(Margin) Pirates of the Canadians

datePosted on 22:11, February 28th, 2011 by grapa

Yo Ho, Yo Ho, The Pirate’s Life for me!

Who among us can resist the attraction, excitement and glory of the pirate’s life? Amusement parks, kids’ shows and even the movies glamorize the life of the swashbuckling buccaneer. Indeed, there are some very attractive things about the “pirate’s life”.

  1. Sailing the seven seas. Traveling around the world, seeing exotic ports and locations.
  2. Freedom to go wherever you want, nothing to hold you down to the rules of one location.
  3. And of course, the whole reason that anyone becomes a pirate – the search for the buried treasure.

Image: www.openclipart.org

So let me get this straight: I can visit exotic lands around the world, and wherever I go, take whatever “booty” I find there, and no one can stop me? I can pretty much ignore any laws and regulations of the places I go. They don’t apply to me because I am not from there, and I can just jump on my pirate ship and run away?  After it’s all over, I can simply return home and count my treasure chest.

Wow, that sounds pretty great, at least if you’re on the Pirate’s side of the equation. However, what about the people in the lands where the pirates visit? Are they always so happy? Do they think that the Pirate’s life is so good for them?

I was wondering the other day who might  be considered to be parallels to the pirates of old. Is there anyone in today’s telecoms market that fit this profile? A few candidates come to mind. Many of them are actually considered to be pirates, and are being pursued as such by the telecoms. Others used to be pirates but, like the famous pirate Captain Morgan (Captain Blood as played by Error Flynn in the old movie) have “gone legit” and turned into upstanding citizens in the world of international telecoms. (It’s funny how profit and legitimacy can turn the most notorious villain into a stalwart citizen in good standing).

Pirates “In Fiendo”

No, my latest candidate for “Pirate “in fiendo” are our friends from “North of the Border” at RIM (Research in Motion). Founded in 1984, Research in Motion (known lovingly as RIM), didn’t really get anybody’s attention until 1999 when they invented the “BlackBerry®” device.  According to the RIM “fast facts”, RIM is “a leading designer, manufacturer and marketer of innovative wireless solutions for the worldwide mobile communications market.”

Well, how could anyone argue with that?  It is undeniable that in 1999 when the BlackBerry® handset first came out, the state of telecommunications was pure bedlam when it came to the integration of voice, data and mobility, and RIM, more than anyone else, proved:

  1. What could be done.
  2. How incredibly popular and profitable providing this service to consumers could be.

So to begin with, a well earned “thank you” and “hats off” to RIM for helping to create the world that we find in mobile telecoms 2011. However, there is another side to this Golden Doubloon (or whatever coin you want to talk about) and that has to do with what is going on today.

It’s not 1999 anymore, and the integration and efficiency that the original BlackBerries provided has been displaced by an infinitely improved wireless telecoms infrastructure. The integration of WIFI, WIMAX, GPRS, and EVDO has accomplished an almost seamless, full integration of IP based technology (Voice over IP (VOIP), Email, Web, and Streaming Video) for all types of devices and all types of networks. The consumer has been freed from the shackles of individual carriers and channels in many ways. All the “integration” that the BlackBerry® service provides, you can get in any number of different ways now.

So what is the problem?

Well, there is none, except that nowadays, any of the other devices that you want to buy will ‘integrate” with back end services like the BlackBerry®. All you have to do in 2011 is buy the hardware, and then run it on the network. That’s good news for us, but not the greatest news for BlackBerry®. See, while Apple and Nokia made strategies based upon the hardware, BlackBerry® is built on a much more complex model. A combination of hardware, service and the thousand mile ‘leash’ that attaches every BlackBerry® in the world to the RIM Mothership. Because of this, Rim now has the only model which requires that customers pay a  monthly fee to RIM for the provision of their email and integration services  and use their servers (for the most part in Canada) to provide that integration.

While that might seem to weaken the RIM business model, and indeed, how many consumers realize that what they are paying for when they sign up for the BlackBerry® service is a thousand mile leash to the land of Mooses and Maple Syrup.  How many understand that the money they are paying is not actually going to their telecom, but to RIM back in Canada. At this point, we come to the crux of the problem. As with so many aspects of new technologies deployment, several ‘grey areas’ begin to emerge.

A Pirate’s Hideaway – RIM Encryption

The first one, which is of interest to us as fraud and security managers, is the issue of RIM Encryption. What RIM promises their customers is an absolutely safe, encrypted channel for all of their communications. What they guarantee is that when you send an email, text, chat or anything else through the RIM channels, these communications will be secure from everyone, including the telecom, and the government.

While that may sound good to you, the fact of the matter is that governments around the world insist telecoms make it possible for them to “tap”, “bug”, “infiltrate” or otherwise monitor those communications identified as criminal or threatening to security. (In the US, this law is known as CALEA, but every country has such laws).

When the RIM folks promise this level of security, it finally got the attention of many governments around the world, resulting in the recent India and Middle East showdowns between RIM and those regulators.

Arrgh Me Hearties, So Much for the Pirate’s Life

While the regulatory battles of the security of communications will have a transient interest for revenue assurance professionals, there is a much more critical issue, much closer to home that requires monitoring. And that has to do with the due diligence that telecoms invests in the management of their relationships with RIM, or any partner / service provider that brings a non-conventional business model to the table.

There are dozens of these “non-conventional” agreement scenarios that telecoms are offered each month: VNO, MVNO, BTS, CoOps and too many others to list. In every single case, the challenge for the telecom is to make sure that when they get into the partnership, they don’t inadvertently sign-up for a “partnership” that turns more into a privateering contract. In the case of RIM, I can think of two examples, both clearly the fault of the telecoms, which allow RIM to make extra profits due to telecoms laxness.

First – and most pathetically, there have been literally dozens of cases of telecoms revenue assurance departments discovering that when subscribers “de-provision” and cancel their orders for RIM services, the billing and operations people manage to stop collecting  money from customers, but ‘overlook’ the fact that they need to de-commission the service on RIM as well. I have had revenue assurance managers personally report to me cases where they found that they were paying for over 20,000 RIM accounts each month. Customers had canceled the service and stopped paying months previous and the carrier was continuing to pay RIM. Ouch … that’s gotta hurt.  (Revenue Assurance mangers – please note: Check on this now, if it applies to you… and please, let us know if you find this case to be true in your situation as well).

So, first lesson. Partnerships are partnerships and you have to have controls over settlement and provisioning for RIM just as much as you do for any other partner. Now that is the easy one. The bigger risk that telecoms face, when these new models come to town, is the risk (or benefit) to margins.

Partnership or Pirate Ship?  Margin Pirates on the Rampage

I use RIM as the example, but let’s face it, there are dozens of content providers, and other “deal makers” who represent risks that are as big as or bigger than RIM represents to our hard earned margin. However, we’ll use RIM as an example. One of the things that RIM has to do, in order to continue to expand their business and attract new customers, is to think of ways to offer things that the handset providers cannot offer. While RIM certainly can and does compete in the App Store sweepstakes (try to convince people that BlackBerry® Apps are better than Iphone or Android Apps) at the end of the day, however,  Apps are Apps and the winner will be the consumers  and the App developers not RIM, Apple or the Androids.

So How Can RIM Differentiate Itself?

What RIM has, that others don’t is the electronic “leash” between the RIM handsets and the RIM servers. So, what is more natural than to expand that part of the market? RIM integration of Lotus notes, Microsoft Exchange and integration with Corporate I/T services is a logical direction, and they work hard and do a good job of that. And, for the most part, that simply re-enforces the telecoms decision to partner with RIM in the first place.

Where things getting “interesting” is when RIM starts to offer services that are in direct competition with the telecom. Now it all depends upon your business model, but some of the things that we are hearing about in different markets are that:

  1. Typically, customers are charged for voice calls over the BlackBerry® device, but the data services that go to RIM are not billed to the customer. They are not billed by volume, but are considered to be covered by the monthly fee paid for the RIM service. (Okay, fair enough.)
  2. Data to RIM is not billable as a separate charge.

But what happens when the BlackBerry® services include:

  1. BlackBerry® to BlackBerry® messaging (goodbye SMS revenues) via the BlackBerry® encrypted “leash”
  2. BlackBerry® to BlackBerry® chat (goodbye IM revenues)
  3. And my favorite

  4. BlackBerry® corporate PBX (BlackBerry® to BlackBerry® VOIP) (goodbye voice revenues)

At what point does providing people with BlackBerry® services for a flat rate monthly fee actually end up costing you money? Has anyone actually looked at that in your organization? This is where the revenue assurance professional can step in.

Revenue Assurance Practitioners: Protecting the Company’s Margins

The Revenue Assurance disciplines known as “Margin and Market Assurance” are all about making sure that you can get an answer to this question. What the revenue assurance person does is, put together a comprehensive model that can show management exactly what margins are being realized by the customers that make use of the BlackBerry® “offer”, and then, keep track of the impacts on other lines of business using “cannibalization analysis”.

What are people discovering when they do this Margin and Market analysis for BlackBerry®? Well, it’s mixed. In some markets, the telcos find that they are losing money, and that the BlackBerry® “package” is costing them overall revenues as customer overuse the BlackBerry® “leash”, robbing the telco of other revenue streams.  In others, they are finding that customers use far less than anticipated, and that the margins are a net gain.

What does this mean for YOU?

If I was in charge of revenue assurance at a telecom, I would want to make sure that:

  1. I was aware of the extent of revenues that BlackBerry® was responsible for.
  2. That the proper margin and market controls were in place NOW, so that I don’t wake up one fine morning and find out that I have invited some Margin Pirates into my market and it is too late to get them out again.

This then, is the heart of the mission of revenue assurance for these cases. More and more, revenue assurance professionals are being called up to serve as the guardians of the telecoms hard earned margins, and help to combat the introduction of “margin pirates” into their marketplace.

So, just as the governors of the islands in the Caribbean needed to build forts and line their harbors with cannons in order to protect themselves from the possibility of pirate attack, so too must the prudent telecom. When a ship, promising riches and rewards comes into your harbor, it’s probably a good idea to make sure that it isn’t manned by a bunch of Margin Pirates. Pirates who will promise riches, and reward and then raise the “Jolly Roger” after you are in too deep and can’t keep them away from your customers. For the GRAPA revenue assurance professional, this area represents one of the most critical and most valuable arenas into which they can move.
So, go ahead and enjoy the pirate movies if you like, and enjoy the fantasies of what it might be like to sail the seven seas, but in the final analysis,  don’t worry so much about the pirates, worry about the poor slobs that have to make a living back here at home, and see which side you really want to ‘root” for.  Well, that’s about it for this week.
Until next time, this is Rob Mattison saying….Be Safe.

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