NEW YORK-Telecommunications companies pay insufficient attention to revenue leaks, possibly due to the misconception that these hidden losses have a minor impact on their bottom line, according to a report by the communications practice of Deloitte & Touche L.L.P., Atlanta.
The consulting firm said it conducted a mail survey of an unspecified number of executives at wireline and wireless carriers for “The First Revenue Assurance Study.” Of the respondents, 89 percent said they believe revenue leakage averages under 5 percent.
“Because many companies have not completed a rigorous end-to-end analysis of their revenue processes, the frequently cited 5-percent leakage figure may be based on a gut feel or industry rumor,” the report said.
Among cellular carriers responding, the average estimated revenue leakage reported was 3 percent, while personal communications services providers participating in the study responded that 5.5 percent was average.
Deloitte & Touche said, based on its consulting experience, potential overall revenue leakage is at least 11 percent: 2 percent in order entry, 4 percent in capture, 3 percent in call rating and 2 percent in billing.
“We believe the industry has not paid enough attention to the fact that leakage compounds in the revenue stream and its recovery falls to the bottom line.”
Deloitte & Touche cited the example of a major wireless carrier it did not identify. That company could experience an impact on earnings per share of up to 8 percent, assuming an effective corporate tax rate of 35 percent and leakage of 3 percent of gross revenues, which can be recovered at a rate of 50 percent.
Most telecommunications company respondents said they typically conduct live test calling to identify revenue leakage during the installation of a new switch or the upgrade of an old one.
“Surprisingly, test calls are not made to ensure that call events are billed,” the report said.
A majority of carrier participants in the survey also reported completion of live test calls just before they implement new products or rate plans.
“This shows companies do focus on those critical events that affect the functioning of the billing system and its ability to record and recognize revenue,” Deloitte & Touche said in its report.
“However, the missing ingredient is the analysis of the timing of these test calls … Live test calling after a new product or rate plan is implemented will help companies as they struggle to ensure they can accurately bill the customer.”
When call records cannot be matched to a customer recorded on the carrier’s billing system, these charges are dropped into “suspense” or “error recycle” files. Delays in establishing accounts, lack of error correction resources and provisioning that is out of sync with billing are the top three reasons for suspending potential revenue, Deloitte & Touche said.
On average, 3.4 percent of calls go into suspense files and 83.5 percent of these ultimately are resolved and billed to customers. This figure does not, however, reflect calls purged before they reach the billing system for reasons that include outdated “free call” lists, the consulting firm said.
Of the respondents, 60 percent said they use a standard or average rate to quantify potential revenue held in error recycle files. The remainder said they measure the call records and minutes of use in these files, but they do not rate the suspended calls.
“Our experience shows companies that rate calls in suspense and prepare trend analysis of these calls are better able to identify potential problems as they occur,” the D&T report said.
Particularly in a competitive environment in which product and service offerings change constantly, an ongoing, interdepartmental system for revenue assurance monitoring is necessary, the consulting firm said. Many telecommunications carriers still assign this responsibility primarily to their finance departments.
“While marketing and provisioning do not typically play a significant role in revenue assurance, respondents reported that these two areas have consistently contributed to revenue leakage for years,” the report said.
Survey participants also commented overwhelmingly that the telecommunications industry lacks benchmarking data for revenue assurance.
“Internal processes should be measured in order to establish operating baselines and to enlist process owners’ feedback on the acceptable level of revenue leakage and the effectiveness of controls in place,” the report said.
