Ghost-written bylined article for Acuma, appearing in Global Telecoms Business magazine, spring 2008. By Sue Tabbitt

* ALL FEATURES ARE COPYRIGHT PROTECTED AND BELONG TO THE MAGAZINE THAT COMMISSIONED THE WORK. UNDER NO CIRCUMSTANCES MUST THIS CONTENT BE USED ELSEWHERE BY ANY OTHER PARTY.

Staying on plan

Too many service providers are throwing away profits in pursuit of costly revenue, because they don't know any better, says Alan D. Duncan of Acuma Solutions

As fast as operators are clamouring for growth - whether ARPU growth in the saturated western markets, or new business growth in the emerging territories - many are sacrificing their profitability in the process.

Take one major player which was in such a hurry to get to market in India that it launched its network a good eight months before having the ability to bill for services! The company was willing to take a $2 billion hit on uncharged calls, writing this off as the cost of entry into the new market, such was its desperation not to waste any time.

This is one of the starker examples of where telcos are losing sight of their end goals, in their impatient pursuit of short-term gains. Unnecessary losses in profitability take place every day in the western markets too, because players have lost focus and are prioritising 'revenues at any cost' over sustainable, profitable growth through strategic cross-selling, and a weighted focus on high-margin customers.

Misalignment

The common strand drawing these errors of judgement together is a failure to align everyday business targets and activities with long-term, high-level business strategies. This, in turn, is the fault of poor information. Where managers and sales teams are not being fully informed, they are unable to make astute decisions, so will stick to what they know, and risk focusing their energies inappropriately.

The information trail operators need to follow to stay on target is a complex one. Attempts to monitor sales and profits effectively without sophisticated monitoring and reporting technologies will not - and do not - succeed.

In western markets, an average of 7.5% of all network traffic is not generating revenue, because of poor data quality, information integrity, poor decision-making and a failure to monitor the right key performance indicators (KPIs). This is leading to leakage, missed customer opportunities, and the positioning of an ineffective product mix. In the emerging markets, the revenue gap could be as high as 30-40%.

When one medium-sized SP in Europe decided to tackle its information challenges methodically, it made some surprising discoveries, which it is now working to its advantage. Without the right analytical and reporting capabilities, it would still be flailing around in the dark when trying to grow revenues and, more importantly, profits.

With the help of external consultancy, it harnessed predictive analytics to explore the potential impact on customer churn if an attractive offer was presented to them as they neared the end of their contract. Received wisdom would suggest that a timely promotion would cement most customer relationships and secure a 12-month renewal.

Surprise discoveries

Surprisingly, analysis of past customer behaviour identified the opposite trend among one section of the customer base which, having been alerted to the imminent end to their current contract, would seize the opportunity to shop around and switch providers, taking advantage of new deals in the market. The operator realised that by trying to reactivate these customers it actually risked dropping more business than it retained.

These findings could not have been determined easily by intuition. Customer age turned out to play a large role in determining who would stay and who would leave; other factors included customer tenure, types of network usage, typical spend, and the customer's service mix.

Having established the patterns, this operator found that it was able to secure an additional EUR 1M a year in retained margin on the basis of these predictions and the ability to play customers correctly (5% of its customer base come up for renewal each month, of which a select proportion is now left alone).

Tracking revenue leakage

Many service providers are so focused on the network as their main asset, that they lose sight of the criticality of customer performance information. In reality, this information is a far more critical business asset - but only if exploited properly.

Take Carphone Warehouse in the UK. Because it does not operate its own network, it is free from the worries of investing in and developing its infrastructure, so is able to focus on its core business of managing customers. This has given CW the luxury of being able to drill deep down into its customer data to maximise sales opportunities.

In an initial phase of the company's enterprise data warehouse strategy, it sought to tighten up its revenue assurance. Simply by identifying a failure to monitor and execute accurate billing and payments, CW was able to increase its gross margin by £5M in its first year - merely by putting the right controls in place. By being able to spot over-invoicing from carriers and refine invoicing accordingly - with evidence to support its case - the company was able to recover money it was owed from its network partners.

By following through the data chain, Carphone Warehouse was also able to reduce its unallocated call ratio from around 7% to 3%. In the process, it discovered the value of invoking the rigours of business controls and strategically aligned performance management, both internally and externally, based on the adage that, what you can't measure, you can't manage, and what you can't manage, you can't exploit. As far as CW is concerned, the rest is history.

Another truism is that people's behaviour is affected by how they are measured, so if managers and sales teams are being assessed and rewarded based on growing revenue at any cost, this is what they will do. This presents a major challenge to any operator that has a disconnect between its board's high-level business strategy and what happens at a business unit level.

In the overcrowded, saturated western markets, operators' focus should now be on 'share of customer', expanding the mix of services within existing clients, and boosting profits over revenues.

Letting go of revenue targets

Yet, for too many players, revenue is still seen as the be-all and end-all. So focused are they on grabbing market share from their rivals, they could be losing existing customers as fast as they are gaining new ones, and sacrificing profits in favour of impractical discounts as they seek to make their sales stories more attractive to new customers (all the while leaving existing customers dissatisfied because they are not being offered the same sexy terms available to new subscribers).

Service providers need to keep in mind the 80/20 rule - that 80% of their profit margin is likely to be derived from just 20% of their customer base - and that high-revenue customers are often the high-cost customers.

This being the case, telcos should be making it a priority to identify the high-margin customers, which in turn demands knowledge of the costs involved in doing business - something which, traditionally, has been very hard to establish. This requires methodical analysis, giving operators the confidence to shift their focus to customer retention and growing margins, and to let go of the angst involved in chasing non-existent new business.

Meanwhile, effective performance management needs to be put in place to stimulate the right kind of action. Sadly, too many firms implement analytical and reporting software (call it data warehousing, business intelligence or management information systems), only to then ignore the output. They implement the applications, put the KPIs in place, and then assume everything is taken care of. Yet, by failing to change their focus and behaviour based on the findings they are uncovering, they risk missing out on all of the potential benefits.

It's all very well determining gaps in customers' product portfolios, for example, but if the business units and sales functions are not geared up to exploit this information by cross-selling additional services into existing accounts, the data is of no value.

Courting change

Information must be an enabling asset, enabling carriers and their partners to turn their networks and services into profits. Resellers like Carphone Warehouse have the advantage of being able to focus their activities on the opportunities revealed by information analysis, but network operators also need to devote resources to this practice if they are to survive in such a ruthlessly competitive market.

Vodafone is very good at this, having grown from being a very network and engineering centric organisation into one with a very strong focus on customers' earnings potential. BT, too, has successfully managed to marry the network and services to the business of making real money.

Yet, by contrast, there remain several old-school telcos who have put all of their investment eggs into their network and core service delivery and fulfilment. Making money from this is almost considered as a secondary objective, and their businesses are in danger as a result.

Players in the over-fished western territories need to learn how to better exploit what they already have, through improved insight and understanding.

In the emerging markets, which are where the western markets were 10-15 years ago, the focus must be to expand strategically and profitably, with internal and external controls in place; otherwise operators risk throwing away an unquantified opportunity.

At the core of this global challenge is the need for high-quality, accurate information, and a properly trained workforce to exploit this - a workforce that has been invested with the right expectations, and which is looking in the right places for the rights kinds of opportunities.

The good news is that the business intelligence/data warehousing/management information technologies industry is maturing to make all of this much easier, converging to produce off-the-shelf solutions tailored to the needs of particular markets - so that out-of-the-box solutions have already been populated with many of the key questions operators would want to ask of their business data.

Gone are the days when effective information reporting demanded protracted, expensive custom-build projects, and which offered little flexibility to adapt quickly to new information interrogation criteria. Just as the likes of SAP and Oracle revolutionised the ERP and financial software markets, the same is now happening in the information analysis and reporting sector.

Now it just remains for the telecoms industry to wake up and realise it needs these solutions if it wants to expend its energies in a way that's commercially worthwhile.

" Alan D. Duncan is a consultancy partner at Acuma Solutions, a global IT company, specialising in information management solutions and services. Acuma is part of the Saksoft Group of companies. To find out more, visit www.acuma.co.uk.
" He will be presenting a series of seminars on information management at Telecoms Business Performance Management, which runs from 14-16 May 2008 in Barcelona. He will also be at the TM Forum 2008 event in Nice, France in May.