Wireless carriers are spending big bucks in promoting the use of their flashy, fast new data services: full-length music downloads, three-dimensional mobile games, Web surfing and the like.
But with carriers relying on revenue from those transactions to boost their average revenue per user, it becomes ever more important that the operators bill customers for everything that can be billed for, while making sure that neither they nor their customers get stuck paying for failed downloads, unwanted content subscription services or outright fraud.
Roger Parks, vice president of global products for digital commerce company Qpass Inc., said this year has been a turning point for many operators in the United States and abroad: They have begun to focus not only on how fast their revenues are growing but also on what’s actually happening to the money. The issue boils down to what is commonly known as revenue leakage.
According to John Brooks, senior principle at Azure Solutions, the industry has changed dramatically in terms of the number of companies that carriers have agreements with. From the days when the industry mostly needed to worry about tracking roaming usage on and off its own network and make sure it was being paid properly, carriers now rely on a whole host of content aggregators and providers to make the coolest new content available to subscribers.
“All of these guys now have their hands in your pocket, so to speak,” Brooks said. “As a result of that, now your risk for both losing revenue and being a victim of fraud has significantly increased-and by significantly, I’m talking like an order of magnitude higher than it was before.”
Parks said that while carriers are “pretty good at counting the things that they generate”-such as voice minutes, data packets, text messages and multimedia messages-they aren’t as good at tracking the things that are provided by third parties. And while losing track of a few SMS messages doesn’t cost the carrier much, it’s a different story when the applications involved are $5 or $10 games, Parks said.
Faster network speeds won’t make things better, and actually may make things worse as increasing amounts of data travel over carriers’ networks.
“In reality, 3G’s expansion of the content market will put yet more load on operator’s creaking systems and threatens to worsen the revenue leakage situation,” said Andy Humphries, technical director for Accipia, a billing and revenue assurance consulting company.
Risks for revenue leakage related to downloads come primarily from off-portal downloads, which carriers have little control over. Examples of revenue leakage and fraud include shady content providers writing scripts so that a certain percentage of downloads will fail, resulting in customers needing to make multiple download requests. The providers then are compensated based upon the number of requests, not completed downloads-and they can blame failures on the operator’s network. In other cases, according to Brooks, scammers might set up multiple handsets to repeatedly request a download-and the “subscribers” who own those handsets simply disappear when the bills come due.
On the customer-care side, a rep may refund a flat amount of money to customers-say, $5 in the case of a ringtone-that exceeds the actual cost of the app; or they could give a refund even when a download has been completed successfully.
Carriers can lose money by paying it out unnecessarily to content providers, or when customers demand refunds even though a download has been completed or get a larger refund than what they paid for the content. In addition, the cost of customer care for those consumers typically falls upon the carrier.
Analyst Iain Gillott of iGR Inc. notes that he downloaded a ringtone about two years ago that was supposed to be usable for only 30 days, and he’s never heard a peep from his carrier, Sprint Nextel Corp.-an example, he says, not so much of outright money that Sprint Nextel lost, but an opportunity for making additional revenue that the carrier missed.
Gillott has estimated that worldwide, operators will lose about $7.5 billion this year due to revenue leakage, with Japan and Western Europe leading the pack in losses and North America missing out on nearly $600 million. The largest percentage of the loss comes from access limits, such as operators not enforcing the end of promotional periods or the amount of time that people have trial access to a game or other application.
“You may decide not to enforce [access limits] because you’re scared that people will churn,” Gillott said. “But if you’re that concerned about churn, I think you’ve got some other problems.”
Several experts mentioned additional transparency at a transaction level that would help customer care reps deal with problems related to downloads and refunds. Real-time billing systems can solve some of the problems, they said, as can reconciling bills from content providers with what wireless customers have been billed for. Gillott said that a system could work that would be similar to what credit-card companies use, where a customer could challenge a charge and then the carrier would research the challenge to verify its authenticity. But, he noted, such a system could probably be hard for operators to implement and that so long as the companies are growing and the sums involved are relatively small, the carriers won’t be all that motivated to do so.
“It’s a problem they’re going to get to when they have time to get to it, which means there’s going to have to be a catalyst,” Brooks said.
