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Prepaid Risks

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1 Business Issues Pre-paid Communications Risks Business Assurance | Revenue Assurance | Fraud Management | Receivables Management Understanding and dealing with pre-paid service risks in the Telecommunications, Media and Entertainment sectors In the Telecommunications, Media and Entertainment sectors, products and services are sold on both pre-paid and post-paid terms. Pre- paid services bring a number of potential benefits but many Service Providers operate under the impression that pre-paid services are risk-free   nothing could be further from the truth. There are a number of risks and issues that need to be considered and actively managed to assure good profitability and customer experience. The main issue in a highly-competitive market is that of price-sensitive customer churn; price wars lead to reduced profitability and can be almost impossible to reverse. For start-ups, this can be particularly challenging as competitors may choose to operate at exceptionally low-margin to retain market share and create a difficult environment for new market-challengers. Considering the challenges to profitability that market conditions can bring, managing risk within pre-paid service operations is essential to assure the bottom-line. Most of these risks and issues are within the control of the Service Provider, and are therefore manageable to a significant degree. Various estimates assess the potential for revenue loss on pre-paid services to range between 3-11% of revenue. Specific products may even go much higher than that; one notable example approaching 25% of revenues for specific data services. Bringing a significant portion of these ‘lost’ revenues back into play might mean the difference between success and failure of the business. The issues Pre-paid services have certain advantages: Up-front customer payment helps cash-flow and removes (consumer) credit management overheads for the Service Provider Tangible cost management for the customer Access to low-ARPU (Average Revenue Per User) market segments in volume enough to create decent profitability High-volume service penetration builds a strong brand presence that can be leveraged Guaranteed revenue for pay-per-use services There are disadvantages in many markets for both the Service Provider and customer of pre-paid over post-paid services which are generally higher -ARPU and more feature rich. However, given the benefits that high-volume market penetration brings, pre-paid services are here to stay and are likely to expand in service flexibility and offerings over time. Ultimately, pre-paid may simply be regarded as an option alongside post-paid where service components and charges are equal, and the payment method is left to customer choice. Greater use of hybrid models will probably be a forerunner to help manage payment-risk, e.g. combining pre-payment for pay-per-use or premium services on a post-pay account. Managing churn whilst sustaining a profitable service can be a major issue; even in markets where hardware is ‘locked’ to the Service Provider, unlocking services are just a few dollars and any hardware subsidy applied hoping to
Transcript
Page 1: Prepaid Risks

8/14/2019 Prepaid Risks

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1

Business Issues

Pre-paid Communications Risks

Business Assurance | Revenue Assurance | Fraud Management | Receivables Management

Understanding and dealing with pre-paid service risks in theTelecommunications, Media and Entertainment sectors

In the Telecommunications, Media and

Entertainment sectors, products and services are

sold on both pre-paid and post-paid terms. Pre-

paid services bring a number of potential benefits

but many Service Providers operate under the

impression that pre-paid services are risk-free  – 

nothing could be further from the truth. There are a

number of risks and issues that need to be

considered and actively managed to assure good

profitability and customer experience.

The main issue in a highly-competitive market is

that of price-sensitive customer churn; price wars

lead to reduced profitability and can be almost

impossible to reverse. For start-ups, this can be

particularly challenging as competitors may

choose to operate at exceptionally low-margin to

retain market share and create a difficult

environment for new market-challengers.

Considering the challenges to profitability that

market conditions can bring, managing risk within

pre-paid service operations is essential to assure

the bottom-line. Most of these risks and issues are

within the control of the Service Provider, and are

therefore manageable to a significant degree.

Various estimates assess the potential for revenue

loss on pre-paid services to range between 3-11%

of revenue. Specific products may even go much

higher than that; one notable example

approaching 25% of revenues for specific data

services. Bringing a significant portion of these

‘lost’ revenues back into play might mean the

difference between success and failure of the

business.

The issues

Pre-paid services have certain advantages:

Up-front customer payment helps cash-flow

and removes (consumer) credit

management overheads for the Service

Provider

Tangible cost management for the customer

Access to low-ARPU (Average Revenue

Per User) market segments in volume

enough to create decent profitability

High-volume service penetration builds a

strong brand presence that can be

leveraged

Guaranteed revenue for pay-per-use

services

There are disadvantages in many markets for both

the Service Provider and customer of pre-paid

over post-paid services which are generally higher

-ARPU and more feature rich. However, given the

benefits that high-volume market penetration

brings, pre-paid services are here to stay and are

likely to expand in service flexibility and offerings

over time. Ultimately, pre-paid may simply be

regarded as an option alongside post-paid where

service components and charges are equal, andthe payment method is left to customer choice.

Greater use of hybrid models will probably be a

forerunner to help manage payment-risk, e.g.

combining pre-payment for pay-per-use or

premium services on a post-pay account.

Managing churn whilst sustaining a profitable

service can be a major issue; even in markets

where hardware is ‘locked’ to the Service

Provider, unlocking services are just a few dollars

and any hardware subsidy applied hoping to

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Business Issues

3

Pre-paid Communications Risks

Business Assurance | Revenue Assurance | Fraud Management | Receivables Management

Understanding and dealing with pre-paid service risks in theTelecommunications, Media and Entertainment sectors

One of the more common issues, that may be

fraud or process failure, is that of pre-paid to post-

paid conversion of customer accounts. Where

customers are converted to post-paid in network

systems, but not made ‘billable’ within the post-

paid billing systems, there is a gap that is

sometimes not examined. In one case, major

internal fraud developed around this specific theme

resulting in 11% revenue loss.

And as more services become dependent on credit

-cards for payment (especially on-line), credit-card

(payment-card) fraud starts to have an impact and

charge-backs to the Service Provider offset

revenues.

How do you know if you have a

problem?

Unless you look specifically, often you will not find

out easily that there is a problem. However, broadprofitability analytics should provide indicators to

loss that should then be used as a basis for root-

cause analysis. Customer and agent complaints

should also be analysed to help identify potentially

systematic charging errors or fraud problems.

There are specific audit-points, reconciliations and

reports from platforms/systems that will help

identify specific issues and that may be

established at little or no cost to the Service

Provider. However, in-depth proactive scrutiny is

often required to identify specific risks and

controls. Including pre-paid as a high-priority in the

Business Assurance framework is a must.

Managing the problem

The first item on the agenda is to get pre-paid

recognised as a risk area. Unless there is an

acceptance of loss and potential gain to the

business, support to management control will be

hard to come by. Investigating some of the issues

outlined herein may help identify some specific

examples, but a full risk assessment is

recommended to really pin-down the problems anddevise cost-effective controls. However, common-

sense should prevail and a simple and structured

approach will generate good results.

Systems-automation of key aspects such as

Revenue Assurance or Fraud Management should

also be considered within the strategy  – being a

real-time value service requires real-time detection

and response. Clearly, prevention should also

prevail and including appropriate inputs to the

design, build or change of pre-paid services is

essential to manage risk and control losses.

Given the thin margins that many pre-paid services

operate on, Business Assurance activities should

be considered fundamental to the operation.

Unprofitable or low-margin services can be turned-

around with a solid approach. Unfortunately, many

organisations will focus on market growth over

profitability; the answer is to balance both

acquisition and Business Assurance activities to

really bring in the value that is possible.

Please refer to the Services,  Solutions  and

Packages  pages of our web-site for a more

detailed perspective of the components that might

be deployed within a strategic plan. Alternatively,

Contact Us to discuss your precise needs.


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