Finding the Money

Hold a magnifying glass to your operations. You may discover revenue the company should have earned but didn't.

It sounds absurd that a company could lose hundreds of thousands or even millions of dollars without even being aware of the loss. But it happens. Earned revenue can slip undetected through cracks in a company's system and avoid collection. Or, as Dennis Walters, a revenue-assurance consultant and Systems/Link director of industry relations, put it: "A lot of revenue leakage never hits the books. It's just revenue that disappears into Never Never Land, and nobody knows it."

Often leaks come in the form of usage loss, instances in which customers use the phone and don't get billed. It always boils down to one of two problems: fraud or a flaw somewhere in the company's system.

John Quille, U.S. Cellular corporate controller, estimates usage losses in the industry typically represent 2% to 5% of a company's gross revenue. In other words, a company that earns $30 million in a year would commonly suffer a minimum of $600,000 in usage losses; a company with $1 billion in revenue would routinely lose at least $20 million.

The findings of Deloitte & Touche's 1998 revenue-assurance survey indicate an average gross-revenue leakage of 3% in cellular companies and 5.5% in PCS companies. Some consultants estimate even higher losses.

But whatever the volume of losses, most service providers could use the missing revenue, because today's airtime charges are falling through the floor, thanks to healthy competition. At the same time, providers need additional cash to introduce new products and services, such as international roaming and mobile Internet services.

The bad news is: You've probably lost revenue in the past. But there's also good news: You can track and prevent revenue leakage in the future.

Fostering A Fix-It Mindset
In an attempt to control its revenue stream, U.S. Cellular hired Quille, the former director of internal control at Baxter Healthcare, in 1994.

"U.S. Cellular had grown," Quille recalled. "And it had sustained some losses that made management conscious of the risks. As a result, they decided to establish a revenue-assurance area in the company."

In the early days of U.S. Cellular's revenue-assurance department, Quille's staffers bragged to one another whenever they discovered usage leaks.

"We said, 'We found usage missing here and usage missing there. That's additional revenue we found,'" Quille reminisced. "We tried to keep it focused toward the future, not the fact that somebody screwed up and lost revenue, but simply that someone found revenue opportunities."

Quille said he operates the same way today. He promotes a corporate culture that encourages employees to recognize and fix problems instead of using an old-fashioned approach that he calls "looking for heads."

"In a very large, complex system, you want zero tolerance," he said. "You don't want any mistakes. But a realistic fellow will tell you that errors will happen anywhere along that system — from a systems problem to a switch technician changing a routing to some other type of incident."

So Quille encourages U.S. Cellular's employees to find errors and fix them, rather than hiding problems or wasting time looking for a scapegoat.

This management style fosters communications, Quille said. Assessing blame can discourage employees from pointing out problems.

Where the Trouble Is
A lack of procedures is the major cause of revenue leaks, Quille said. He recommends developing revenue-assurance procedures to coincide with new services or systems changes.

"Typically, the engineers can roll out a new product before the systems guys are fully capable of billing it," he said. "Across the industry, we need to make sure that the focus on revenue procedures comes along with the roll-out of a new product."

U.S. Cellular attempts to stay ahead of the game by using an interdepartmental team to resolve revenue-assurance issues related to each area of the operation. Quille said teams should include employees from new products, marketing, engineering, network operations, the financial group and maybe someone from customer service.

Before new services are offered to customers, the team writes a project roll-out plan, which includes detailed employee training, revenue control and recording procedures. The team's plan complements the standard marketing or product-roll-out plan.

A crucial part of the planning process involves developing a checklist. The list should include processes that will be affected by the new service and list systems that need to be modified. The goal, Quille said, is to understand how you're going to collect for billed services.

Ensuring the company's ability to collect means making sure that switches and networks are working properly and that calls are being recorded in the billing system.

To make sure the switching and billing systems are working properly together, Jim Marsh, TMNG senior consultant and the company risk-management practice leader, recommended service providers conduct switch audits and reconciliation.

"Quite often (providers) don't really go back and look at what their switches are producing and reconcile it to what is being sent onto the billing system," he said.

Part of the auditing and reconciliation process involves the daily monitoring of air buckets, billing periods containing calls that cannot be processed or tied to a billing entity.

"You can have an air bucket with 10,000 phone calls in it," Marsh said. "If you're carrying those and not billing the right entity, you end up eating those calls."

Marsh also identified prepaid accounts as a potential source of revenue losses. Problems can be created when prepaid customers are allowed to use credit cards to add minutes to their accounts.

"There's a lot of credit-card fraud out there," Marsh said. "And if you're not monitoring that correctly, you can lose revenue because you'll get charge-backs from the credit-card companies."

This brings us to the problem U.S. Cellular's Quille classified as the No. 2 cause of revenue leakage: employees failing to follow existing procedures.

"Often they don't understand," he said, explaining that employees sometimes take procedural shortcuts without realizing the impact on other aspects of the operation. Quille recommends training all of the involved departments to overcome the lack of understanding.

Like U.S. Cellular, GTE Wireless makes revenue assurance a companywide effort.

"Revenue assurance cannot be seen as a narrow process that belongs in one particular department," said Sara Baxter, GTE Wireless acting director of customer-assurance operations.

At GTE, a quality-assurance team prescreens new products by conducting tests on activation systems at all order-entry points, including e-commerce, wholesale, retail and indirect agents.

"We put the product in a testing environment, where we identify how it is supposed to work and how it is supposed to bill," Baxter said. "Then we test every aspect from the switch to the billing system to the end user to make sure it works properly and that the customer is billed appropriately."

If the tests uncover problems, the development team is notified and asked to correct the problems before the product introduction.

In addition, GTE relies on an internal auditing staff to perform periodic department audits.

"We challenge our internal audit teams to come in and identify any points of leakage, and if any are identified, we correct them immediately," Baxter explained.

"You can't just rest on your laurels and believe that your current processes are working 100%. You always need to challenge yourself."

Other Tools of the Trade
U.S. Cellular and GTE Wireless both depend on software, as well as human intervention. U.S. Cellular's Quille said he expects future wireless applications to bring more of a need for automated revenue-assurance testing and controls.

"We'll have to focus more on top-to-bottom internal control, not only on what occurs in the switch but what happens at the point-of-sale and what happens at the back end," he said. "So we're going to have to get much more sophisticated in our operating support systems and our billing systems."

Software applications have become more cost-effective and sophisticated since 1994, according to Quille. Although he refused to reveal the brand name of his favorite automated revenue-assurance system, he said the software allows him to sit in his office and set up test scenarios on the computer screen to make sure specific services can be tracked through each department. U.S. Cellular also uses GTE TSI's FraudX to detect fraud on the network.

GTE's toolkit includes software that compares an applicant's Social Security number, driver's license number, address, contact numbers and date of birth.

"It runs algorithms in a database, flags inconsistencies and alerts us to erroneous data that will be a flag for fraud," Baxter said.

With this method, GTE can pre-screen applicants to determine fraud risks.

"Ultimately, it keeps us from having back-end (fraud investigation) costs," Baxter said.

The company also employs an automated process to conduct daily monitoring of credits or concessions that have been applied to customers' accounts. This allows systematic or human errors to be discovered and corrected.

What the Future Holds
System/Link's Walters has been helping wireless-service providers structure their revenue-assurance programs for more than 10 years. He said revenue leakage appears to be getting worse.

"Chances are that with the increased competition and the necessity to keep costs down, carriers are taking shortcuts," he surmised. "Part of the problem is that carriers are leaning heavily on prepaid accounts. Also, the drive for customer acquisition is overshadowing the need for revenue-assurance assessments."

Walters predicts revenue assurance will become more important to wireless providers in the future, especially because the Internet presents many challenges and opportunities for revenue leakage.

"The Internet is not a secure process," he said. "All of the steps are being taken to implement wireless bank transfers and wireless stock transfers. But there are not adequate safeguards in place right now to prevent customers' accounts from being accessed and manipulated."

Because security issues will become more linked to acquiring customers, Walters forecasts service providers will be become more attentive to revenue-assurance issues.

"There's also probably going to be a whole area of need for auditing relationships," Walters said.

That need will be driven by the alliances providers must enter in arenas such as wireless e-commerce and international roaming, Walters said. Therefore, to avoid leaks, it will become crucial for service providers to monitor information from allies to determine whether the correct data has been received and provisioned.

With more wireless providers going global, security measures in foreign countries also will play a role.

"Service providers going onto an international system are more likely to be at risk in terms of the legitimacy of the customers' information," Walters said. "Some foreign companies don't have the kinds of systems we have to validate customers' information."

TMNG's Marsh also focuses on the problems that will be created by alliances among service providers and between providers and other business partners. With transactions crossing multiple entities, he said, service providers will have to decide which role each partner will take. After the alliance has been cemented, the service provider will need to monitor traffic coming from partners and determine how much of that business is unbillable.

U.S. Cellular's Quille said he's seen companies' revenue-assurance efforts increase during the past four years and predicts more of the same in coming years.

"Revenue per user is dropping annually, and now there are about five competitors in about every market," he said. "Paying attention to internal control and revenue leakage can actually add a substantial amount of dollars to your bottom line — on customers that you already have and who have agreed to pay the rates you've got. It is sometimes easier to find leaked revenue than it is to find new customers."

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Reality Vs. Perception

In fall 1998, Deloitte & Touche conducted a mail survey of telecommunications executives about thier perceptions of and their companies' approaches to revenue assurance. Forty-seven percent of the respondents were senior-level managers with titles such as president, CEO and chief information officer. The respondents work in various types of indutry enterprises, including wireless and wireline companies. Of those surveyed, 33% said they were unsure if their ocmpanies currently experience revenue leakage.

Yes — 40%
Average Leakage
Cellular — 3%
Local/Toll — 4.4%
Long Distance — 3.3%
PCS — 5.5%
Network Access — 3%
Overall — 4.1%

No — 27%

Don't Know — 33%

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Revenue-Assurance Checklist

A basic assessment of your program should include the following processes and associated documents.

• Customer-service agreements: A careful review of the agreement takes only a few seconds and is an important measure to prevent write-offs as a result of subscription fraud.

• Welcome kits, welcome cards, returned mail: The company can use welcome cards and kits and procedures for handling returned mail to help with early detection of new accounts that may result in write-offs.

• ESN change orders: A review of ESN change orders is a way to detect patterns or errors or manipulation that may result in write-off losses.

• Agent or sales-center activity reports: Commission, activation, deactivation, churn, charge-back and other activity-summary reports can be useful in identifying accidental misuse or intentional abuse of sales commissions or other incentives.

• Customer-care service credits: The method and pattern of service credits often reveals weaknesses in customer care.

• Third-party, long-distance billing reports: The scope of this review depends on the agreements between the wireless-service providers, LECs and IXCs, and the reports provided by each.

• Unbillable roaming, cloning and tumbling reports: Net losses between roaming charges from other providers and your billing company is an indication of the level of roaming fraud you currently experience.

• Collections reports: These reports can help the company identify and reduce losses before they become write-offs.

• Inventory procedures and demo/loaner phones: Service providers can prevent misuse or unauthorized distribution of phone units and ESNs by using procedures for stocking and distributing phone inventory and disposing of trade-ins or scrap units.

• Credit reviews: The process by which new-customer credit histories are reviewed is an important and often under-used step in the prevention of revenue loss.

• Switch and cell-site work orders, remote access: The ability to audit accesses and alterations in cell traffic systems is an essential element in the protection of revenue.

• Employee and agent background profiles: Wireless companies that screen potential agents and employees reject as many as 15% of the applicants because they present a business or fraud risk.

• Information security: Some wireless-service providers have not designed their facilities to accommodate the securing of subscriber information, ESNs and MINs, technical data, subpoenas and other sensitive proprietary material.