Margin management is a frequently overlooked element of revenue assurance. David Halliday explains why it should have a more prominent role
The downturn in the telecoms industry has seen several operators go out of business, and for many that have survived the emphasis is now on protecting and growing existing revenues. Revenue losses in the telecoms industry globally have been estimated at 13.7 per cent of turnover (Analysys/Azure, 2003), which equates to billions of Euros. Consequently, operators are slowly but surely facing up to these losses and are starting to combat them by implementing revenue assurance programmes.
Revenue assurance is a term that operators have traditionally associated with causes of loss, such as fraud, end-to-end revenue leakages and the over-payment and undercharging for interconnect capacity. However, there is an equally important part of revenue assurance that has tended to be overlooked, which is margin management. Managing your margins makes perfect business sense in any industry, but is particularly relevant in the telecoms industry, which is still navigating itself out of a very difficult time. At a time when managing expenditure is seen as key, there is a significant addressable revenue opportunity by implementing an effective margin management strategy.
Margin management is complementary to all other aspects of revenue assurance. Taking a simplified view, margin management can be defined as managing the business opportunity – interconnect accounting makes sure payments are managed effectively, whilst fraud management ensures that none of the money is going astray. All these aspects, managed together, will help run a much more complete end-to-end revenue assurance operation.
Optimising revenues is by no means a new concept as is evident with the practice of least-cost routing. The international telecommunications industry has experienced dramatic changes over recent years with the proliferation of competitive international carriers and capacity resellers who are increasingly offering cheaper rates to deliver traffic to an ever-increasing variety of destinations. In order to remain competitive within the industry, carriers have needed to be able to negotiate and take advantage of the lowest market rates, whilst minimising disruption from poor quality routings. Failure to make quick decisions on how routing is organised can significantly damage profits.
A business-driven approach can be implemented across a carrier's entire processes and technology base. As with other aspects of revenue assurance, margin management isn't solely a finance or operational function. An organisation's COO will want to ensure that operational efficiency is being achieved, whilst its CFO will want to see the impact on the bottom line. To this end it is important to have the correct processes and technology in place.
Understanding the health of any organisation is critical. Regular third-party health checks of existing systems and procedures are recommended as even a basic human input error could significantly impact on margins. Carriers have finite resources, so it is essential that they ensure margins are being fully optimised. Yet until existing procedures are actually reviewed, it is very difficult to plan how to structure a business to achieve maximum revenues.
Once business objectives have been identified, solutions need to be implemented in order to help bring margin management to fruition. Whether a PTT or a wholesale carrier, systems with a slow response time or insufficient reporting capability will risk profitability. Many carriers will claim to have effective systems in place, yet a great deal of them are making do with 'best-effort' in-house solutions. Too many carriers simply try to adapt their existing tools, with limited success. This can also often result in information being replicated, which wastes significant time and money and makes the whole process of margin management clumsier.
Carriers need to bite the bullet and move away from their existing legacy systems in order to make it possible for them to maximise margins and improve profitability. Systems need to focus on automating tasks, improving efficiency and productivity by reducing the need for large groups to manage core data. Systems are now available that will enable carriers to:
• highlight arbitrage opportunities at the lowest dial-code level
• substantially improve overall quality
• validate carrier quality
• automatically generate and maintain MML routing changes onto a switch which is fully auditable
• provide custom alarms and alerts based on a wide range of threshold data
• provide user definable custom reporting with drill-down capabilities
All of this will help carriers maximise margins and improve profitability in the complex world of routing choices, and help guarantee quality of service.
Having the correct processes and technology in place will become increasingly important with the emergence of next-generation technology and services. Multimedia and its content, for example, will bring increasingly complicated supply and value chains, meaning that partners will need to be settled with much more efficiently. Moving forward, margin management will be evolving into what can be termed as trading management. This environment would be much more opportunity driven and proactive, whereby carriers would be able to settle with each other in real-time which helps with cash flow and cuts down on manual intervention. In the future C-level executives will have the visualisation tools as part of a revenue assurance dashboard so that they can see such transactions first hand.
This of course will be achieved much more effectively in an open trading environment, which is not a common characteristic of today's telecoms market. Despite the vast increase in numbers of operators many of the PTTs remain highly influential, consequently the market still has many cliques with certain carriers only dealing with certain partners. All of this obviously can be detrimental to customers as quality of service is not being guaranteed as they may not necessarily be provided with the best service.
This however may not be an issue in the future as regulators such as OFCOM are looking at ways to develop and encourage a true open telecoms market. Therefore, it is essential that carriers adopt margin management now, so that they are in the best position to take advantage of new services in the future.
David Halliday, Director of Margin Management at Azure, can be contacted via e-mail: firstname.lastname@example.org www.azuresolutions.com [l=www.azuresolutions.com/]http://www.azuresolutions.com/[/l]