India - loss of revenues

Telecom operators take $750 million hit on revenue leakages

Indian telecom operators may be scripting global success stories, but they are still losing millions of dollars in revenue leakage every year. Domestic telcos lost 2.5% of revenues in 2007-08 and at this average rate, the revenue leakage would touch nearly $2 billion in the next two years, according to a survey by Ernst & Young (E&Y).

The amount lost was a whopping $750 million in 2007-08 owing to lack of focus on revenue assurance (RA). This is up from 2% ($550 million) in the previous year.

RA refers to end-to-end processes put in place to identify revenue leakage in the chain. These leakages could be due to human or technical errors. “Key reasons for revenue leakage still remain as data loss between systems, external frauds and inadequate controls and procedures, which reflects that these issues have still not been addressed by the operators,” E&Y India telecommunications leader Prashant Singhal told ET.

There is a huge opportunity for telcos if they are able to plug these leakages. The money thus saved can be deployed in providing better quality of services to customers, he said.

Globally, large telcos deploy automated solutions for revenue assurance, with tolerable limits of under 1%. “There are well defined RA departments. However, in India, the departments exist but are not authoritative enough to run certain processes. Companies should understand and emphasise on managing and improving processes to facilitate growth,” said Mr Singhal, who has authored the Revenue Assurance Global Survey 2007.

Unlike foreign telecom players, Indian telcos are yet to focus on cost reduction and profitability analysis as a part of their RA exercise. Indian operators should invest in software and in development of processes, besides clearly defining Key Performance Indicators (KPIs) for RA departments, he said.

“Most RA functions could enhance efficiency by automating certain activities using industry specific tools and software. During development phase of RA strategies, the key challenge for operators in emerging markets is building shared responsibilities across different functions,” Mr Singhal said.

Respondents to the survey included fixed and mobile operators, ranging from large integrated operators to regional players. In 2007-08, more than two-thirds of the respondents felt that they were losing significant revenues on account of subscription and dealer commission frauds. However, the key concern of frauds in 2006-07 was credit management and external frauds.

The survey said the operators were still maintaining their focus on core billing and rating activities and not adopting a holistic end-to-end approach to RA. “While operators are now considering RA issues at an early stage of product planning itself, these reviews are reactive rather than proactive in nature,” it said.