Answer to L.T.T. – 06

This month’s L.T.T. by Guy Howie was meant to illustrate a key use of call margin reporting, and also demonstrate the fun challenges of identifying the exact issues and following through to useful conclusions.

This challenge needed a thorough logical and mathematical approach to untangling all the factual issues, and then a more commercial and creative approach to identifying the possible opportunity.

Material Interconnect Losses – Solving the Maths Challenge

Firstly, it is important to understand the Net Revenue and Cost pence per minute rates in operation.

The Total net ppm Revenue charges can be derived through dividing the Total Net May 2013 Revenue by the May 2013 minutes. This gives a net ppm fee of 0.1230. This, for the sharp minded, is equal to the old (pre Sept 2012) ported rate – so it is safe to assume that revenue is understated because both the ported rate was too old – 0.2330 pence per minute should have been used, and also, more frightening, the main headline revenue rate of 0.9926 ppm is not being applied !

Similarly, the Total net ppm Cost charges can be derived through dividing the Total Net May 2013 Cost by the May 2013 minutes. This gives a net ppm fee of -1.483. According to the charges, one would only expect -0.49ppm, but this is -0.9926 more than expected. To the keen minded again, 0.9926ppm should be the additional headline revenue figure. Looks like they have put in a cost rate instead of a revenue, which is easily done where rates can be confusing. Ouch !

The conclusion through maths is that the 0.9926 revenue rate has been input as a cost in error, and the porting charges were not updated on 31/08/2012 when they should have been. A ‘true’ revenue leakage figure of £141,280 per month can be derived from the numbers.

Validating the Issues and Quantifying the Opportunity for Your CFO

Solving the maths puzzle told us that rate have almost certainly been input incorrectly – this can only then be validated by performing lookups within the actual Interconnect system – most are very rich in functionality and will include audit trails of rate changes going back years. This can be achieved by working with your colleagues.

All very interesting, but to now answer the CFO’s main question about the size of loss and recoverability. Typically, within the Interconnect Space, Carriers will have legal agreements stating how far back Billing errors can be amended. This is usually 3-6 years here in the UK. So, it is fair to deduce from the information that the errors go back as far as 01/09/2012 (date of last rate change) – Hence you can safely inform the CFO the recoverable loss could well be in the region of 10 months (Sept 2012 to June 2013 inclusive) multiplied by £141,280 = £1.4 Million. You should also recommend a more thorough review of Margins, to be led by Revenue and Margin Assurance !

Congrats to Sriram Dharmarajan for providing by far the closest and most comprehensive answer. The next L.T.T. will be published on Monday 15th July.

From time to time, Commsrisk invites special guests to make an expert contribution.

2 Comments on "Answer to L.T.T. – 06"

  1. Avatar Rob Sharp | 28 Jun 2013 at 7:10 am |

    On interconnect systems you say “Interconnect system – most are very rich in functionality and will include audit trails of rate changes going back years” True but in most cases useless thanks to the miss-use of bulk rate loaders. This happens when source rates are maintained in one or many spreadsheets and bulk loaded for ALL rates every time any rate is changed often with overlapping dates. Typically without rerating already previously rated calls on the older rates. Makes the Audit trail a mega nightmare.
    What you need from the interconnect system is a report of actual rate applied against the calls and don’t expect changes to fall at month start or end either, that would be too easy. With all that said for those prepared to do the hard spade worth there is some serious revenue to be recovered in every carriers interconnect system somewhere.

  2. Thanks Rob. This is a good point you make. Audit trails can be a nightmare. I reckon that bulk loaders, like you mentioned, often lead to working assumptions such as “we have automation, so we need not waste our time reviewing all our rates in the detail”. It’s a very easy, but a very dangerous assumption to make, that automation equals total accuracy. Any offending incorrect rate is often happily re-loaded, month after month, at least until someone spots and then ‘proves’ the error. Without being rooted out, often by externals who have the inclination to provide strong proof of issues (and will not suffer embarrassment or shame !) errors go undetected. This is something we see increasingly nowadays. The errors are precious and those Telco’s who seek them out and find them should rejoice, as sometimes, they lead to some lovely back-billing opportunities, spanning years.

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