Plugging all the holes: driving growth with automated business assurance

Netflix has become synonymous to streaming media success, having clocked 130 million paid subscriptions by the end of June 2018. However, something not under the spotlight is that, for every paid subscriber, there might be two non-paid viewers. According to a research licensed by the private financing company LendEDU in August 2018, 59% of millennials in the US watched Netflix without paying.

That this is not a recent phenomenon is evident from the fact that as far back as April 2013, Bloomberg already reported that, on top of Netflix’ then 33 million customers, 10 million more were using the service without paying anything. Even with Netflix’s generous policy of allowing up to five people to share one account of $12 a month (or two people sharing an account at $8 a month), this would translate into a potential loss between $24 million and $40 million revenues a month for Netflix.

This revenue and profit loss would also represent leakage for Netflix’s partners, the content owners. Because the licensing agreements were typically signed based on the geography the TV show or movies are to be streamed in, the owners would have demanded higher fees from making the content available to more markets.

This went beyond casual sharing of account login information between family and friends. The internet security company Symantec reported in 2016 that re-selling phished Netflix account credentials had grown into a big black market.

Netflix’s might be an extreme case, but it is far from being the only company, and media streaming is certainly not the only industry, that suffers from revenue and margin leakage. According to researches done by the professional service firm Ernst & Young in 2017, for an average communications service provider (CSP), up to 5% of EBITDA could be lost through leakage. Assuming the EBITDA margin of a telecom operator at 25-30% (according to a recent study done by the Stern School of Business at New York University), the loss would equal to 1-2% of total revenue.

Leakage can happen in different forms. There are frauds from outside and failures from inside. Mundane causes may include human operation errors, systemic inefficiencies (poor integration), error-prone IT stack migration, to name a few. For example subscribers continuing to be able to consume services from promotion offer even after the offer period has ended.

In this sense, revenue assurance (RA) has evolved in the last decade. As the CSPs themselves have evolved with increasingly converged offerings across different lines of businesses coupled with technology advances, RA has evolved into Business Assurance covering customer experience improvements, margin assurance and cost assurance in addition to revenue leakage prevention.

For CSPs the sheer complexity of business and large quantities of data will increase the likelihood of impacts on these areas. Most operators have generations of systems operating on the same IT stack. Data generated by millions of users, as well as the new services the operators continuously roll out, all add up to the complexity.

This increasing complexity of CSPs’ operating ecosystem makes it beyond the capability of manual check to detect and prevent revenue/cost leakages as well as improve customer experience. As a matter of fact, some of the more serious and actually more common cause of these challenges is down to the inherent flaws in integration across the operations support system (OSS) and business support system (BSS) components of a CSP’s enterprise IT architecture and manual nature of underlying business processes.

CSPs therefore should seriously consider deploying automated revenue assurance systems, and the focus should be on proactive prevention of leakages.  The reason for focussing on “proactive” aspect is given the increasingly real-time delivery and charging of the services which means, the more the delay in discovering leakages, the lower is the probability to be able to recover from the same. The challenge compounds when the service providers lack the technology wherewithal to enable a proactive discovery of leakages. For example, when asked by the New York Times reporter if they were planning to punish the free riders sharing others’ account, HBO executives conceded they were not able to track the people who so did.

Towards this end, CSPs should, as part of their RA setup, ensure focus on the following key aspects:

  • Close to real-time automated visibility into revenue and customer impacting gaps;
  • Intelligent analysis of outcomes to enable faster discovery;
  • Higher accuracy as well as predictive insights

As important as setting up new IT systems, CSPs should also tighten their internal processes to plug apparent holes, for example missing oversight, or disjointed communications. The processes should be properly documented and be used as input for the automated business assurance systems to be deployed. CSPs should also standardise and digitize data, not only for the benefit of the IT system, but also guaranteeing that different teams understand the same set of data in the same way. In addition, CSPs should focus on transforming the current RA processes on Agile model to enable an ongoing and business-value driven focus, thereby ensuring that the RA program stays relevant at all times even while the OSS and BSS elements of CSP’s services delivery continue to evolve.

One of the most significant changes in business ecosystems recently is the regulations guarding user privacy. By May 2018, all businesses dealing with individual data in the European Union and European Economic Area should be compliant with the General Data Protection Regulation (GDPR), which regulates the scope, length and method of data collection, storage, processing, and sharing, to give the individuals the control over their privacy. Markets from India to California have also released data protection regulations modelled after GDPR. The US federal government has also started a public hearing process to gather comments on future approach to privacy protection.

For CSPs and corporates this means that all businesses that operate in Europe and other parts of the world where specific privacy regulations have been put in place should have rule-defined security and privacy modules installed on the control systems to automatically manage data processes to assure that end-to-end business operations are regulation compliance.

When selecting assurance partners, CSPs should consider these criteria:

  • The solution provider should have in depth understanding of the communication service technologies and the industry as a whole, and the solution is adaptable to the CSP’s business model, including tight processes. Meanwhile the solution should be constantly updated to reflect the latest process and policy changes;
  • The solution should be intelligent and automated, able to produce predictive analytics to detect and warn any anomalies that could result in revenue leakage;
  • The solution should be equipped with big data technology to curate, reconcile, aggregate, and analyse data from across the CSP’s organisation to produce actionable intelligence to prevent leakages;
  • The key difference between business assurance solution and internal audit is that by definition latter is a snapshot while former is always on. The solution could be deployed in the cloud or on premise but it should be able to be accessed anytime from anywhere, should be able to stream real-time data and analytics;
  • The C-level executives are the ultimate owners of business assurance, therefore the solution should be able to generate in-depth data visualization with mobile device(s) enabled intuitive business and operational dashboards, as well as to easily generate insightful reports.

The importance of preventing leakage (revenue, cost, customer experience) cannot be overstated. A leakage does not only cost the company income and bottom line, it can also negatively affect investor and partner perception. Leading business solution providers have already developed specialised IT systems to address this very topic, for example the TCS HOBS Integrated Revenue Assurance System (TCS HOBS-iRAS™) delivered by our partner Tata Consultancy Services is one of the broadly deployed RA solutions globally.