94 per cent of telecom operators worldwide expect revenue leakage to increase in the future, while 49 per cent believe the increase will be significant, according to a global survey by advisory firm KPMG.

KPMG interviewed 137 executives across the globe for its Global Revenue Assurance Report, March 2012. Interviews were conducted anonymously between September and December 2011. The research identifies a number of factors responsible for the increased risk. These include complex network systems; the rise of mCommerce; 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 (RA) function, which is responsible for detecting and recovering leaked revenue, has surprisingly little influence in many telcos.

“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,” notes Joe Gallagher, head of UK telecoms at KPMG. “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. What operators need to understand is that the role of the RA function is absolutely critical to the financial and reputational success of their business.”

The survey reveals that globally, one fifth of respondents leak up to 10 per cent of their revenues. The best performing region appears to be Asia Pacific, where 75 per cent of respondents said they leak less than 1 per cent of their revenue (with 15 per cent reporting leakages between 1 and 10 per cent, and 10 per cent  reporting higher than 10 percent). 

In Europe, 15 per cent of respondents said they leak over 10 per cent of revenues, and 19 per cent said they leak between 1 and 10 per cent, with 66 per cent reporting leakage at less than 1 per cent). The worst performing region according to the research is Africa & the Middle East (32 per cent leak between 1 and 10 per cent, 18 per cent leak over 10per cent).

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

“These figures are alarming, and should serve as a wake-up call to the industry,” says Gallagher. “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.”

Only one in five (21 per cent) of respondents said their RA function reports directly to the Board of Directors. Just 24 per cent of RA departments hold fully centralized control over their organizations, which could hinder the spread of consistent RA practices. 54 per cent 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. 40 per cent of respondents say their businesses have a dedicated fraud management function; in two thirds of cases, this department is less than 10 years old. Only 44 per cent claim to have a fraud risk management framework in place.

“Currently most RA teams ultimately report to the CFO, who is a powerful sponsor able to ensure that action is taken,” concludes Gallagher. “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.”