Eric

Eric Priezkalns is a founder of talkRA. He is a widely recognized expert on risk management and business assurance for communications providers. After a successful full-time career, Eric now splits his time between occasional consulting projects for trusted customers, and his many other passions. Eric was Director of Risk Management for Qatar Telecom and has worked with Cable & Wireless Group, T-Mobile UK, BSkyB, Worldcom UK, and Nawras, as well as advising various software developers and system integrators.

Eric is a qualified chartered accountant; he trained whilst employed by the Enterprise Risk Services division in Deloitte's London office. His Masters in Information Systems was earned with distinction, and he holds a first-class degree in Mathematics and Philosophy.

In 2006, Eric was already a popular speaker at conferences, but he decided to reach out to a broader audience with the first blog dedicated to revenue assurance. Many have since copied him, but none have matched his output.

Eric was the first leader of the the TM Forum's Enterprise Risk Management team, a founding member of the TM Forum’s Revenue Assurance team, and he developed the original Revenue Assurance Maturity Model. In the UK, Eric is known for his critique of billing accuracy regulations. In Qatar, Eric was a founding member of the National Committee for Internet Safety. Eric currently serves on the committee of the Revenue Assurance Group, and he is an editorial advisor to Black Swan.

About 80 mobile phones are stolen in London every day. The IMEIs of many of these phones are blocked when they are reported stolen, which supposedly renders them unusable. But in practice, the BBC has demonstrated that some dodgy London businessmen will still buy these blocked and stolen phones – even though handling stolen goods is punishable with a prison sentence of up to 14 years. Watch the video at the BBC’s website, to see hidden camera footage of the crooked traders.

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There is an old English saying: “look after the pennies, and the pounds will look after themselves.” If you are careful with even the smallest amounts of money, you will never need to fear that you are poorer than you realized. The same thinking can be applied to time, and to revenue assurance. When I worked in revenue assurance, I looked after milliseconds, as well as pennies. The challenge of revenue assurance is often treated as a question of data in vs. data out, where the data that comes in has already been simplified to a whole number of seconds. But if you only think in terms of abstract data, whizzing between computers, then you have already lost some data, and failed to see some opportunities for fraud and error. Events in the real world do not have durations that are measured in whole numbers of seconds. There is money in milliseconds, and where there is money, we should take an interest in the possibility of error and fraud.

To illustrate my point, let us ask how we feel about the following scenario. Suppose some unscrupulous business distributed a smartphone program which makes all calls last 0.5 seconds longer, by introducing a delay between when a user presses the button on their touchscreen, and when the phone signals that it wants to end the call. No matter how call durations are rounded, half of all calls will be recorded as lasting one second longer than previously. If calls are charged per second, and the average call has a duration of 90s, then revenues from affected customers will rise by 0.56%. Whilst 0.56% does not sound very much, revenue assurance has shown that there is very significant profit to be made by chasing these small fractions of percentages.

Having given the scenario, can I now ask who is responsible for ensuring this does not happen? Is it revenue assurance? Is it fraud management? Would we be secretly glad if somebody did this? How would we feel if handset manufacturers improved their code, and reduced the delay between when a user presses the button and when the phone signals the termination of the call?

Let me now translate this into a different problem that nobody seems to be taking that seriously. (Apologies to anyone who is taking this seriously – if you are one of them, then please respond, and set a good example for me and everyone else!) Everybody has a naive understanding of when a phone call starts, and when it ends, even if they do not really understand the technical details and propagation delays involved. But who has an understanding of how much data needs to be transmitted in any given situation? How would you be able to tell, if the data was deliberately padded to increase the volume? This might seem like a crazy scenario for telcos, who worry about the cost of servicing increasing demand for data services. But on the other hand, there are various ways that telcos currently get paid for data volumes, and there might be more ways in future. On the flip side, if networks are worried about capex spending on infrastructure, what more can they do to improve the efficiency of the data they carry? To get some feel for the numbers involved, take a look at the blog I wrote about accuracy expectations in relation to IPDRs and DOCSIS.

As you may have noticed by now, I am banging at doors, asking questions, without offering answers. My interest is in challenging existing practitioners about whether they have looked behind those doors. To be brutally frank, all of us will suffer from a lack of imagination about the ways that complex networks and systems can be subject to error or manipulation.

I have no desire to open every door, and explain what lies behind them all. For a start, that would involve a lot of hard work. Also, it would be thankless. But most importantly, many people should alreay be facing these challenges, so they have as much duty to share their insights as I do. With that in mind, let me ask some other questions that are perhaps left outside of the scope of our work, but need to be inside the scope of somebody’s work.

  • Using your phone to make international money transfers sounds like a great idea. If somebody can manipulate the time when a currency transaction takes place, they can manipulate the foreign exchange rate that is applied. What is best practice to ensure customers are not cheated?
  • So you want to charge Netflix, and businesses like them, for all the burden they place on your network. Fine. The internet being what it is, sometimes packets need to be resent. Who pays for that slice of the burden?
  • 14-year old Suvir Mirchandani has identified how the US Government could save hundreds of millions of dollars by printing documents in typefaces that consume less ink. Telcos are also getting smarter in similar ways; they even hold conferences about energy efficiency. But who is responsible for analysing the cost of things like data which is stored in the cloud, but then never used?

Admittedly, some of these questions are a little odd. But that is partly my point. You cannot expect me to have three insights as good as Suvir’s idea about saving ink. We need to work together, and share ideas, to identify those which will have most impact. And if we do not, then cheaters and fraudsters will come up with similar ideas, with the hope we remain ignorant of what they do! History tells us to look for money in unexpected places. We may look in the wrong places many times, but one surprise finding may yield a jackpot. It is our responsibility to look in those places, even if we are often wrong, or find it difficult to solve the mysteries we have identified. With that in mind, take a look at this recent story from 60 Minutes, a news program on the American CBS Network. It explains how a smart, persistent man identified the way some stock market dealers convert just a few milliseconds’ advantage in their fibre optic network into millions of dollars of profit.

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I am no expert on utilities. But if, like me, you worked in enterprise risk in a country where the energy sector dominates the national economy, you have to be conscious of the international market in energy. You need to be aware of how energy markets are affected by all sorts of things, including scientific advice about the environment, availability of transportation, industrial change, and consumer protection, in order to understand the knock-on effects on government revenues and business activity, and hence on telecoms use. When I worked in Qatar, I also took an interest in the business of supplying water. As a desert country with a growing population, the availability of water is a constraint on the economy, and a failure in supply could cause a crisis. So, based on what I learned about these sectors, I find my mind is blown by the condescension and ignorance of cVidya. They now regularly spam telcoprofessionals.com, a website which advertises job vacancies in the telecoms sector, and which is run by the same business which handles cVidya’s public relations. cVidya’s most recent opinion piece is attributed to CEO Alon Aginsky, and discusses assurance for utilities. Please indulge me, as I tear his ill-informed nonsense apart.

Time for Smarter, Stronger Utilities

In the next decade, the utilities sector will change beyond recognition.

No it will not. This is possibly the stupidest thing I have ever read.

Consider the timelines that impact utilities. If you think building a telecoms network is slow, consider that the North American Keystone Pipeline for crude oil was first proposed in 2005, Canadian approval was given in 2007, US approval in 2008, phase 1 construction took 2 years and was completed in 2010. Since then, there have been repeated and continuing delays in approving and constructing subsequent phases of the pipeline. And even after you pump the crude oil, and move the crude oil, it still needs to be refined, moved again, sold, and put into the power station that will finally burn it, if and when you fire up that power station, because oil-fuelled stations are more likely to be used on a short-term basis to deal with peaks in demand or shortfalls in supply due to reductions in supply from other kinds of station. Or consider the new nuclear reactor that will be built in the UK. After years of government indecision, the go-ahead was finally given in 2013. The reactor will become operational in 2023. Like other nuclear power plants, when it comes on, it will stay on, generating a fairly consistent amount of electricity for the following 60 years, barring the kinds of accidents that everyone wants to avoid. To reach a deal with the consortium that will build the reactor, the British government have agreed the price to be paid for its electricity during the first 35 years of use.

When it comes to energy, or water, nothing changes rapidly. Planning timelines are long. Utilities are the one business sector we can be sure will not change dramatically in a time period as short as ten years. And every stock market investor knows this, which is why utilities have low betas (a measure of systematic risk). In fact, even somebody with only a passing knowledge of the telecoms industry should know this, because the single greatest strategic risk facing publicly-listed telcos is that they will increasingly be treated like utilities, forcing them to pay higher dividends to sustain their share price. Like utilities, telcos may become defensive, low growth, low beta suppliers of an undifferentiated product where they can only compete on price, thus generating boring but predictable returns compared to the more rapid ‘dotcom’ style growth they have previously delivered.

As governments attempt to curb climate change and rising fuel bills, energy companies are increasingly having to work with their customers to make more efficient use of electricity and gas.

This is true, up to a point. But bear in mind that Margaret Thatcher was the first world leader to talk about the need to address the greenhouse effect, giving an important speech on the topic at the United Nations; you can see the video here. That speech was given in 1989. Since then, environmentalists complain that the pace of change has been too slow. And there has been a significant backlash from climate sceptics, who question the costs and benefits of rapidly reducing use of carbon-based fuels.

Even more importantly, fuel bills are not rising everywhere. In the US, the wholesale cost of natural gas is now just one-third of what it was in 2008, thanks to the exploitation of fracking and other new technologies for extracting previously inaccessible reserves. This is an unusually dramatic change, but it is exacerbated by the time it will take the US to agree to, invest in, and construct facilities to liquify and export natural gas, even though many American politicians have called for an acceleration of such projects following recent tensions between Ukraine and Russia.

Indeed, as a proud Israeli, Aginsky should be aware that Israel is investing in its navy in order to safeguard the discovery of 36 trillion cubic feet of gas off the Israeli coast.

As well as supplying energy, utilities now need to supply information – information their customers can use to adjust their usage patterns and get the biggest bang for their buck.

In practice that means the days of quarterly, or even annual, meter readings are drawing to a close.

This is false. Even when smart meters are implemented, physical visits to customer premises will continue. The visits will partly be motivated by the need to assure the data received is consistent with what the correct meter has recorded at source. They will also be motivated by the need to identify and deter meter tampering. Aginsky’s comment reveals a deep ignorance of risk management in utilities.

Aginsky is also wrong to imply that smart metering will inevitably lead to increased use of economic incentives to change consumption patterns. There is a countervailing trend that governments protect customers by forcing utilities to offer only a few simple tariffs. Whilst a simple distinction between peak and off-peak rates may motivate some changes in behaviour, customers will not need to analyse lots of data to understand why they should prefer off-peak consumption.

In some cases, utilities are rolling out smart meters hand-in-hand with dynamic pricing – different tariff rates for different times of the day – in a bid to smooth out the peaks and troughs in demand.

Yes, but ‘dynamic’ pricing is nothing new. On the contrary, many utilities have long offered different rates for different times of day. And just as in telecoms, the prices paid by large wholesale customers will have been individually negotiated, with attention paid to opportunities to balance load relative to other customers.

And some consumers are also becoming producers of energy, feeding electricity generated by the solar panels on their roof, or a wind turbine on their land, back into the grid.

True, but this is very minor. The EU has the most aggressive targets for renewable energy, and is currently contemplating adopting a new target that 27% of energy should come from renewables by 2020. Microgeneration will only account for a tiny fraction of that target. Better insulation and improved energy efficiency of household devices will have a far larger impact than microgeneration.

These fundamental changes mean the complexity of the utilities business is rising fast. And, with rising complexity, comes greater risk.

Duh. But cVidya clearly cannot be trusted to give a fair or balanced analysis of risk. They foolishly believe that remote transmission of data makes it unnecessary to mitigate risks by inspecting meters at the customer’s premises. Meanwhile, they imply that an upswing in the popularity of solar panels will be a significant driver of risk.

Although the introduction of smart grids should improve energy companies’ operational efficiency, new infrastructure and new processes also open the door to new kinds of revenue leakage and fraud. In developed markets, billing errors, meter tampering and other forms of fraud mean between 1% and 5% of utilities’ revenue is already leaking away, while in developing markets that figure can be as high as 20%.

No explanation is given of these numbers, or where they come from. They seem very round, and very vague. This is unsatisfactory, because utilities already perform simple reconciliations of the total electricity/gas/water they supply, versus the total they bill. Consider gas and water in comparison to phone calls. Unlike the digital ephemera of telecoms networks, gas and water are physical things – you can literally compare how much you put in one end of a pipe to how much comes out of the other end. I do not believe Aginsky’s numbers are derived from actual revenue protection work already performed by utilities. That is not to suggest Aginsky is alone in stating this kind of nonsense. But repeating somebody else’s bombast will not turn it into truth.

The funny thing about these measures of leakage is that many countries have transparent laws that state expectations for how accurate utility meters must be. Even though I work in telecoms, I know that UK law requires my gas meter to be accurate to +/- 2%, and the accuracy of my electricity meter must be within +2.5% and -3.5%. If those are the accuracy tolerances of the meter, before considering anything else, then why is Aginsky talking as if a 1% ‘leakage’ is a big thing? And exactly how bothered are customers about being overcharged, when the law says my gas meter may over-record my usage by 2%, and my electricity meter can over-record my usage by 2.5%? I cannot tell if the numbers given by Aginsky include or exclude these unavoidable metering variances. Aginsky should have quoted these kinds of accuracy expectations, in order to explain the leakage numbers he gives. Instead, Aginsky has recycled the same kind of numbers that he has often used to frighten telcos. But like the boy who cried wolf, Aginsky’s technique stopped being effective after a while, and I do not believe utilities will be influenced by it.

Of course, the real issue for most utilities is not the current supposed accuracy or inaccuracy of what they measure, but the difficulty in estimating charges for usage between meter readings, and the difficulties in chasing payment from delinquent customers when there are legal restrictions on disconnecting services. But then, cVidya does not sell software that can help with either of those challenges.

With the transition to smart meters, the rate of leakage could rise even higher as utilities implement new systems and processes.

Leakage could rise? Of course it could. Or maybe it could fall. Leakage will fall, if utilities implement good systems and processes. I thought cVidya wanted assurance people to think proactively, and to prevent leakage before it occurs? It says a lot about cVidya’s disjointed strategy that they try to sell transformation assurance to telcos, but do not think to offer utilities a service that assures the new systems and processes they implement, at the time of implementation.

As well as damaging the utility company’s reputation, errors in bills may result in dissatisfied customers deferring payment, creating new credit risks, or even removing their smart meter, as has been the case in North America.

This is supposed to be about utilities, but Aginsky is just repeating his telco sales pitch without any thought. Utilities have always managed credit risk. Because most utilities are older than most telcos, they have been managing credit risk for longer than most telcos. If anything, telcos learned about credit risk from utilities, by hiring managers of credit risk from utilities. Utilities face credit risks, and will continue to face credit risks, irrespective of smart meters. In fact, one key argument is that smart meters will reduce credit risk, thanks to the continuous supply of usage information, and the end of estimated bills. Other credit risks will remain. People already complain about their bills. People already refuse to pay. Utilities already manage their bad debt, and manage their public image, but Aginsky writes as if utilities managers are simpletons who need to be told about the importance of both.

Widespread negative publicity about smart meters in a particular market could put an energy company’s entire smart grid programme in jeopardy.

This is hyperbole. Nobody is going to jeopardize billions of dollars of government-mandated infrastructure investment. In fact, negative publicity cannot even stop cVidya from producing marketing claptrap like this.

Moreover, deregulation has made it straightforward for dissatisfied customers to switch to another supplier.

Good point. But set this against the trend for increased regulation that only allows utilities to offer a small number of easily-understood tariffs. Utilities may prefer the choice to offer more complex tariffs, but if forced to keep tariffs simple, then bills will be easier for customers to check, and less likely to be incorrectly calculated.

If utilities can capture and analyse the data generated by smart meters effectively they will have a comprehensive picture of customers’ changing energy needs, enabling them to develop compelling new services…

Except that is very unlikely if governments restrict the utility’s freedom to offer varied tariffs.

But the energy sector doesn’t need to reinvent the wheel. In effect, utilities are becoming more like telcos

Everyone working in telecoms, or investing in telecoms, is worried that telcos will become more like utilities. Aginsky optimistically states that utilities will be more like telcos. Who is Aginsky trying to fool? Utilities spend a lot of time negotiating with governments. Do the CEOs of utilities think their companies will suddenly be freed from government oversight, and allowed to behave like telcos did during the dotcom boom?

In many cases, utilities’ existing systems lack the sophisticated methodology and smart algorithms that underpin the commercial Revenue Assurance and Fraud Management systems used by leading telcos.

Maybe Aginsky should explain why utilities need such sophisticated systems. So far, he has completely failed to do so. In fact, he has only revealed that cVidya has a very unsophisticated understanding of what utilities do, and the conditions under which they operate. He says they will change beyond recognition, implying they will be like the newer telcos in liberalized Western markets around the year 2000. Those were the conditions that gave rise to telecoms revenue assurance, and those conditions would suit cVidya. But there is no good reason to believe that smart metering is going to lead a sudden reconfiguration of utilities, and their business model. Governments in the countries that will first adopt smart meters are also showing an increased willingness to determine the retail prices that utilities will charge. Where governments are more relaxed about retail prices, it is because wholesale energy prices are falling.

Utilities are shaped by long-term forces that override Aginsky’s short-term thinking about crunching data. Those forces include the availability of natural resources, geopolitics, big infrastructure, social welfare, climate change, and public opinion. I think anyone who works in utilities already knows this. But then, I suspect this piece is not written for anyone who actually works in a utility, given I found it published on telcoprofessionals.com.

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Last week I reported that Praesidium, formerly the consulting division of WeDo, has been transferred to Mainroad, WeDo’s sister company. Admittedly, talkRA dropped the ball, failing to notice the original press release, which was issued in February. The move raised questions about WeDo’s perception of the revenue assurance consulting market, so I was glad to speak with Sérgio Silvestre, WeDo’s Marketing Vice-President, about the reasons behind it. He identified two motives for the move: independence and fit.

When Praesidium was acquired by WeDo in 2007, the British firm already boasted a strong brand, punching above its weight in a specialized global consulting market. However, the feeling is that joining with WeDo critically altered customer perceptions about the independence and objectivity of Praesidium’s advice. Now that Praesidium has joined Mainroad, WeDo apparently have no plans to recruit or acquire a replacement consulting team. Customers who ask WeDo about consulting services will be referred to Mainroad and Praesidium. Praesidium is still scheduled to provide one of the training sessions at WeDo’s upcoming worldwide user group meeting.

The impartiality of consultants is a subject which provokes different responses from different telcos. Some telcos want their software providers to provide them with consulting services at the same time. Others want a separation between the two, to ensure consultants do not behave like salesmen in disguise. Though the amount of consulting work done by vendors has gone up and down over the years, some of WeDo’s competitors continue to earn a significant share of their revenues by providing consulting services in parallel to selling software licences. We will need to monitor the market to determine if the separation of Praesidium from WeDo is part of a trend towards accommodating stricter procurement expectations, or whether some of WeDo’s rivals will continue to prosper by offering a mix of solutions and services. For WeDo, it is clear they are streamlining one side of their business in anticipation of the growing diversity of software products they will offer, and of customers they will sell them to.

Sérgio also highlighted that demand for information security consulting will drive Praesidium’s future growth. Praesidium’s expertise covers the connected domains of fraud management and information security. If customers are spending more on security – which seems likely given current global priorities and risks – then Praesidium’s best sales pitch will more naturally fit with Mainroad’s IT-centric business offerings, than with WeDo’s assurance-centred value proposition.

Again, this may be an interesting indicator of trends. Over the years there have been many arguments about how to organize and coordinate various risk and control silos, and the extent to which these silos should be kept apart. Whilst one debate focuses on the pros and cons of linking revenue assurance to fraud management, there is a second debate which revolves around the relationship between fraud management and security. If spending on security rises, it becomes natural to order these debates so that a telco first decides if it will handle fraud management as a component of an overall security strategy. And if fraud is treated as a subset of security, this will have a knock-on impact on how the telco will divide responsibilities and coordinate work between its fraud management and revenue assurance teams.

For several years WeDo have explained their suite of products by reference to the umbrella concept of business assurance. Rising expenditure on security may create opportunities, but also challenges for WeDo and their rivals. Security is not amongst their core strengths, though the risk mitigation provided by their products has some overlap with the goals of security. And in the context of security, customers will be less forgiving towards any supplier who over-promises and under-delivers. Like telcos, suppliers will also need to develop a more sophisticated and consistent understanding of the telecoms risk universe, the relationships that exist within it, and which elements they are competent to deal with. In that respect, WeDo already does a better job than some of their peers. Having sister companies will help WeDo to perform a balancing act between refusing to do work outside their range of competence, whilst still being able to satisfy customers and draw incremental revenues into their corporate group. Rival vendors should consider the extent to which they have formal and informal partnerships that would help them to connect their areas of proficiency to other parts of a holistic risk universe.

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cVidya, the Israeli revenue assurance vendor, has announced their software will ‘support’ Hadoop, the open source technology for processing very large data sets across a distributed environment. You can read the press release here.

This is a very smart move by cVidya. cVidya’s core competence lies in skilfully presenting end users with conclusions drawn from data. Hadoop is a genuine Big Data technology which can greatly expand the volume of data which can be usefully accessed, whilst also lowering the cost of storing that data. By integrating with Hadoop, cVidya’s tools will sit atop a mature and powerful open source technology in order to deliver far superior results to their customers, without needing to make much change to their proprietary software. The press release states that cVidya’s software will be able to interface with a customer’s existing Hadoop solution. Alternatively, cVidya say they can provide customers with the hardware and software to implement Hadoop.

cVidya CEO Alon Aginsky is quoted as saying:

We see the distributed computing capabilities of Hadoop as a game changer for Fraud Management, Revenue Assurance and Marketing Analytics.

By making it cost-effective to analyze data from many different sources on a massive scale, we are essentially enabling digital and communications service providers to do more for less, thereby boosting profitability.

For once, talkRA can find no fault with the words of Aginsky. This development suggests cVidya’s management may finally be grappling with the strategic weaknesses that have seen them lagging competitors in recent years, after once claiming to have the leading market share for RA and FMS. In the past, cVidya CTO Gadi Solotorevsky advocated that business assurance departments should fight the rise of Big Data, taking a purist approach towards maintaining and controlling their own unique data repositories, even if this resulted in higher costs and duplication of effort within the business. By adopting Hadoop, it seems cVidya has realized there is a better way forward. Hadoop will see business assurance analysts working with the same data as used by the rest of the business. Those analysts will have much freer reign to tackle a broader scope of challenges. At the same time, cVidya’s software is more likely to attract the attention of telco staff working in other parts of the business. So this new, more open approach, is actually in cVidya’s best interests, despite their previous encouragement of empire-building within business assurance departments. Saying business assurance should be located in silos, surrounded by thick walls, was never going to be more than a tactic to increase sales, by providing those silos with data and technology that was separated from the rest of the business. It fell short of being a proper strategy, because it set endemic limits on what could be achieved. Those limits were not just felt by the departments that followed the advice, but ultimately they were felt by cVidya, as limits on what they could sell.

Big Data inevitably tears down walls within organizations, and opens up former silos. It looks as though cVidya has also come to that realization, and they will seek to harness the potential on behalf of their customers, and for their own business.

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