then deciding what kind of data to keep — namely the discrepancies and to relay that information over to billing and mediation.
The client came back and frankly told me, “My tool vendor alone can’t add that kind of value for me.“
This article first appeared in Billing and OSS World.
Copyright 2011 Black Swan Telecom Journal