Revenue Assurance and the Regulator

datePosted on 15:06, January 25th, 2010 by admin

There are those who feel there is no place for these two words in the same sentence. After all, why would regulators care about revenue assurance, and why would revenue assurance people care about regulations and regulators?

There is an old saying; if you talk before you think, you will probably end up with your foot in your mouth. This is certainly the case when it comes to our experiences talking with Regulators around the world about revenue assurance.

 In order to appreciate exactly how revenue assurance and telcom regulation are coming together, it is important to develop a basic understanding of what telecom regulation is about. First, when it comes to regulations and telecoms there are two distinct sets of regulatory bodies that apply.

Financial Regulators and RA

First, there are financial regulatory bodies. These groups oversee the telecom’s financial reporting. IFRS, GAAP are two accounting regulatory frameworks that most telecoms must comply with, in addition to SOX (Sarbanes-Oxley) regulations. (This of course, is thanks to our friends from Enron, Global Crossing and MCI who ticked off the regulators and proved that telcos could not be trusted to tell the truth on their books, and neither could the auditors…but that is a different story).

Nonetheless, almost every telco has much to deal with, and must comply with a whole raft of regulatory requirements as defined by these agencies. In the good old days when revenue assurance meant ‘CDR herder”, these regulations were immaterial and meaningless. Financial regulations and regulatory reviews were confined to the general ledger and the accounting offices. What happened in the “real world” of switches, CDRs and IN’s was regarded by accountants and regulators as irrelevant.

However, SOX changed all that. Since the great Enron collapse, telcos have been required to comply with an ever more stringent set of regulatory requirements when it comes to revenue management. Revenue assurance finds itself repeatedly involved in issues of financial regulatory compliance in several key areas:

  1. Revenue Recognition – that magical word out of GAAP / IFRS which speaks to the accuracy of your reporting of revenues to stockholders and the government regulatory bodies.
  2. Taxes – regulators are increasingly less likely to simply “accept” the tax liabilities reported by telcos without a more comprehensive scrutiny of how revenues are actually tallied and computed. More than a few revenue assurance teams have been called upon to provide documentation and verification of the efficacy of revenue reports to taxation bodies.
  3. Integrity of Revenue numbers – related to the actual recognition revenue (which is the point at which the revenue is applied to the G/L) and has to do with whether the numbers included in the revenue report are truly accurate. Understatement of revenues and how they are reported can be utilized by unscrupulous managers to hide or misrepresent what is really happening.

Because the major responsibility for financial regulatory compliance falls to accounting and internal/external auditors, the trend is for revenue assurance to be assigned responsibilities in these areas.

Telecom Industry Regulators and Revenue Assurance

 

When most people think of telcos and regulators, they do not think of the financial regulations, but of the industry regulators. They are the people who set tariffs, mediate interconnect disputes and otherwise make telco executives uncomfortable. This is the area of regulation where revenue assurance and the regulators are beginning to see a lot more of each other. However, in order to understand how this odd relationship has been developing, we need to take a step back and better understand the telco regulator’s job.

Since the earliest days of telecommunications, governments have been involved. Telecommunications, like roads, postal services and other public services, are understood to be a government responsibility. In fact, in the olden days, telcos were the regulators of the industry in many countries.

The need for governmental involvement in telecoms is clear. Wireline telcos need government backing to obtain the right-of-ways and egress/ingress required to “wire up” a country.  Wireless companies need to purchase leases on frequency to make sure not everyone tries to use the same bandwidth at the same time (so that nothing works).

Many people think this is the extent of the job of the regulator; to license frequency and regulate eminent domain. However, this is only a very small portion of the regulator’s job. While there is no actual authority over the practice of telecoms in an individual country other than the regulators themselves, the ITU (the International Telecommunications Union) – a division of the United Nations, is chartered with setting the regulatory environment for the global telecommunications network.

The ITU has no (for all practical purposes) enforcement capabilities, but serves more as an adviser than a regulator. Largely, the major conduit for delivery of effectiveness on the part of the ITU is found in the templates it provides for the establishment of treaties between nations on the management of international traffic.

Under the ITU guidelines however, a National Regulator has a number of proscribed responsibilities, and in many countries, the local government has endowed their regulators with additional powers. These powers a
re
best understood in terms of the two P’s: Protect and Promote.

National Regulators as Protectors

Undoubtedly, one of the primary responsibilities of regulators is protection. This includes the protection of:

  1. Consumers – protecting consumers from abuse, carelessness or mistakes on the part of the telco.
  2. Carriers –  protecting the carrier’s rights and privileges as defined by the licenses they have purchased and continue to pay for.

These protections can take many forms. Typical consumer protections include:

  1. Rating regulations – defining what carriers can charge for services.
  2. Rating accuracy – assuring the telco bills in accordance with those regulations.
  3. Quality of Service Assurance – assuring that customers get the quality of service they pay for.
  4. Price fixing and unfair competition practices – preventing competitive telcos from collusion in order to create artificial market prices.

Generally, regulators are “police-persons” that make sure telcos do not lie, cheat or steal from customers. Not only do regulators protect consumers, but also the telcos themselves receive protection from:

  1. Intercarrier fraud and traffic bypass
  2. Unfair competitive practice
  3. Protection and help with foreign suppliers

Included under both categories is a specific fraud called “Averse Accessory Fraud”. This is when a third party abuses both the telco and the consumer through practices like SIMBOXes, clones, terrorism, police and law enforcement, counterfeit top-ups and others.

The Regulator as Promoters

Not only is the regulator required to protect telcos and their customers. More critically for most countries, they are expected to ensure the development of a solid, robust and low cost telecommunications infrastructure available to all citizens. UN studies have shown repeatedly that countries with the best telecommunications infrastructure outperform those without many times over. These are the reasons regulators get so involved in rates, licenses, service offering, profiles etc… because they are working hard to ensure telcos lower their margins (or at least lower their prices) and maximize benefit to the nation.

Revenue Assurance and Regulators

So what does revenue assurance have to do with regulators and their missions? Well, frankly, it depends upon the country, the regulator and the situation. As the complexity of the telcom business model increases, regulators are finding that they, just like the people within the telcos themselves are getting more confused by how things work and where they (the regulators) need to be looking. Regulators, just like internal auditors, are finding that they cannot do their jobs, or that they can do a much better job if armed with a detailed understanding of exactly how telcom revenues are generated, managed and reported. In other words, there are quite a few areas where the regulator’s curiosity aligns closely with that of the revenue assurance professional.

Revenue Assurance Domains of Interest to Regulators

While clearly not all revenue assurance domains are important to regulators, there are several where the overlap and requirement is clear. Let us consider a few of them here.

The obvious consumer billing related cases:

  1. Billing and Rating Accuracy
  2. Revenue Recognition
  3. Revenue Tracking Accuracy (leakage reporting accuracy)
  4. Provisioning and activation irregularities
  5. Billing for services not delivered
  6. Fairness of Billing plans
  7. Competitiveness of Tariffs
  8. Unconventional billing models and their fairness/legality
  9. Customer complaints investigation
  10. Fines and penalties for failure to comply

The obvious interconnect, roaming and content related cases:

  1. Interconnect/Roaming/Content  rates compliance and accuracy
  2. Interconnect/Roaming/Content – settlement dispute mediation
  3. Irregular practices between carriers
  4. Advocacy and protection of carriers against SIMBOX and BYPASS

     

In other words, to do their jobs well, that is:

  1. To set rates so that they are competitive and fair
  2. To understand the cases presented by carriers for accuracy
  3. To establish new types of regulatory frameworks
  4. To verify what carriers report

The regulator must, in effect, become a specialized form of revenue assurance analyst. In fact, the relationship between the regulator and the telco is similar to that of the Virtual Network Operator and their supplier. The Regulator needs to know how the telco generates its numbers in order to validate whether they are doing it correctly or not.

So before you start pooh poohing and saying that regulators do not care or have no place in the revenue assurance domain, be careful, they may be visiting you soon.  And when they do, do you want them to understand the numbers you are producing or not?

2009 saw the attendance of several regulators (and many, many internal auditors) in GRAPA training and certification classes. In 2010, we expect to see many more. So, just in case you thought you had already figured out all the angles that we as revenue assurance people need to cover, here are a few more!

 

Until next time, this is Rob Mattison saying, Take care and be safe.

 

 

 

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