Download Complete the `Profit equation` with Cost Assurance

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powering the ROC
Complete the ‘Profit equation’ with Cost Assurance
Why is Cost Assurance important
and what should a CSP look for in a
Cost Assurance solution?
This white paper focuses on an important yet
under exploited area of Cost Assurance for
Communication Service Providers (CSP). The
paper emphasizes on the importance of Cost
Assurance to CSPs, attempts to scope and define
Cost Assurance, and finally provides some
thoughts on what CSPs should look for in a Cost
Assurance Solution.
www.subexworld.com
www.subexworld.com
powering the ROC
whitepaper Complete the ‘Profit equation’ with Cost Assurance
INTRODUCTION
The telecommunications industry
is witnessing a period of
unprecedented change. New
network types, new business
models, new services, new OSS &
BSS components are few examples
of what the Communication
Service Providers (CSP) have to
deal with in this rapidly
transforming scenario. Situation is
further complicated by falling
margins, increasing in customer
churn, & growing fierce
competitive situation demanding a
never before degree of operational
efficiency in CSP operations.
Operation teams including OSS &
BSS now not only have to manage
the processes but also have to
contribute to the bottom-line by
way of protecting revenue
leakages and excess pay outs to
partners & other CSPs.
As subscriber growth slows down, CSPs
world over face the challenge of
maintaining or improving organization’s
profitability. While most service providers
are trying to achieve better profitability by
assuring the revenue stream, only handful
are focusing on assuring the cost stream.
For the several years news of layoffs and
other cost reduction programs have filled
telecom news stories. Simultaneously, focus
on revenue assurance has also increased
with great results but the cost assurance
efforts have lagged. As observed in recently
published survey by Ernst & Young, more
than 50% of CSPs focus on Revenue
Leakage issues through use of various RA
tools however less than 20% of polled CSPs
admitted that they focus on Cost Reduction
activities, let alone Cost Assurance. Hence
majority of service providers still do not
have a complete assurance for the
components i.e. Revenue & Cost used in
profit equation i.e. “Profit = Revenue – Cost”.
While the discipline of Revenue Assurance is
well developed and has reached the slope
of enlightenment, the discipline of Cost
Assurance has just started to gather
momentum. The CSPs in the matured
markets such as North America and Europe
have already started paying attention to the
cost side of the profit equation. Some CSPs
in these matured markets have created
functions such as ‘Operations Assurance’ or
‘Business Assurance’ and have started
focusing heavily on bringing the service
delivery costs under control. The trend no
longer seems to be limited to matured
markets anymore as service providers from
other parts of the world have started
realizing the full potential of Cost Assurance
and the impact it can have on the overall
profitability.
02
© 2008 Subex Limited
www.subexworld.com
powering the ROC
whitepaper Complete the ‘Profit equation’ with Cost Assurance
UNDERSTANDING THE
PROFIT EQUATION REVENUE ASSURANCE &
COST ASSURANCE
Since it is important to have clear
distinction between Revenue & Cost
Assurance a deeper analysis of respective
definitions and how these two disciplines
are different is required
Revenue Assurance
TM Forum defines Revenue Assurance as
“Data quality and process improvement
methods that improve profits, revenues and
cash flows without influencing demand”.
The revenue assurance function sits halfway
between a carrier’s OSS/BSS systems and its
internal audit department. Rather than
reconciling the accounting books, revenue
assurance worries about the accuracy and
effectiveness of customer- and network
facing systems like billing, mediation,
provisioning, collections, and interconnect
settlement.
Cost Assurance
On the contrary Cost Assurance bridges the
gap between the OSS and BSS. Cost
Assurance can be defined as a periodic
process of identification, collection and
comparison of cost related data across
multiple sources such as partner invoices,
inventory, orders, call detail records, etc. in
order to eliminate or reduce unwarranted
costs by recognizing incorrectly
overcharged invoices, stranded assets,
unused circuits, and unexpected traffic
patterns or trends. Cost assurance thus
helps improve the Profit Margins &
Operational Dexterity through reduction of
service delivery costs.
CSPs can thus maximize their profitability
by driving up the revenues through
Revenue Assurance and driving down costs
through Cost Assurance.
03
THE EMERGING NEED FOR
COST ASSURANCE
According to the Operator Attitudes to
Revenue Management Survey 2007
conducted by Analysys, CSPs can save upto
5% of their annual revenues through
effective Cost Assurance.
Savings of upto 5% of a
CSP's annual revenue
through effective Cost
Assurance directly adds to
the bottom-line
Traditionally, CSPs have focused so much on
the network and costs associated with
network that the costs related to partners
and interconnect, have not been given the
importance they deserve. For example, it is
very likely that CSP will have software
version of Route Optimization solution to
address the network side of the
Interconnect but it is not as likely to have
software solution to address invoice/billing
dispute management. However, with
evolution of next generation services, which
need variety of partners, it is becoming
increasingly important for operators to pay
heed to the money paid to partners to make
most of these NGN service opportunities.
In general, the CSP’s billing relationships
with its suppliers, enterprise customers, and
other partners are significantly more
complex compared to CSPs relationships
with individual retail customers. The CSPPartner billing relationships are often
challenging as they involve high volumes,
diverse payment methods, and in many
cases, different billing formats. In spite of
above mentioned challenges, it is critical to
achieve high accuracy in high monetary
value settlements with variety of partners
because of extremely competitive market.
Additionally, the CSP networks today are
not only complex but also span across both
their own networks (on-net), as well as the
one leased from other service providers (offnet). In case of some service providers (such
as Wireless, MVNOs etc.), the money spent
on leased networks is generally a significant
part of their overall network maintenance
© 2008 Subex Limited
www.subexworld.com
powering the ROC
whitepaper Complete the ‘Profit equation’ with Cost Assurance
budget. These service providers must make
sure that they are being appropriately
charged for the capacity they use and are
not being charged for capacity they are not
using.
unidentified overcharged invoice amounts
from partners, errors in third party billing,
and may also affect CSPs compliance on
regulatory requirements such as SOX.
The intricacy of next generation type of
services also makes it arduous for CSPs to
manage the product life cycle from
customer acquisition to service billing. It is
harder for CSPs to understand how much
they are spending to deliver, manage and
support a service. It is also difficult to for
CSPs to understand how productively their
capital expenditures in network or IT
infrastructure are being used and how
efficiently their service delivery costs are
managed.
COST ASSURANCE ISSUES
In summary, even though in general CSPs
spend more than 40% of their revenues on
building network, hardly any significant
investment is made for network and partner
cost control. Such inadequate attention to
third party and interconnect can result in
poor usage of network infrastructure,
1.
As per the latest Operator Survey in figure 1
below CSPs identified twelve major ‘Areas of
concern for sources of revenue loss’. Six of
the highlighted causes can be addressed by
deploying a well defined Cost Assurance
practice.
In the complex communication
environment, here are some examples to
provide a quick overview of types of cost
assurance issues a CSP can possibly face:
Processing invoices from partners,
many of whom will be sending invoices
in different format, sizes and using
different technologies
It is very likely that a large Tier-1 CSP
has a dedicated team of hundreds of
% of respondents
Figure 1: Areas considered to be the main sources of revenue loss
80
2005 (sample
104)
60
2006 (sample
100)
40
2007
(sample 96)
20
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04
© 2008 Subex Limited
www.subexworld.com
powering the ROC
whitepaper Complete the ‘Profit equation’ with Cost Assurance
people to handle thousands of
incoming invoices. Imagine the work
involved when a CSP receives an
interconnect paper invoice of 500
pages from interconnect or content
partner, which needs a closer look for
identification of potential
discrepancies, reconciliation with the
usage data on CSP side to make a
decision on what needs to be paid
before the due date. It is a time
consuming and error prone process.
Unrecovered assets, which were
initially sent to the customers to
provision a service but the same, were
never recovered when the customer
decided to discontinue the CSP
services. In such cases the CSP will be
carrying the assets on the books but
will not be able to use them to
recognize the revenues from those
assets.
Cost Assurance can result in
optimum utilization of
network resources and leaner
operations thus preventing
erosion of margins
COST ASSURANCE SCOPE
2.
Changes & inconsistencies in circuit
configurations by the network team,
which were NOT notified to the billing
team causing billing disputes
Imagine a network technician just
interchanging the circuits for test
purpose and then forgetting to reverse
the change or deciding to use an
adjacent inappropriate circuit just
because it’s available. In such a case the
bills sent to the enterprises or partners
will result in disputes, which will need
considerable time and effort for
problem identification and resolution.
3.
Lack of integration or process delays
between the assurance systems and
payments processing system used for
the third party invoice settlements
Cost Assurance is a mechanism to ensure
that CSP optimizes its network and
operations systems costs while providing
variety of products and services to its
customers. The scope of Cost Assurance can
be as vast as service providers’ operations
areas but following are the main application
areas
1.
Partners settlements for next
generation content – Value added
services
2.
Facilities or third party systems used for
offering services
3.
Interconnect partners
Imagine a situation where everything
from invoice processing to overcharge
error identification is completed in
time but is not relayed to the payment
processing system or more time is
taken than available because of the
payment due date, then the payment
processing system will send the
overcharged payment resulting in
direct loss and future disputes.
4.
05
Stranded or unutilized assets, which
are paid for by the CSP but are not
being used for delivering any service
© 2008 Subex Limited
www.subexworld.com
powering the ROC
whitepaper Complete the ‘Profit equation’ with Cost Assurance
Figure 2 defines the scope of Cost
Assurance and its interfaces with input &
output data.
In general, any Cost Assurance solution
should have the following application areas:
Access Assurance
To focus on the supplier side of CSP
business and help validate the invoices the
CSP receives from access providers, which
CSP utilizes to deliver its own services.
Circuit Assurance
To focus on the enterprise side of the CSP
business, the xDR records for the circuits
leased by CSP are reconciled with circuit
invoice data to determine the actual
capacity charges.
Payments Assurance & Accruals
To focus on the payments management of
the CSP business where payments can be
either incoming payments from other
enterprises (and not retail customers) or
payments CSP makes to other parties.
Carrier to Carrier Compensation
Assurance
To focus on the inter-carrier settlement
portion of the CSP business where it should
not only handle transit traffic assurance for
the CSP but also help CSP to perform
Invoice (provided by partner Operator)
assurance after considering volume
commitments. The incoming invoices from
service providers leased by CSP should be
reconciled for usage by comparing the
rated CDR data with invoice data.
Dispute Management
To focus on the dispute lifecycle
management process for CSP’s disputes
with its suppliers, enterprise customers, and
other partners.
06
© 2008 Subex Limited
www.subexworld.com
powering the ROC
whitepaper Complete the ‘Profit equation’ with Cost Assurance
WHAT TO LOOK FOR IN COST
ASSURANCE SOLUTION?
In order to address the cost assurance
challenges in a comprehensive way, a Cost
Assurance Solution must have the following
capabilities:
1.
Invoice processing: A quick but
accurate invoice processing
component, to load different types &
formats (paper or electronic) of
invoices without much manual
intervention
2.
Rating engine: A scalable & accurate
rating engine to rate complex services
and charges
3.
Extract-Transform-Load (ETL): The data
feeds for cost assurance solution will
come from numerous sources hence its
important to have strong ETL tool.
4.
5.
Reconciliation engine: A powerful
reconciliation engine to reconcile data
from variety of sources based on
predefined rules and policies
Workflow: An effective workflow to
automate manual processes and
improve overall efficiency
6.
Dashboard & Reporting: The
consolidated view of various cost
components with meaningful key
performance indicators and reports is
essential for different users to be more
productive as well as take appropriate
decisions
7.
Settlements: To identify billing
discrepancies while settling the
accounts with third party vendors and
partners to avoid penalties
07
8.
Interface with other systems: Cost
assurance solution will be required to
provide inputs to systems such as G/L,
ERP etc. it is important to look for
ability to interface with such systems.
As competition increases,
Cost Assurance is the way to
go for CSPs to enhance
profitability and stay ahead
of competition
CONCLUSION
In order to maximize profitability and assure
profit equation, CSPs must look into the
cost side of business. All the hard work that
CSP’s procurement teams would have
performed to negotiate rock bottom prices
from suppliers, can go in vain if the
incoming payment requests and invoices
are not assured with the actual usage.
Subex estimates that CSPs can potentially
save upto 5% of revenues on excess pay
outs by adapting cost assurance measures.
To know more about Cost Assurance
please visit our website:
www.subexworld.com or send us an
email at [email protected].
© 2008 Subex Limited
ABOUT SUBEX LIMITED
Subex Limited is a leading global provider of Operations and Business Support Systems (OSS/BSS) that empowers communications
service providers to achieve competitive advantage and deliver new service experiences to subscribers. The company pioneered the
strategic concept of the Revenue Operations Center (ROC) – a centralized framework for end-to-end control of a service provider's
revenue and costs, fostering operational dexterity for sustained profitability.
Subex's software portfolio powers the ROC and its best-in-class solutions enable new service creation, operational transformation,
subscriber-centric fulfillment, provisioning automation, revenue assurance, cost management, data integrity management, fraud
management and interconnect/interparty settlement.
Subex's customers include 32 of the world's 50 largest service providers. The company has more than 300 installations across 70
countries.
For more information please visit www.subexworld.com
www.subexworld.com
powering the ROC
Subex Limited
Subex Inc.
Subex (UK) Ltd.
Subex Americas Inc.
Subex (Asia Pacific) Pte. Ltd.
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Phone: +44 20 7826 5420
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