Revenue Leaks Likely to Swell

Posted: 07/2002

Revenue Leaks Likely to Swell

By Peter Lambert

Like
the consultants at TMNG Inc. (click
here), back-office software provider Kabira Technologies Inc.
recently has undertaken studies to identify and offer solutions to the primary
sources of revenue leakage telecom and datacom service providers suffer. Based
on third-party consultancy research, information from solution partners,
first-hand deployment experience and use of a weighting system across 32 U.S.
and 19 European wireless operators, Kabira concluded in May that, on each
continent, operators will lose $7 billion in potential revenue that cannot be
billed for services delivered to customers.

Among Kabira’s key findings:
"Leakage tends to be lower in single technology networks with simple
service plans [and] grows as operators combine network elements from multiple
vendors, increase the number of rate plans in their billing systems and add
complex service offerings."

And there lies the tip of a much
larger revenue leakage iceberg, agree other vendors and industry analysts, that
note multiple rate plans, complex service offerings and more complex service
value chains are becoming the rule rather than the exception. To confront
leakage before its causes multiply, an emerging class of "dynamic
transaction management," or DTM, pricing and rating software will be
required, says The Yankee Group, which coined the DTM term.

For now, Kabira has identified seven
areas of revenue leakage with the highest potential for recovery through
software and operational fixes:

1. Collection Failures resulting in
   large volumes of data or lost inventory of data collection points in
   networks;

2. Parsing Failures resulting from
   format interpreting that covers only a subset of sent record types;

3. Overrun Error Logs resulting
   from discarding of unidentified records when error log reservoirs exceed
   maximum capacity;

4. Bad Correlation resulting from
   failed matching of IP numbers with known telecom accounts;

5. Time Expirations For Matching
   due to "hard-coded" record flushing or lack of support for
   long-session services;

6. Billing System Rejection due to
   the "genericizing" of modern packet types on their way to legacy
   billing systems; and

7. Identification Failure For
   Higher Order Events due to collection systems that fail to capture
   conferencing, video streaming and other higher layer application protocols
   "buried" within IP streams.

While vendors like Kabira are
rolling out fixes to these identified failures, DTM software provider Highdeal
Inc. has teamed with the Revenue Assurance Practice of system integrator and Big
Four accounting firm KPMG Consulting Inc. to define the coming challenge.
HighDeal’s president and COO Lubomir Mortchev says providers face a fundamental
shift at the business level. Like a taxi driver who takes an extra fare to the
same destination, current providers of telecom or Internet access services face
no marginal cost to deliver an additional call through their networks. However,
Mortchev says providers will face marginal costs, in the form of royalties paid
upstream to content owners and commissions paid downstream to resellers for
delivering premium content that "belongs to someone else."

In such a world, back-office systems
must factor these per-service marginal costs into pricing, rating and
collections to track real gross margins, says Mortchev, adding that money also
will begin to move in multiple directions among more parties. A game provider or
carrier, for example, might subsidize some, or all, of the end user’s price to
jumpstart a new game, requiring payments and receivables to and from multiple
parties. Or, if a golf fan will pay $2 for a Tiger Woods video clip during a
match, he may pay no more than 50 cents that evening. Consequently, as providers
attempt to optimize gross margin, they will seek tools to tweak services bundles
and pricing schemes on a regular basis.

One upshot of these new
complexities: the points of potential revenue leakage almost certainly will
multiply. "In this new intangible environment, the significant majority of
revenues will have a cost associated with it much larger than present day
leakage," he says. "If each transaction bears a marginal cost, the new
challenge is to make sure gross margin is good for the company."