10 RAFM Issues: OTT, Revenues and Assurance

As mentioned last week, this is the first in a series of 10 posts describing important challenges for practitioners of revenue assurance and fraud management in the comms sector. Instead of running a conventional survey I will monitor the response to each article and use that to rank the issues based on the interest they each generate. The posts will be published on consecutive Wednesdays. This opening piece concerns a risk not just for revenue assurance but for every operator: the impact that over the top (OTT) services like Whatsapp (pictured above) will have on retail revenues and consequently on the work done by revenue assurance teams.

Telecom doom and gloom

Some people think OTT could be the death of telcos as we know them. Recently I spoke with an employee of a major international group who expected OTT to wipe out traditional voice and SMS revenues within the next 5 years. OTT services are often of a very high quality. Meanwhile, OTT providers develop and extend their offerings at a rate which telcos find hard to match. This is partly because the OTT innovators lever the full potential of the internet and the processing power of smartphones to offer all sorts of new features. Smartphones have spread like wildfire and they will become a lot cheaper and popular in developing markets. Retail telecommunications is a price elastic business, so customers are inevitably drawn to OTT offerings that are much cheaper than traditional voice and messaging services. This creates a double whammy for telcos, who will see revenues decline whilst being pressured to invest in the data networks that will carry the rising volumes of OTT traffic.

As bad as this is for telecoms revenues, the impact on revenue assurance teams will be even worse. Plummeting revenues will make many standard controls and reconciliations irrelevant. Telcos will earn some substitute revenues from data usage or increased sales of eat-all-you-want plans and other flat allowances. RA teams are generally weak at assuring data usage, whilst the latter tariff options diminish the relationship between usage and value, meaning RA teams will add less benefit to their telco.

Costs and compromises

It is often said that telcos will weather the storm by entering into mutually beneficial partnerships with OTT providers. That may be naive; net neutrality and government attitudes may force networks to accommodate OTT providers without any promise of the profits being shared fairly. But perhaps telcos will use their size and financial reserves to engineer takeovers and launch their own OTT services, thus ensuring some OTT revenues get recycled into their networks. These partnerships will offer an opportunity for enterprising RA teams to conduct new kinds of assurance, and some of the assurance work of RA will shift from revenues towards costs and margins. As revenues flatten, so the emphasis will be on controlling operating and capex costs in order to safeguard cashflows, margins and the profitability of the business.

Another issue for telcos is their duty to provide traditional network comms services to the public. Whilst most people can imagine living without Whatsapp that is only because they know they can fall back on relying on a traditional voice call in an emergency. Telcos will still need to provide traditional services even if use falls significantly. In order to get the best returns for shareholders, telcos will need to analyze expenditure on legacy services and so ensure they are fulfilling their obligations at the least possible cost. RA analytical skills could be reoriented towards this task.

The question for RA teams is whether they are best placed to reapply their skills in order to address these risks within telcos, or whether they even want the responsibility. Other functions could potentially take charge of this work, and management teams that take a reactive approach to risk may recruit an all-new function without seeking synergies. The extent to which RA teams turn this wider transformation into an opportunity will depend on their ability as negotiators and influencers.

Silver linings?

Start-up businesses focus on growth, but take an increasing interest in revenue protection and cost management as they mature. If existing telco RA teams cannot adapt and find new ways to add value to their employer then enterprising individuals in those teams may still flourish by marketing their skills directly to OTT providers, and hence obtain contracts or employment with them.

However, individual practitioners should not be complacent. Many young analysts take entry-level RA jobs at modest rates of pay because the barriers to entry, in terms of qualifications and experience, are not very high. If these individuals cannot demonstrate that their market value increased as a result of their work inside telcos, or as a result of subsequent professional education, they may find themselves competing with inexperienced new starters for jobs in OTT providers. So whilst OTT providers may be a source of new assurance-type jobs there is no guarantee that they will pay the salaries that experienced RA practitioners would expect.

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.