So how big is the revenue assurance market?

At the moment it seems all the news in revenue assurance is about how big the market is. Perhaps all those speculative investors who have been backing revenue assurance vendors are starting to ask more questions about when they get to exit the market and take their returns.

It says here http://www.mindbranch.com/products/R70-32.html that

Dittberner sizes the market at $531 million in 2005. Roughly 60% of the market is software (including customization, maintenance, and service bureau work) and the remainder is consulting, everything from helping a carrier establish a revenue assurance and fraud management organization to auditing operations and create effective business processes.

Furthermore, it says here http://www.xchangemag.com/hotnews/6ah30162652.html (quoting the same report) that the revenue assurance market will be worth US$562m by 2010. The logic for growth seems pretty weak though – that telcos will need to eliminate leakages to succeed in next gen markets. Presumably the people who wrote the report forgot to notice that (a) eliminating leakages would be just as important when competing in boring old last gen markets, and (b) most of the products offered by today’s software vendors address issues of decreasing relevance in the next gen world. You also have to wonder about what gets included in this “revenue assurance” market, as part of the problem appears to be standard bad debt management, something that equally applies to lots of retail sectors other than telcos, as well as applying just as much to last gen as next gen. So I will not be paying the US$5,000 asking price for this report. If Dittberner sells 1,000 copies of this report then their revenues alone would account for 1% of the total revenue assurance market :)

In contrast, the SubexAzure-Analysys estimates of global loss are US$176 billion. In other words, this implies that the total amount spent on revenue assurance is 0.3% of the total amount being lost. That does not seem that plausible to me. Simple demand and supply would suggest that if there is US$176bn to be made from a market, then people are going to invest more than US$0.5bn to chase that market. Talk about setting demanding targets for returns on investment! If the same targets were applied to all telcos as a whole, they would look ridiculous. For example, Ofcom said the UK telecoms market was worth £46.6bn ($88.5bn) in 2005. 0.3% of £46.6bn would imply UK telcos only spend about £150m ($280m) each year.

But it gets worse. Over here, http://www.billingworld.com/rev2/main/featureArticle.cfm?featureID=7795 it seems to imply that people need to move on from revenue assurance to a vaguely-defined “business assurance”. Presumably this is justified because they have realised all the returns possible from revenue assurance. Do not get me wrong, this article is not all bad, but nobody has applied much scepticism to some of the half-truths that were being offered by people interviewed. For example, one might equally well ask if the perceived need to shift from revenue assurance to a broader business intelligence-cum-strategic business assurance is in fact motivated by two rather more old-fashioned factors: (1) people finding that there is a glass ceiling to their revenue assurance careers and wanting to expand their power bases or move into other areas, and (2) it is quite embarrassing to be talking about the same old revenue leakages year after year, especially if you have not actually fixed them (and may have been given a few million $ previously to spend on revenue assurance tools to do just that) ;)

So, on one side, we are expected to believe that basic revenue assurance is failing to deliver the US$76 billion on offer. On the other side, people are supposedly moving on from the old revenue assurance problems because they have been solved. Something is wrong here. Of course, it gets even worse when people try to link revenue assurance to Sarbanes-Oxley as they do in the Billing World article above. I very much look forward to the business that first publicly explains how it can be both Sarbanes-Oxley compliant and estimate its revenue loss to be any more than a fraction of 1%. Given the Analysys survey results, there must already be some companies where this seeming contradiction occurs. Of course, there is no contradiction at all – because the amount of revenue loss has nothing to do with whether the accounts are right or not, and the goal of Sarbanes-Oxley is accurate accounts, not well-run businesses. A company that “loses” revenue is doing no such thing in accounting terms: all businesses should be prudent when recognising revenues, meaning you can only book revenues if you reasonably expect to get the money with a high level of certainty. “Revenue leakage” by definition is the kind of thing where there is little or no confidence that you will ever see that money and so should never be reflected in the accounts. So you can lose lots of money and comply with SOX, so long as you do not pretend that the revenue loss has anything to do with the revenue figure in your accounts. Which only begs the question of why people try to link the two in their businesses.

Finally, I might as well share some advice I received this week from cVidya’s venture capital backers. They emailed me and told me about this beguiling proposition:

if operator has 5M lines and his ARPU $15/subscriber/month meaning he has revenues of $900/year; if operator has Revenue Leakage of 8% (average) meaning $72M/year; cVidya platform will detect more then 80% of that leakage meaning $57.6M/year!

So, in other words, a typical cVidya customer with typical leakage generates $57.6m of returns in one year, or more than 10% of the total value of the global revenue assurance market. Presumably the average cVidya customer employs people in revenue assurance who are too busy to worry about moving on to business assurance quite yet ;) On the other hand, when their leakage is reduced to 1.6% or $14.4m/year immediately after they implement cVidya’s solutions it might be time for them to move on to another job – resolving the remaining revenue leakage will be too slow and boring after such a big early success. Perhaps that is why you find so many revenue assurance big shots leaving their jobs immediately after managing multi-million dollar tool purchases. The fact they so often leave to get a job with the vendor they just bought the system from is obviously just a coincidence ;) Anyhow, I would be happy to take on the boring job these big shots leave behind, so long as I keep a modest 10% of any leakage that I save ;) And then I could also comment that cVidya resolves 80% of the “average” revenue leakage of 8% without even trying to deal with any of those exotic debt collection and fraud leakages that Analysys have to include in order to get their estimates to be so large. If I was allowed to keep 10% of leakage I fix for those areas as well I would be making pretty good money ;)

The funny thing about the revenue assurance market is that it is supposed to employ people with superior skills in analysing numerical data and finding anomalies. Why do none of those people ever question some of the incredible numbers quoted for the revenue assurance industry as a whole? And if the numbers they claim are for real, then why how do they explain why they do not make more money in the first place? Perhaps if they made more money the venture capitalists would be able to exit and the revenue assurance people so well paid that they will not care about getting a promotion to business assurance or a new job with a vendor….

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.