10 RAFM Issues: The Slow Death of Switch-to-Bill

This is the final article in a series of ten about important issues in revenue assurance and fraud management that are infrequently discussed. After this week I will look at the readership numbers and social media shares for the articles and create a ranking based on which topics generated most interest for readers, and so might be considered the most important. The final post focuses on a topic which will upset people who do not want to believe it is true: the switch-to-bill reconciliation used to be the cornerstone of revenue assurance, but its importance is waning. Without this reconciliation, and other data-oriented controls designed for a declining business model, some RA teams may struggle to find a new role for themselves.

Explaining the decline

A long list of factors are conspiring to undermine the value of the venerable switch-to-bill reconciliation.

  • The popularity of OTT services is forcing the lowering of usage rates, a reduction in traffic charged by usage, and a shift in business models towards services which are not charged per usage.
  • Allowances have tended to increase over time, meaning the proportion of the bill represented by usage charges has diminished. Flattening of roaming rates and international call charges have had a similar impact.
  • The pressure to reduce bill shock means telcos are less likely to charge for usage, or charge less for usage, on the occasions when previously they would have generated most revenue from usage.
  • It has become increasingly popular to offer some internet services at zero rates. Usage reconciliation is not a relevant control for those services.
  • Customers of electronic communications are charged for more diverse services than before as telcos tend towards multiplay, content-oriented and cloud-service business models. The switch is no longer the most important source of data about transactions.
  • Some telcos are adopting more complicated tariffs which link to factors like quality of service. The old fashioned switch-to-bill reconciliation no longer deals with enough data to assure the charging of these services.
  • ‘Reconciliations’ which actually relied on approximation of rates or simple ways to compare total use to total charged are increasingly ineffective.
  • Whilst rates have fallen, telcos are producing more usage records than before. This makes reconciliations more expensive although they deliver less value.
  • Switch to bill has never been an effective control over prepaid charging, but usage charges are more likely to remain significant for prepaid customers than for postpaid customers.

In summary, charges are getting flatter, and less of the telco’s income is coming from the old fashioned services that were most suitably controlled by the switch-to-bill reconciliation. Confirmation of these trends comes in many forms, but can found all over the news. Examples include Indian telco Reliance Jio entering the 4G market by offering completely free services for a limited period which they may seek to extend despite regulatory obstacles, and the ‘uncarrier’ strategy of T-Mobile USA, which focuses on unlimited and uncapped plans for voice, SMS and data.

Repositioning revenue assurance

One argument will be that revenue assurance does not need to change, but simply needs to be better at doing what it did before. This approach may focus on gathering even more records from even more sources and then crunching all the data to perform ever more complicated verifications of the amounts charged to customers. This is not an unreasonable way of thinking; a lot of revenue assurance was predicated on the idea of simply recreating or mirroring all the processes that produced the figures on the customer’s bill. The problem with this thinking it that the cost of the controls may rise whilst the benefits delivered are likely to fall. A risk-oriented approach would require focus to shift to where the potential losses are higher, and where it is more cost-effective to implement controls. This means devising controls suited to the sale of pay-per-view movies or preventing the unauthorized sharing of content instead of obsessing about the time and duration of voice calls.

For some services the number of usage records will increase, whilst the value charged for usage will fall. An obvious example would be zillion of records relating to accessing a web service like Facebook, even though the customer receives the service for free. Instead of paying for the capacity to automatically audit all those records, there will be an increasingly strong argument for a sampling-based approach. However, this is likely to face resistance from those who have always decried sampling.

Test call generation is the analogue of mystery shopping for electronic comms services. If service delivery, customer satisfaction and charges are tied to an increasing variety of measures, such as the quality of the service provided, it would make sense to use a holistic end-to-end test approach which can cover all these properties, rather than try to find ways to independently validate them for all customers. Put simply, the RA team cannot follow every customer around to check if any were lying that they refused to pay for a service because the quality was defective. Despite the irrational resistance to sampling methods it would be better to do some comprehensive recreation of all intertwined factors that influence customer charges and satisfaction – and the likelihood that they will complain or withhold payment – than to focus piecemeal on elements that are easier to reconcile with available data and ignore other factors of increasing relevance to the telco’s business model and reputation.

Time to move on

Duration-based voice charging has been important for a long time, but RA teams need to move on and design controls that are fit for the telco’s future. Some may simply respond by using a different menu of assurance techniques. Others may seek to adopt a different kind of role in appraising the risk of leakage. For example, all the costs involved in providing a service where usage is charged, including the money lost through leakage, should be contrasted with the implications of switching to a flat eat-all-you-want tariff. The relative pros and cons could be compared, with RA providing expert analysis of the likely gains and losses involved with either pricing structure.

Eric Priezkalns
Eric Priezkalns
Eric is the Editor of Commsrisk. Look here for more about the history of Commsrisk and the role played by Eric.

Eric is also the Chief Executive of the Risk & Assurance Group (RAG), a global association of professionals working in risk management and business assurance for communications providers.

Previously Eric was Director of Risk Management for Qatar Telecom and he has worked with Cable & Wireless, T‑Mobile, Sky, Worldcom and other telcos. He was lead author of Revenue Assurance: Expert Opinions for Communications Providers, published by CRC Press. He is a qualified chartered accountant, with degrees in information systems, and in mathematics and philosophy.

1 Comment on "10 RAFM Issues: The Slow Death of Switch-to-Bill"

  1. Michael Lazarou Michael Lazarou | 2 Nov 2016 at 7:32 am |

    I would like to comment on the point: “Despite the irrational resistance to sampling methods it would be better to do some comprehensive recreation of all intertwined factors that influence customer charges and satisfaction[..]”

    RAFM will have to upskill and eventually begin integrating some data science into its controls. Instead of suit-and-tie audit-like it will have to progress to data-sciencey predictive and BI analysis. RAFM is also well positioned to become a hub for information and intelligence for the whole telco if it so chooses. And I believe vendors are trying to evolve into that direction as well. There is an obvious overlap with other functions (even marketing and churn functions) which can be served given the data available to RAFM. Again, this also requires cementing a foundation for RAFM which more than likely falls onto risk management. So the final outcome would be risk management team which utilizes data and provides information for the whole company able to tackle risks beginning from collection to roaming to security and abuse of all -you-can-eat subscriptions… I believe that telcos can do this, but given the speed of responding to OTT and Google, FB, etc I doubt they can do this faster (and better) than a strong vendor or data science startup…

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