Wireless data, or mobile content, is growing rapidly and taking an increasing share of the average revenue per user (ARPU) in nearly every region of the world. According to an industry analyst research firm, mobile content is increasing year-over-year by 35%, and is expected to grow as a share of ARPU from 20% to 40% by 2011.
As providers scale their operations to support the growth and diversity of usage, they must simultaneously manage the risk of a revenue stream that is central to their financial performance and their ability to please their customers.
Mobile Content is Different; Very Different
Mobile content revenue is starkly different than traditional voice revenue (that still composes 80% of ARPU today). First, mobile content includes both recurring and transaction- based revenue streams that may vary in pricing and complexity based on whether the provider delivers the content (on-deck) or the customers accesses and transacts their own content (off-deck). Mobile content also depends on an extended order-to-cash environment that includes a complex supply chain of content creators, aggregators, providers and resellers.
In addition to these more predictable revenue management challenges, there is a whole separate set of variables such as content costs, revenue sharing terms, and contract compliance obligations that can vary widely by content source, content type, intermediaries in the supply chain, and consumer use rights. Providers also have an ever-increasing stake in royalty management, as on-deck transactions must be reconciled at the atomic level and at more points across the extended order-to-cash process. Furthermore, the lack of standard data formats across the many platforms and systems in the extended mobile content supply chain has increased the complexity of prior voice data exchange issues by an order of magnitude. Finally, adding to all of these changes is the need for providers to continue to scale and evolve the delivery infrastructure to support the growth rates and content diversity.
So What Are The Risks?
The central risk is driven from the simple fact that although mobile content revenue is starkly different than voice revenue, most analytics and controls used to guardrail order-to-cash performance were designed and optimized for voice services. This core risk is exacerbated by a scaling and evolving delivery infrastructure and a complex extended order-to-cash process. The resulting risks include:
• Revenue: Mobile content may realize as much as 6% leakage or higher as providers evolve service delivery platforms and order-to-cash processes.
• Content transaction margin: Communications providers are paying for some content that was not successfully transacted because they cannot reconcile the content provider’s invoice at the transaction level, meaning they can incur costs without the associated revenue.
• Unsupported capital expenditure growth: Beyond the requirement to scale and strengthen their service delivery platforms with subscriber growth, providers may be forced to further increase capacity as some customers abuse fair use expectations and drive hyper-usage on flat-rate features (think of the high-consumption patron monopolizing the shrimp cocktail at the all-you-can eat buffet). This can require a capacity buildup that is not supported by incremental revenues.
• Credit management: Although inelastic mobile content volumes are heartening, given overall economic pressures, the volumes may not fully correspond to revenue as some post-paid users are not able to pay on time or pay at all for content transactions. Also, the system may not be able to prevent pre-paid users from transacting content when their contract is exceeded or expires.
• On-deck/off-deck margin performance: Providers generally realize better margins for on-deck versus off-deck mobile content transactions but may lack the visibility needed for fact-based decisions on what content to deliver on-deck, off-deck, or not at all.
• Customer experience: Consumer’s sense of identity and online community is increasingly tied to mobile content services, especially for the rapidly growing ‘under-30’ age segment. Provisioning errors, billing inaccuracies, content fulfillment issues or other errors can stimulate early life churn or ‘buyer’s remorse’ for wireless services and, in some cases, for an entire Quad Play package, for the immediate consumer and potentially their friends and relatives.
The level of risk can be significant. A recent customer effort revealed significant error rates across the order-to-cash process. Contrary to voice service error rates that are typically less than 1%, a sample of mobile content-related findings include:
• 3-5% error incident rate between 3rd party mediation and billing – meaning there were significant differences in how the content aggregator and provider measured revenue performance. These must be worked out to accurately execute content settlement as part of the invoicing process.
• 2-5% error incident rate of data transaction recording – meaning the provider could not successfully process 2-5% of data sessions and therefore, risks not being able to realize the associated revenue.
• 3-5% error incident rate in pre-paid data services – in this case, pre-paid users were gaining inappropriate access to more expensive higher-bandwidth services at the basic pre-paid rate.
While these risks are caused by small defects and discrepancies, they aggregate throughout the extended order-to-cash process and result in major impacts. Given the number and granularity of the risks, there is no single remedy other than to build the mobile content-oriented analytics and controls needed to guardrail this critical revenue stream.
Déjà’ Vu All Over Again … Or Is It?
Everything that a provider does carries risk, so the question is “does mobile content create risk beyond normal levels, and is there any precedent that can give this risk some magnitude?” The answer to both questions is ‘yes’, and a useful precedence comes from the 1990’s.
Two key changes occurred during this period. First, market restructuring created new and complex settlement processes and, secondly, providers introduced a wide array of value-added services and associated price packages that overwhelmed existing controls. Revenue leakage grew 150% from normal levels of below 2% to over 5%, which translated to more than $1B of losses. Simply put, the legacy controls failed and directly contributed to the erosion of top- and bottom-line performance.
Over time, providers architected revenue assurance controls and brought leakage down below 2%. However, in spite of everything we learned and invested around voice services, the mobile content revenue stream continues to face greater risks as mobile content continues to grow.
The Path Forward for Mobile Content
In too many cases, providers are using traditional voice methods to analyze and control mobile content. This may have been a sound approach when mobile content was 5% of ARPU and the aggregated impact was minimal. Providers can put in place mobile content analytics and controls that complement and protect the investment in voice controls, but are specifically designed for mobile content. Key points to consider include the following:
• The first critical step is to gain visibility to understand operational and financial realities at the atomic level, in order to design the right controls.
• Providers should heavily bias agile methodologies versus waterfall methodologies: simply put, the requirements needed to initiate a waterfall process are changing too rapidly to “lock down” in order to design the optimal system.
• The design can focus on initial high-value analytic targets to quickly generate cash, creating the necessary political and working capital for a largely self-funded program.
• From a broader set of ad hoc analytics, providers can deploy a set of targeted, automated controls within that same analytic environment that permeate the order-to-cash process and all of its sub-processes.
• Providers will need an ability to extend mobile content analytics and controls to critical processes that are also impacted by mobile content, including marketing, pricing, order management, customer care, and dispute management processes, among others.
• For all analytics and controls, the solution must fully capture, validate, codify, and document the conditional logic that governs how the order-to-cash process is intended to work and whether it is, in fact, operating as intended.
Act Now
The baseline reality for most providers is that in these economic times, there are competing initiatives that cannot all be fully funded or resourced. So why fund mobile content analytics and controls and why fund them now? The first rationale is that risk may have been acceptable when mobile content was 5% or 10% of ARPU, but there is simply too much financial exposure when mobile content is at 20% of ARPU and growing to 40%. The second rationale is that mobile content is a primary point of reference for customer experience, and providers cannot afford to have avoidable errors degrade experience and risk either/both wireless or Triple Play churn. The need is clear; the payback is clear; and the solutions are available. Now is the time to take the leadership position and significantly reduce the risk to your critical growth engine.
