How much do you lose when you underbill a customer? The difference between what you should have billed and what you did bill. How much do you lose when you overbill a customer? That is harder to answer - it depends on how much the error upsets customers and authorities. You can be sure the costs will include handling Customer Service calls and staff time spent issuing credits. It may also involve the cost of writing and sending letters, goodwill credits to make amends, and staff time spent explaining and avoiding further embarrassment with the regulator and press. This can quickly add up. So how much do you lose when you underbill, your Revenue Assurance team corrects, but they over-correct and the customer is overbilled? And how often are RA’s slip-ups (which tend to generate costs for customer-facing functions and may lead to churn) get subtracted from the benefits they calculate for themselves to give a true picture of net benefit added to the business? I could go on… but I know the average RA person does not want to hear about RA making mistakes. RA people often start from a mindset that other people make mistakes, and it is RA’s job to correct them. That can lead to a dangerous inflexibility in thinking, with RA concluding it can never do wrong, and hence blinding itself to its potential to do more harm than good. Rather than argue the abstract, let me demonstrate by sharing a story about recent events in Canada…

For reasons best understood by Canadians and best ignored by the rest of us, Canadian domestic phone users have to pay an extra monthly fee for touch-tone phones. Old customers who still use a phone with a rotary dial are exempt from this fee. Along came Bell Canada’s RA team and they had a thought: they would check if customers provisioned to use touch-tone services were paying the extra fee. If not, the RA team would ensure the touch-tone fee was added. So far, so good. Bell Canada’s RA team found 20,000 customers provisioned for touch-tone and not paying the fee. With the fee worth CAD 2.80 per month, the leakage was… well, not all that much, but still worth about USD 0.6m per year. So they whacked on the extra charges.

Now, bear in mind what kind of customers were likely to get this unexpected extra charge: old people. Old people were likeliest to be a long-running customer who had a rotary handset. Anyone moving in the last 17 years would have been provisioned and charged for a touch-tone phone from the beginning, so only very long-standing customers at the same residence would be likely to still get a bill without the extra touch-tone fee. Here are a few stereotypes about old people: they are easily taken advantage of, they do not understand technology, they are vulnerable, they are poor, they trust big business… surely I do not need to go on.

What if Bell Canada provisioned a touch-tone service for a customer that used a rotary-dial phone? Presumably this possibility did not occur to their RA team. What then if Bell Canada had no record that the customer had ever asked to be provisioned for the touch-tone service? And what if the one customer was old? Well, you can tell what happened. Marrian Trafford, a 79-year old inhabitant of Toronto, Bell Canada customer and user of an old, old rotary-dial phone, asked her son for advice about the extra charge on her November 2009 bill. Her son is the kind of guy who knows who to complain to when telcos screw up, and now Bell Canada must answer a lot of uncomfortable questions about whether they try hard enough to avoid overbilling of customers.

So what is the harm done? Bell Canada can say sorry, credit one old lady and hope nobody else finds out. Right? The problem is, obviously others did find out - or else I would not be writing this. That means that even if Marrian Trafford was the only customer wrongly charged, Bell Canada now suffers reputation damage. Worse than that, any normal person will assume that if Bell Canada can make 20,000 goofs of failing to charge for a service that has been provisioned, they probably goofed more than once when it came to provisioning services that should not have been provisioned. In other words, if Marrian Trafford was overcharged, then the assumption will be that lots of other people were overcharged. Even though you cannot put a dollar value on reputation, it still needs to be thrown into the scales to balance the extra fees that RA have generated. Marrian’s son got in touch with Canadian consumer protection groups, and they got in touch with the Canadian regulator. Look here for what the consumer groups had to say. The main points of what the consumer groups want from Bell Canada are as follows:

… undergo independent audits, to file reports… to revise procedures, and to compensate affected customers…

… all monies collected from subscribers under this fee should be reimbursed or credited to affected customers, with interest…

…The compensation order should be without prejudice to the rights of subscribers to the exercise of any civil remedies that may be available to them…

…The Consumer Groups also submit that as a remedy, the Commission should require Bell to return all affected customers to rotary dial service, unless the customer (not Bell) requests, in writing, to stay on Touch-Tone service. If any customer does so choose to remain on Touch-Tone service, the Commission should order that the reimbursement for those months during which they had Touch-Tone service without requesting it nonetheless be credited, as for customers remaining on rotary dial service…

…The Consumer Groups further submit that as a remedy, the Commission should require Bell to notify all customers in writing who have been unjustly charged for Touch-Tone…

…The Commission should require Bell to file information on the services and customers affected by the “DMS Cleanup” and if any charges were added that were not explicitly requested by the customer, to disallow them, to require Bell to return the customer to the original service and to order credit or reimbursement for all stand alone or rate capped customers in the manner proposed above for added Touch-Tone charges…

…The Consumer Groups submit that Bell should be required to pay their reasonable costs of making this application…

It will be a while before this is concluded, but the Canadian regulator has taken the baton (see here) and run with it. Bell Canada has already responded (see here) saying they were already intending to do a lot of the things the consumer groups asked for. But that only begs a question of why they did not do those things before - and so avoided any damage to their reputation.

What is the outcome here? The main point, which is easy to lose in the sequence of events, is that Bell Canada are going to end up auditing their billing and their provisioning. If they had done the two audits together, then the risk of a public relations fiasco would have been much smaller. Because Bell Canada did the billing audit as a stand-alone exercise, overcharged one bill, and will now do a provisioning audit to sort out the mess, they saved no assurance-related costs whilst putting their reputation at risk. They will also suffer all the costs of dealing with the regulator and communicating with the relevant customers, and might even pay the costs of the consumer protection groups. Any money they took but should not have taken will get paid back, possibly with interest. Bell Canada will likely suffer higher compliance costs in future, because the regulator is likely to remember what happened and point to this incident to justify tougher rules and sanctions when the opportunity arises. And a heck of a lot more people will be checking their bills from Bell Canada and phoning up to complain - even if the bill is perfectly accurate. Answering those Customer Service calls will increase costs for Bell Canada too.

There are two ways to do revenue assurance. The wrong way is to hunt for opportunities to make more money. The right way is to search for things that have gone wrong - irrespective of which side benefits from the error. Look only for errors that reduce bills, and you risk missing the errors that increase them. As shown in this case with Bell Canada, a simplistic approach to RA - just reconcile the bills to a trusted source of data and add charges where the reconciliation suggests you can - is badly flawed if you are trusting unreliable data. When relying on data, and determining how quickly to act, thought must into the wider implications for customer relations if something goes wrong. The signs of poor risk management are painfully evident: Bell Canada’s RA team effectively targeted old people for extra charges and little was done to manage customer expectations. Old people are perceived to be vulnerable and will have the public sympathy. I am not going to blame the people working in RA in Bell Canada, as they probably have only a narrow remit. In other words, they are expected to do revenue assurance in a silo that is primitive and narrow. They did not even know if provisioning was reliable - evidently not, if rotary dial customers get provisioned for touch-tone services and if services are provisioned but no record of the customer’s order is kept. In Bell Canada, the RA team were not expected to consider wider repercussions of their actions, and in all likelihood nobody else in Bell Canada was expected to do so either.

Divorcing revenue assurance from the wider risk context can end up costing the business more money saved by reduced leakages. RA practitioners need to consider the risks as well as the rewards generated by their actions. The myth that revenue assurance can do no harm and only improves the bottom line is as outdated as a phone with a rotary dial.

For the second year running Charlie Thomas, CEO of RA firm Razorsight, has been named one of the ‘Smart 100 CEOs’ in the Greater Washington region. The Smart 100 list is compiled by Washington SmartCEO magazine. You can read the press release here.

Razorsight is a revenue assurance and cost management vendor based in Virginia, USA. Thomas joined Razorsight in 2004 and became CEO in 2005. Razorsight announced improved revenue figures for 2009 but the business is best known for the USD 4.5m payout following a 2008 court judgement that Razorsight stole software code from rivals TEOCO.

This is part two of a two-part review. See here for part one.

Carving into the meat of KPMG’s latest RA survey, there were some telling figures on the estimated leakage suffered by telcos. Whilst the report headlined that 54% of telcos estimated that leakage (excluding fraud) was greater than 1%, I found it more interesting to think about the other side of the coin: that 46% said leakage was 1% or less. This implies that the median leakage is close to 1% and that typical claims of ‘average’ leakage are exaggerated. Hopefully this is a sign of progress and increased sophistication with several aspects of RA maturity: measurement, coverage, detection and prevention. With only 15% of telcos estimating their leakage is over 3%, a whopping 85% were claiming leakage to be 3% or less – which should help to put an end to the scare tactic of claiming that 5, 10, 15 or even 20% leakage is the norm. The leakage numbers reported in KPMG’s survey are reminiscent of the findings in the TMF’s benchmark study. The TMF report stated that the average measured leakage, excluding fraud, is 1%. One interesting quirk in KPMG’s report is that it says “leakage estimates by senior management were higher than estimates provided by RA function heads”. What would explain this? RA Heads should be the people with the most data and hence likeliest to be accurate, so after years of brainwashing, have senior executives finally changed from being complacent to being fearful of revenue loss? Might it be that RA heads now underestimating leakage, justifying the perception of year-on-year improvements thanks to their work? Or do senior managers take a broader view of what should be counted as leakage?

(more…)

This is part one of a two-part review. See here for part two.

KPMG recently published their 2009 survey of telco revenue assurance departments. You can download the report from here. The report is reasonably balanced and contains messages both good and bad. Even the report’s title, “Progressing or Preserving”, hints that the onward march of RA is far from inevitable. I find this encouraging, as it suggests that a healthy dose of realism has come back into fashion. But with this report, there is more going on underneath the surface that the report writers care to admit. Read on to understand why…

(more…)

Podcast: Play in new window | To download, right-click and save/download link

Podcast 11 is dedicated to the topic of managed services - services which might have been performed in-house but are instead delivered by an external supplier. It is a topic that gets considered from time to time by telcos wanting to improve their revenue assurance and fraud management, although it is not so common to see initial conversations progress to completing an actual deal. Indian firm Subex is a market leader in supplying revenue assurance and fraud management software, and also earns a significant chunk of its revenues through managed services for those functions and others. I asked them to talk with me about the current status and future potential for managed services. Vinod Kumar, Subex’s Group President, joined me from India, and Des Rehinsi, their Director of Sales for Managed Services, joined me from the UK. We talked about the reasons why telcos opt for managed services, the factors that drive competitive advantage in this market, and their expectations for future sales from managed services. You can listen to the full podcast at talkRA.com, or by subscribing through the iTunes store.

It has been a tremendous start of the year for Subash Menon, boss and founder of Subex. He has negotiated his way out of the looming overhang of FCCBs, has slimmed the business after the takeover of Syndesis and has got Subex back into profit. So how does he follow up that hat trick of successes? By putting his money where his mouth is and showing his faith in his own business. Like other shareholders, Subash will see his stake in the company diluted by the deal with owners of the FCCBs. To address this, he has bought newly-issued shares, as he explains in this interview. You can also see the video of the interview here. Buying shares is good - it shows confidence in his company - but Subash went a step further still. The shares will be bought at a premium to the market of 30%. In other words, he is buying not at the current market rate, but at the same rate as the FCCB holders agreed as the conversion price for their bonds. It is a magnanimous gesture, an impeccable example of good governance, and a supreme statement about the future of Subex. I take my hat off to Subash Menon.

More good news for Subex followed soon after, with the announcement of a multi-million dollar order for their cost management software by a North American Tier 1 operator. To complete the second hat trick, it looks like the majority of analysts are upbeat about the future share price of Subex, which has had its ups and downs. They are not all positive, but some analysts are very positive about Subex’s future; see here, here and here.