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Industry losing billions through revenue leakage according to KPMG survey

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Revenue leakage is costing the global Telecommunications Industry an estimated USD40 billion each year according to KPMG's annual Global Revenue Assurance Survey. Over half (54%) of telecoms operators surveyed put revenue leakage at more than 1 percent of total revenues. Fifteen percent of operators reported leakages greater than 3 percent, including some in developing markets placing the leakage as high as 10 percent.

Leakages can occur anywhere across the revenue cycle from sales to network configuration and rating and billing. A typical leakage might arise from incorrect billing or chargeable call records not being passed on to the billing system for rating and charging, or from international destinations being configured as local destinations.

The survey of 74 operators in 46 countries across the Americas, Europe, Africa, the Middle East and the Asia Pacific regions, also found that a lack of available data was adding to the problem by making it harder for the Revenue Assurance functions of telecoms operators to identify leakages. About 40 percent estimated that less than half of total leakage was identified. In developing markets large numbers of respondents indicated that less than 10 percent of leakages were identified. As a result overall losses to the industry worldwide may be significantly higher than estimated.

Sean Collins, KPMG's Global Chair of Communications & Media, said, "A common perception across the industry is that developing markets face higher revenue leakage than developed markets due to rapid growth and technological changes. The survey supported this view, but also highlighted that data availability poses challenges for operators across all regions. In fraud-related leakages data unavailability was of even greater concern with 37 percent of respondents unable to obtain the required information."

The UK appears to be among the most effective at tackling revenue leakage. While UK respondents report revenue and fraud leakages of up to 1 percent of total revenues, more than half of the leakage was identified by the Revenue Assurance function with a 75 percent recovery rate. UK respondents also indicated that they had no problems with data availability.

In the UK operators also appear satisfied that their in-house functions have all the requisite skill sets. The survey found an encouraging trend towards the emergence of cross-functional teams within the Revenue Assurance function, but also a willingness to look outside for help with such issues as fraud.

Clare Patterson, Performance and Technology Advisor, KPMG Europe commented: "UK telcos have one of the lowest revenue leakage rates globally due to the maturity of their revenue assurance functions, but the constant flow of new technologies and products like mobile applications and open business models means it is a constant challenge to keep on top of leakage."

Recovery of leakages remains a problem for most regions. About 60 percent of operators surveyed estimated that less than half of leakages identified were recovered.

More than 45 percent of respondents ranked 'prepaid accounts' as the revenue stream most vulnerable to leakage. In developing markets, a majority of respondents ranked 'roaming' and 'value added services' as the second most vulnerable, while in Europe and America 'postpaid' was ranked second.

Clare Patterson continued: "Prepaid accounts are vulnerable to revenue leakage due to the real time nature of the transaction. Problems with deductions or top-ups, for whatever reason, leave little option to recover the loss.

"'Roaming' charges and 'value added services' are also vulnerable to leakage as they require records to be exchanged with different providers - be they international operators or content owners - and require more complex technical and business processes. The fact that postpaid accounts still rank highly as a source of revenue leakage is a reflection of the large proportion of revenue this traditional form of payment still generates."

Globally the majority of operators (60%) acknowledge that they are hampered in their efforts to reduce revenue leakage because their Revenue Assurance operations lack the necessary skills to be effective. Most respondents felt technical skills - knowledge of network elements and other systems - were the most significant missing skill set. Second to technical skills was a lack of audit and investigative skills.

Clare Patterson continued: "It is critical for revenue assurance personnel to understand the various aspects of the revenue cycle - technical, commercial and financial. Technical areas such as networks or rating and billing systems have been highlighted by survey respondents as the most vulnerable to revenue leakage, so the development of those skills should be a priority. Where they can't be developed getting informed advice is key. "

The survey concluded that developing more effective automated Revenue Assurance tools, spreading awareness of the Revenue Assurance function throughout organisations and obtaining accurate and timely information are key to tackling the Revenue Assurance challenges facing telecoms operators.

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Tags: kpmg  fraud  billing systems  option  europe