Shift to Mobile Commerce Spurs Revenue Leakage, Fraud, Warns Telecom Operators

Jay Decenella, IT audit expert
March 28, 2012 /

Most of telecom operators worldwide (94 percent) expect the threat of revenue leakage to increase and almost half of them (49 percent) believe the increase will be significant, according to a global survey conducted by advisory firm KPMG.

The research found that the increased risk has been driven by complex network systems, the rise of mCommerce (mobile commerce), converged service offerings, multiple third party partners and a rise in outsourcing, all of which create the potential for inaccurate data capture and billing, and increased fraud.

The report also reveals that the Revenue Assurance function (responsible for detecting and recovering leaked revenue) has surprisingly little influence in many telecom companies.

“The rise of mCommerce and converged services is going to fundamentally transform the industry and this will bring new opportunities but also increased risks for operators,” Joe Gallagher, Head of UK Telecoms, said.

“Revenue leakage will be a major issue in the years to come and it is surprising that Revenue Assurance functions and fraud management teams are often marginalized in companies and do not have more influence,” he added.

Gallagher emphasized the need for operators to understand the role of the RA function as “absolutely critical to the financial and reputational success of their business.”

Revenue Leakage and Recovery

The survey reveals that globally one fifth of respondents leak up to 10 percent of their revenues, with Asia Pacific emerging as the best performing region, where 75 percent of respondents said they leak less than one percent of their revenue (with 15 percent reporting leakages between one and 10 percent and 10 percent higher than 10 percent).

In Europe 15 percent of respondents said they leak over 10 percent of revenues and 19 per cent say they leak between one and 10 percent (66 percent say leakage is less than one percent).

The worst performing region according to the research is Africa & the Middle East (32 percent leak between one and 10percent, 18 percent leak over 10percent).

Just 40 percent of respondents manage to retrieve more than half of all losses. Companies from Europe and the Americas have the highest recovery rates (55percent) while those from Africa and the Middle East are the least effective, with four out of ten (39 percent) recovering less than 10 percent of their reported leakages.

Joe Gallagher comments: “These figures are alarming and should serve as a wake-up call to the industry. The problem is not going to go away but will only become worse. For operators who want to succeed in an increasingly competitive and complex environment it is absolutely essential to tackle this problem as an absolute priority.”

Revenue Assurance Function and Fraud Management evolving

Only 21 percent of respondents say their RA function reports directly to the Board of Directors. Just 24 percent of RA departments hold fully centralized control over their organizations, which could hinder the spread of consistent RA practices. Fifty-four percent are not fully satisfied with the existing communication between RA and senior management, while a lack of career opportunities is considered one of the main reasons for staff attrition.

In many companies the management of fraud is an evolving activity. Forty percent of respondents say their businesses have a dedicated fraud management function; in two thirds of cases this department is less than ten years old. Only 44 percent claim to have a fraud risk management framework in place.

“RA and Fraud Management have evolved considerably over the last few years and although there is some way to go before it is considered a true business advisor, a growing number of companies are involving RA in product, system and network planning in a bid to proactively prevent leakages and fraud,” Gallagher said.

“Currently most RA teams ultimately report to the CFO, who is a powerful sponsor able to ensure that action is taken. However, given the volume of fraud and revenue leakage across the industry, the function needs to be exerting greater influence at the very top of the organization.

“RA is in an ideal position to look at the entire revenue cycle and identify opportunities for cost savings and revenue enhancement. Through data analytics and modelling, RA professionals also gain a unique understanding of customer behaviour and could make an important contribution to marketing and improving the overall customer experience – a big area of focus for the sector.”

 

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