Kpmg global revenue-assurance-survey-march2012

TELECOMMUNICATIONS

Entering a
new era
Are new value propositions opening up
for Revenue Assurance functions?

kpmg.com

KPMG INTERNATIONAL

Contents

03 08

05 16

© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.

28 41
Foreword 03

Executive summary 05

The continuing battle against
revenue leakage 08

34 42 Revenue Assurance’s evolving
role in the organization 16

Sharpening operations 28

The power of people 34

Conclusion and key takeaways 41

About the survey 42


E ntering a n ew e ra

m-commerce is
the trend that will have
the greatest impact on
the industry.

Sean Collins
Global Chair
Telecommunications
& Media

2


E n t e r i n g a n ew e r a

Foreword
Rapid and far-reaching changes in the telecommunications
landscape are increasing the risk of revenue leakage. Today’s
operators have to cope with complex network systems,
converged service offerings, multiple third party partners and
a rise in outsourcing, all of which creates the potential for
inaccurate data capture and billing, and increased fraud. In
addition to these challenges, all operators are facing margin
pressure, particularly with increasingly savvy customers,
emerging data products, and the need to continually invest in
network infrastructure to keep up with demand.
Against this backdrop, intense pressure is on Revenue Assurance (RA)
functions to identify and address revenue leakage and deal with the increased
risk of fraud. ‘Leakage’ in this report refers to actual revenue leakage as well
as revenue exposure – the identification of potential revenue leakage before
the event has occurred.
KPMG’s global study of revenue assurance and fraud management
functions identifies the continued challenges faced by telecommunications
companies today, and offers some guidance on how to reduce revenue
leakage and optimize margins. In this, the second KPMG Global Revenue
Assurance Survey, we spoke to executives responsible for RA from 137
telecommunications companies around the world. The results make
compelling reading and show a number of interesting changes since the
previous survey in 2009.
We would like to thank all those who gave their valuable time to participate in
the survey.

Sean Collins Romal Shetty
Global Chair Head of Telecommunications
Telecommunications & Media KPMG in India

3



4



Executive summary
The impact of market forces on telecommunications companies
A number of forces are at work in the telecommunications industry that are increasing
the potential for revenue leakage, and the survey responses show how operators are
transforming their businesses in response.

Business transformation through increasing complexity

With convergence comes complexity
• Eighty-five percent of respondents provide converged services.
• Growth in business process outsourcing, value-added services and tariff plans.
• m-commerce is the single most transformative issue.

Functional transformation as Revenue Assurance’s role evolves

RA function still lacking influence
• Only 21 percent report directly to the Board.
• Only 25 percent of CFOs see a need for a chief RA officer.
•
But… some positive signs of growing authority, with 85 percent of RA functions formally
involved in signing off on new projects.
RA structure changing… but slowly
• Only 24 percent of RA departments are fully centralized.
• Forty-two percent of RA functions are cross-functional with a balanced representation.
• Forty percent say they would never outsource RA.

Revenue leakage a continuing threat

Much work to be done to plug revenue leakage
• hirty-six percent of respondents say their company leakage more than 1 percent of total revenue.
T
• Forty-one percent of RA functions fail to identify more than half of total leakage.
• ew transformational projects (new technology, network, billing system migration, for example),
N
poor system integration and fraud are the top three sources of revenue leakage.
• Newer revenue streams such as data/broadband, interconnect and value-added services are

more vulnerable.

Operational transformation to build better practice
Strong signs of greater efficiency
• Fifty-six percent of respondents say their RA function is self-funding.
• ast majority have strong standard operating procedures for data sources and execution
V
processes for RA activities.
• Seventy-eight percent use some kind of RA/fraud management tool.
• But… 52 percent say their senior management is not rewarded against RA performance,

which could weaken the focus on prevention and identification of leakage and fraud.
Talent is high on the agenda
• RA functions have a good mix of technical and business competence.

• Sixty-five percent expect to grow through internal development of people.

5



As they strive to identify and reduce revenue leakage and fraud, RA functions
are looking to become more influential at the highest levels and sharpen their
operations to become more efficient in an increasingly complex industry.

Established trends Emerging trends

• Outsourcing of core operations like Network and IT. • Likely increase in leakage owing to transformations like
• High number of Value Added Services (VAS) parties m-commerce, Next Generation Networks and converged
deployed. services.
• High number of tariff plans on a monthly basis.

• Primary focus on revenue leakage identification only. • Visibility to Audit Committee and Board of Directors.
• Need for cross-functional establishment. • Creation of CXO position for RA.
• Increased focus on product and network assurance. • Partial outsourcing of RA function.
• Centralized RA functions.

• Detailed process documentation around RA checks. • Performance incentives linked to RA savings for RA and
• Focus on development of analytical and technical skills. business functions.
• Existence of RA tool deployment. • Dedicated Fraud functions with increased visibility and
• Low recovery rates for identified leakage. empowerment.
• Establishment of fraud risk management framework.

Convergence continues to be largely responsible for this increased complexity, with
the vast majority (85 percent) of respondents providing converged services to their
customers.
However, when asked which changes would have the greatest impact on the
industry, the number one response was m-commerce. This reflects the growth
of mobile banking and payments, which is creating new, independent revenue
streams with accompanying billing and security issues.

Factors most likely to transform the telecommunications industry

M-Commerce/banking/payments 74%

Converged services 71%

Next Generation Networks 65%

Long-Term Evolution (LTE) standard 48%

Mobile number portability 36%

Mobile virtual network operator 32%
Preferred carrier based
24%
on subscriber choice
Mobile advertising 16%

Others (please specify) 12%
0 10 20 30 40 50 60 70 80
N= 114 respondents

Respondents could select more than one response option.
Source: KPMG Global Revenue Assurance Survey, 2012

6



The telecommunications executives that took part in the survey are well aware of
the consequences of such major transformations. An overwhelming proportion
(94 percent) believe the threat of revenue leakage and fraud will go up, and half
think this rise will be significant.

Impact of transformations upon the
telecommunications industry
2% 4%

49%

45%

N = 85 respondents

Decrease in revenue leakage and threat of fraud
No increase in revenue leakage and threat of fraud
Partial increase in revenue leakage and threat of fraud
Signiﬁcant increase in revenue leakage and threat of fraud


The speed of change in the sector is breathtaking
and putting an incredible amount of pressure on our
Revenue Assurance people. We have to adapt quickly
and decisively or else risk even greater leakage.

Gabriela Sobral Gil
Revenue Assurance Head
Telefónica Latinoamérica

7



The continuing battle against
Despite their best efforts at
prevention, more than a third
of respondents are leaking
in excess of 1 percent of total
revenue. And the RA function has
enjoyed mixed fortunes, with 41
percent failing to identify more than
half of total leakage.
Compared to the previous 2009 KPMG Global
Revenue Assurance Survey, the proportion
claiming leakage more than 1 percent has fallen
considerably from 54 to 36 percent, although there
is still clearly much room for improvement.
The only regions to report worse figures than 2009
are Europe and the Americas, where the percentage
claiming leakage over 1 percent of revenue has more
than doubled. A significant shift to prepaid in these
markets, along with an explosion in data usage via
smartphones, has made providers in these regions more
susceptible to losing revenue. More worryingly, a fifth of
this year’s respondents admit to leaking up to 10 percent of
annual revenue, and 15 percent report leakage of more than
10 percent. Asia Pacific appears to be the best performing
region.
Given the scale of these losses, it’s understandable that
respondents consider the number one objective for RA
functions to be the prevention, detection and recovery of
revenue leakage. Other activities such as fraud prevention,
revenue management and cost saving are given a far lower priority.

A fifth of respondents are
leaking up to 10 percent
of total revenue

8



revenue leakage
Leakage as a percentage of revenue

Up to 1% of revenue

Between 1-10% of revenue

Greater than 10% of revenue

10%
18% 15%
15%
19%
50%
32%
75% 66%

Africa & Middle East Asia Paciﬁc Europe & Americas

Figures might not add up to 100% due to rounding.
Source: KPMG Global Revenue Assurance Survey, 2012 N = 101 respondents

9



Main objective of RA functions
Respondents were asked to rank each objective in order of importance, with 1 being the most important.
80%

80%

70%

60%

50%

44%
40%

31%
31%

30%
27%

26%
30%
24%

20%

10%

0%
Prevent, detect and Assist in fraud Lead overall revenue Focus on revenue Enhance customer Train business Implementation Proactive identiﬁcation
recover revenue prevention management enhancement experience through personnel of new of new technologies
leakage program across and cost saving product and about RA controls technologies/ and corresponding
organization opportunities network assurance within daily transformational cost beneﬁt analysis
operations projects for the business
N = 89 respondents
Rank 1 Rank 2 Rank 3 Rank 4 Rank 5 Rank 6 Rank 7 Rank 8

Source: KPMG Global Revenue Assurance Survey, 2012.

Variable performance of RA functions
Not all RA teams are successfully spotting revenue leakage. Forty-one percent
41 percent of the of the companies in the survey say they fail to identify more than half of total
companies in the survey leakage, although these figures differ widely from region-to-region. Relatively
few RA functions have cross-functional teams that include the breadth of skills
fail to identify more than to identify every type of leak – especially those that happen at pre-billing level
half of total leakage. at the switches. Consequently, a fair proportion are found by other parts of
the organization.Telecommunications providers in Europe and the Americas
have by far the best track record, while those from Asia Pacific are the least
impressive, with more than a quarter (26 percent) identifying less than
10 percent of all leakage. Operators in countries such as India tend to have less
sophisticated systems yet must deal with enormous volumes of data records,
so fail to detect patterns of revenue loss.

KPMG VIEWPOINT

Visible improvement
As recently as three years ago, a number of operators didn’t even have dedicated RA teams,
instead delegating responsibility to Internal Audit or other departments. The reduction in
leakage relative to the 2009 survey is a sign of the growth of RA as a dedicated function, along
with greater adoption of processes and tools (even if the latter hasn’t always run smoothly).
Many operators in the Middle East and Africa are starting to take RA more seriously as they
seek to address serious leakage.
Ron Stuart
Head of Telecommunications & Media
KPMG in South Africa

10



Percentage of leakage identiﬁed by the RA function

Up to 10% of leakage

10–25% of leakage

25–50% of leakage

Greater than 50% of leakage
5%
8% 16% 9%
14%
21% 26% 11% 19%
17% 11% 13%

54% 47% 70% 60%

Africa & Middle East Asia Paciﬁc Europe & Americas Global

Figures might not add up to 100% due to rounding. N = 80 respondents

Recovering revenue continues to be a challenge, with just 40 percent of
respondents managing to retrieve more than half of all losses from subscribers
and partners. Companies from Europe and the Americas have the highest recovery
rates, 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 leakage.

11



Proportion of leaked revenue recovered from subscribers and partners
60
55%

50 47%

39% 39% 40%
40

30 27% 26%
23%
20% 21%
20 17%
11% 11% 11%
10 7% 7%

0
N = 62 respondents

Up to 10% of revenue 10–25% of revenue 25–50% of revenue Greater than 50% of revenue


Europe and the Americas lead the way in terms of revenue recovery, with more
than half the leakage recovered from customers or partners (partners refers to
interconnect, roaming and VAS partners across business operations). Africa and the
Middle East recovers 11 percent of leakage, predominantly due to service contracts
being prepaid in nature.
The respondents feel there are a number of reasons why they are not getting the
most out of their RA functions, with ‘inconsistency of data across different systems’
top of the list, as the chart opposite shows. This could be influenced by the fact that
many RA functions are not centralized, which limits the coordination with internal IT
departments.
And according to the survey participants, RA departments are also hindered by a
lack of appropriate skill sets – which reflects recruitment, training and retention
strategies. Some say they don’t have sufficient automated tools to support the
processes; although the industry has invested heavily in tools, not all have brought
the level of automation anticipated.

12



Reasons why organizations do not make the most of their RA functions
Respondents were asked to rank each reason, on a scale of 1–10, with 10 being the highest

Lack of data consistency across different systems 6.3

Non availability of requisite skill sets 6.1

Absence of automated tools to support the processes 6.0

Non-availability of accurate and timely
6.0
information from business

Inconsistent procedures and policies across organizations 5.6

Lack of authorization of RA function within the organization 5.3

Weak alignment between functional and overall
5.2
organizational objectives

Lack of RA and fraud awareness within the organization 5.0

High cost of operations 4.8

Lack of deﬁned scope for the function 4.7

0 1 2 3 4 5 6 7 8

N = 89 respondents


KPMG VIEWPOINT

Coping with integration
Systems integration is a major challenge for the sector, with many companies having
built up a range of systems for billing, mediation and interconnect, which often don’t talk
to each other very well. In addition to these challenges, vendors are constantly releasing
new applications for value-added services, while different mobile Switching Center
manufacturers use different data formats. In order to bring greater data consistency,
providers are attempting to consolidate all their IT into one fully-integrated platform, which
entails a huge cost and risk.
Romal Shetty
KPMG in India

13



Change is the weak spot
Executives involved in the 2012 survey feel that new transformational projects (such
as new technology, network and billing system migration), make their organizations
highly vulnerable to revenue leakage and fraud. They are also concerned with poor
billing system integration, as well as internal and external fraud.
However, on a positive note, three-quarters (74 percent) of respondents say they are
satisfied with their RA function’s ability to cope with transformation.

Aspects of the business most vulnerable to revenue leakage/fraud
Respondents were asked to rank the vulnerability of each business aspect, on a scale of 1–10, with 10 being the highest

New transformational projects 6.5

Poor system integration from
6.4
MSC-IN-Mediation-Billing systems

Frauds (internal or external) 6.3

Interconnect and roaming billing 6.2

New product development and tariff conﬁguration 6.0

CDR generation issues at MSCs/incorrect usage data 5.6

Intelligent network charging failures 5.6

VAS partner payments 5.3

Retail billing systems errors 5.3

Complex tier-based pricing 5.2

Sales commissions 5.1

0 1 2 3 4 5 6 7 8

N = 44 respondents


Prepaid, roaming and post-paid are the three revenue streams most susceptible
to leakage or fraud, which is not surprising as these currently generate the
greatest volume of payments. However, alternatives such as data and broadband,
interconnect and value-added services are not far behind, and may take on more
importance as mobile data usage increases over time – particularly with the
emergence of m-commerce.
A quarter of all respondents now have 50 or more third party partners providing
value-added services, so this area of the business is also likely to become more
significant for RA functions.
Responses differ by region, with value-added services considered a highly
vulnerable stream by Asia Pacific providers, and data and broadband a bigger
worry in Europe and the Americas.

14



Revenue stream most susceptible to revenue leakage/fraud
Respondents were asked to rank the susceptibility of each revenue stream, on a scale of 1–10, with 1 being the highest

2.2
4.0
4.5
Africa & Middle East 2.8
5.2
4.8
5.9
5.9

4.5
4.8
5.3
Asia Paciﬁc 3.4
3.4
4.0
5.9
4.9

4.0
3.4
4.0
4.2
Europe & Americas 4.5
3.7
5.6
6.7

3.6
3.8
4.4
Global 3.7
4.5
4.0
5.7
6.1

0 1 2 3 4 5 6 7 8 9 10
N = 46 respondents

Prepaid Post-paid Interconnect Roaming

VAS Data and broadband Fixed line Carrier*

*Carrier refers to wholesale telecom providers responsible for carrying voice and data networks across different service providers.

15



Revenue Assurance’s evolving
RA has yet to achieve
influence at the very
highest level; only one
in five (21 percent) of
respondents say their RA
function reports directly to the
Board of Directors. And just
24 percent of RA departments
hold fully centralized control over
their organizations, which could
hinder the spread of consistent
RA practices.
For most of the telecommunications providers
taking part in the survey, RA reports to either
the CFO (46 percent) or the dedicated Head of
RA, who in turn reports to the CFO (45 percent).
Respondents from Africa and the Middle East are
more likely to have a direct line to Finance, with the
CFO playing a dual role encompassing RA.
However, just 21 percent of RA functions report
directly to the Board and only 11 percent to the
Audit Committee. These figures have nonetheless
improved since the previous survey, and with virtually
all respondents claiming to have an independent RA
department, RA is slowly gaining in importance.

Just 21 percent of respondents
say their RA function reports
directly to the Board of Directors

16



role in the organization
Who does the RA team report to?

6% 6%

6% 3% 53% 38% 35% 6% 47%

40% 4% 56%
Africa & Middle East
Asia Paciﬁc
Europe & Americas

Other senior CFO &
management Head of Dedicated Dedicated
members Internal Audit RA Head CTO RA head CFO

4% 3% 45% 1% 1% 46% Global

Figures might not add up to 100% due to rounding. N = 78 respondents

17



Who does the RA team report to?
Audit Board of
Neither
Committee Directors
Africa & Middle East 29% 21% 50%
Asia Pacific 6% 12% 82%
Europe & Americas 0% 28% 72%

RA teams reporting to the Audit Committee
and/or Board of Directors
2009 2011
Africa & Middle East 30% 50%
Asia Pacific 6% 18%
Europe & Americas 15% 28%
N = 78 respondents

In Africa and the Middle East, RA appears to hold greater status, with half of the
respondents saying their RA function has a straight line to either the Board or the
Audit Committee. These two regions suffer particularly with leakage, so loss of
revenue becomes a big issue for the Board, who take a greater interest and want to
deal more directly with the senior RA managers.
A number of respondents are concerned that RA’s lack of seniority inhibits
its effectiveness. Fifty-four percent are not fully satisfied with the existing
communication with senior management, while a lack of career opportunities is
considered one of the main reasons for staff attrition.
But is RA likely to step up and gain Board-level recognition? It depends upon who
you ask. Of the RA Heads taking part in the survey, 57 percent feel that a Chief
Revenue Assurance Officer would benefit their company, whereas only 25 percent
of CFOs see a need for such a role.

18



Should your organization have a Chief RA Ofﬁcer?

Global CXO Group responses RA Head responses

52% Yes 25% Yes 57% Yes
48% No 75% No 43% No
N = 90 respondents


KPMG VIEWPOINT

Moving up?
RA/Fraud Management has evolved considerably over the last few years from its earlier
role as an ‘assistant’ to the wider Finance team. Although there is some way to go before
it’s 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 leakage and fraud.
Currently, most RA teams ultimately report to the CFO, who is a powerful sponsor able to
ensure action is taken. However, given the volume of fraud and revenue leakage across the
industry, the function needs to exert greater influence at the very top of organizations – but
if Board-level ‘impact’ is to become a reality, organizations will have to carefully consider
the RA function’s independence.
Joe Gallagher
Head of Telecommunications and Media

Europe, Middle East & Africa

19



Creating an effective RA structure
It’s not just the status of RA that can impact its effectiveness; organizational
structure is an important factor in achieving consistent practices and enabling
information to flow freely. Only a quarter (24 percent) of respondents claim to have
a centralized RA function with representatives within each business/operating unit.
Given that a majority also feel it’s a challenge to get hold of accurate information
from the business, a lack of centralization could restrict the ability to prevent and
identify leakage. RA representation in each business/operating unit can also be
beneficial, as it gives a single point-of-contact for all leakage and fraud issues and
also facilitates efficient implementation of RA activities.
From a regional perspective, respondents from Europe and the Americas appear to
have the most sophisticated, centralized organizational structures, while businesses
in Asia Pacific are far more likely to be decentralized. Interestingly, those regions
with greater centralization also have a better record at identifying revenue leakage.
In keeping with the previous 2009 survey, the vast majority (95 percent) do not plan
to move toward an outsourcing model in the next few years.

Structure of RA
16%
Centralized with a representative 12%
at each operating Unit/Circle 36%
24%
52%
Centralized with complete 47%
execution at corporate level only 56%
53%
12%
Completely de-centralized RA/FM with 35%
teams at all operating Units/Circles 6%
14%
16%
6%
Co-sourcing model for RA/FM 3%
8%
4%
Plan to move towards an outsourcing 0%
model in the next few years 0%
1%

0 10 20 30 40 50 60

N = 78 respondents

Africa & Middle East Europe & Americas Asia Paciﬁc Global


20



KPMG VIEWPOINT

Bringing your best people together
Accepting that some small companies with a limited number of operations may actually benefit
from a more decentralized approach, there is a strong case for centralizing teams and bringing
your best people together.
In dispersed RA functions, much of the know-how exists within individuals. A centralized
team leads to greater knowledge sharing and standardization, with best practices emerging,
and the added benefit of reduced staff numbers due to economies of scale. Companies
must also be aware of legal restrictions on data sharing between countries, which may mean
retaining local teams. A centralized department is also reliant on strong, integrated systems
and processes. The pros and cons of centralizing should be properly considered from all
angles before any decision is taken.
Peter Mercieca
Asia Pacific

Fewer than half (42 percent) of respondents say their RA function is cross- Only 42 percent of
functional with a balanced representation across departments. As mentioned,
the complexity of the telecommunications environment means that leakage respondents say their
can occur at any stage of the revenue generation cycle. Cross-functional RA function is cross-
membership should bring an understanding of each part of the business and
the accompanying interdependencies. In particular, a strong link between RA functional with a balanced
and the broader risk management function should be considered. Without such representation across
cross-functional knowledge, it’s difficult to gain an all-round picture, leaving
companies more susceptible to leakage and fraud. departments.

Is RA a cross functional team?
80 76%

70
56% 58%
60
52%
48%
50 44% 42%
40

30 24%
20

10
0
N = 78 respondents

Yes No


21



And most (64 percent) do not have a cross-functional RA steering committee
comprising of head of departments of all functions (who would meet periodically
to assess the extent and sources of revenue leakage). Such a body can help spread
best practice and extend the influence of RA. Respondents from Africa and the
Middle East are the most likely to have such a committee, with organizations from
Asia Pacific lagging behind.

Proportion of organizations with cross-functional RA
steering committees
80%
80

70 66% 64%
60
52%
48%
50

40 34% 36%

30
20%
20

10
0
N = 73 respondents

Yes No

Supporting the business
Most of the respondents say their RA function focuses primarily on network,
billing and product-related assurance. However, considerably fewer are involved
with customer service and sales assurance, and only a third (35 percent) carry out
regulatory checks as part of a wider RA review. These findings are further evidence
that RA is still viewed as more of a support function than a strategic partner.
RA departments in organizations from Asia Pacific appear to be particularly narrow
in the scope of their responsibilities.

22


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