December 23, 2003
Sloppy processes and a lack of focused investment are costing the world's service providers anything up to $137 billion in lost revenues each year, according to the findings of a survey into "revenue leakage" conducted by telecom consultancy Analysys.
Yes, $137 billion! That's even more than the Lucent Technologies Inc. (NYSE: LU) board executives pay themselves in annual bonuses (see It's Christmas Time at Lucent).
That astounding sum is the result of research conducted by analyst Danny Dicks, who conducted telephone and face-to-face interviews with 50 carriers around the world. He found that, on average, each carrier is losing out on 13.7 percent of its potential revenue because of errors, fraud, and flawed processes.
With annual telecom services revenues currently totaling about $1 trillion ($1,000 billion), according to IDC, the lost revenues could total as much as $137 billion a year.
That figure is probably an exaggeration because the regions of the world that generate a large proportion of global annual revenues (North America and Western Europe) are better at capturing their potential revenues than their counterparts elsewhere. The survey found a massive variation in leakage depending on the geographic region, with operators in the Asia/Pacific region leaking the most money, an average of 31 percent of annual revenues.
Next came Central and Eastern Europe, with 18.5 percent; Latin America, nearly 16 percent; and Africa, with about 12 percent of revenues lost. The most efficient region is North America, where the average is 5.3 percent of revenues leaked, while Western Europe comes in at 7.6 percent.
North America's relatively good showing is largely attributable to a high general standard of corporate governance following high profile financial scandals of recent years, while the disastrous losses in Asia/Pacific can in part be put down to an over-reliance on software systems developed in-house that cannot cope with modern carrier practices, says Little Danny Dicks.
And there's another reason for questioning the overall impact of leakage as estimated by this report. The survey was commissioned by a company with a vested interest in making the leakage problem seem as horrendous as possible, namely revenue assurance software vendor Azure Solutions.
In these instances there's always a suspicion that the results suit the business case of the commissioning company just a little too neatly. In effect, Azure's software prevents unwanted revenue leakage -- the OSS equivalent of a colostomy bag, as it were.
To be fair, however, the report estimates that carrier losses to fraud totals about $26 billion, which is actually way below the estimate of an independent organization, the Communications Fraud Control Association (CFCA). The CFCA, whose board comprises executives from leading North American carriers such as AT&T Corp. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ), believes annual telecom fraud losses to be worth between $35 billion and $40 billion.
So it seems at least safe to conclude that, collectively, the world's carriers are actually losing out on tens of billions of dollars in revenues that they could be collecting. And Dicks says most of the problems can be rectified without too much pain or cost by simply recognizing the problem, addressing it, and investing in the relevant systems.
And it seems to be a growing problem. The amount being lost to poor processes, bad credit management, fraud, incorrect call data records (CDRs), and interconnect errors has risen since the same survey was conducted in 2001. Two years ago, the loss was estimated to be worth 12.4 percent of total revenues.
And, according to Analysys's findings, carriers on average believe it is acceptable to lose 1.7 percent of potential revenues, and are deluding themselves as to how much they are actually leaking. They believe they are leaking just 2.7 percent, yet the information provided to Analysys shows that operators, if they delved deeply enough into the different parts of their business, would realize they were losing out on a lot more cash than they thought.
So why is the situation so dire? A lack of accountability and understanding within carriers is a major factor, according to Dicks, who found that the responsibility for revenue assurance matters was "highly fragmented," to the point where many senior-level carrier executives thought it was someone else's responsibility. In addition, while many operators say they are now focusing on maximizing revenues, having cut back on capex in the past few years, the majority have their heads in the sand about how much money is being squandered and the root causes of the lost revenues, says the Analysys man.
The gargantuan amount being lost will likely come as a shock to many in the industry and to shareholders. "If investors realized the magnitude of the revenues being lost then maybe they'd demand something was done about it," says Azure CEO John Cronin.
So what's causing this painful leakage? The leading five causes, according to the carriers themselves, are poor processes (cited by nearly 60 percent of carriers surveyed), poor credit management (nearly 50 percent), incomplete or incorrect CDRs (again nearly 50 percent), interconnect errors (more than 40 percent), and poor systems integration (more than 40 percent).
So, if the carriers have inefficient systems that collect incorrect information about network usage and customer accounts, doesn't this mean they could be overcharging, too? A quick poll of Light Reading staff soon found a few ongoing examples of people being charged for services they are not using, so while the carriers might be losing out in some respects, it seems likely they're also collecting monies they're not even due.
Footnote:If you are worried about your leakage levels, you should not hesitate to contact your chief medical (or financial) officer.
— Ray Le Maistre, International Editor, Boardwatch
Read more about:Omdia
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