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Tarifica: Margins or Bust

Research by Tarifica highlights the fact that telecoms have consistently failed to manage margins satisfactorily

July 8, 2002

2 Min Read

LONDON -- Research by London-based consultancy, Tarifica highlights the fact that many telecoms companies have for the past TWO years consistently failed to manage margins to a satisfactory degree - instead choosing to chase 'mega-deals' or increase customer numbers without increasing ROI.Recent accounting debacles have illustrated the inherent problem with the current telecoms industry. Companies have spent far too much time and effort in chasing shareholder value and inflated profits at the expense of the business itself. Today these same companies urgently need to assure themselves and their investors that they are getting the most out of what they earn. The most obvious, and to date the most ignored way of doing this, is by 'managing margins.'Very few telcos have incorporated margin management into their overall financial strategy to any significant degree. Indeed if we review recent share price drivers, the emphasis has shifted from telecoms performance, to ramping up pure customer numbers, to delivering quality of service and finding return on investment. None of these has, however, proved a panacea for success.Key statistics:

  • Revenue losses are estimated to be between 4% and 10% of totalrevenues

  • A major international IP and data services provider claims to have recovered more than $US20million in access costs and unbilled revenue by combining cost management and revenue assurance efforts

  • Losses due to fraud account for between 3%-5% of revenue

These statistics are not isolated incidents - they are indicators of the performance being achieved by many service providers; performance that we believe can be dramatically improved by implementing a margin management strategy.So what can be done to ensure the survival of those remaining companies in the telecoms arena? The logical conclusion would be to consolidate all previous approaches to secure valued customers and then address all of these issues within a coherent management strategy and an effective margin management approach.Margin Management concentrates the factors required to ensure a real profit from grass roots upwards - without the help of any financial window dressing. The idea is combine the fundamental disciplines of Client Relationship Management, Revenue Assurance and Cost management and use these to form a coherent approach.This is the philosophy behind Tarifica's new Margin Management Briefings. These briefings provide the tools to enable senior operational managers to inform, encourage and empower the adoption of margin management principles.According to Marion Howard-Healy, Director of Billing and CRM at Tarifica, "Margin is not a nice-to-have. It is essential. If there is insufficient margin, there can be no long-term future." In essence this means that, if margin management is not applied, losses will mount, essential investment will not be possible, and financial institutions may not be willing to invest in what looks like terminally ill organisations.According to Justin Springham, Editor of the Billing magazine at Tarifica, "what might appear to be common sense should be reiterated across the industry to ensure that another scandal on the Worldcom scale does not happen any time in the near future".Tarifica–PBI Media

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