Communication service providers may have mastered the art of charging and billing as a mechanism for collecting revenue, but they have constantly failed to master the art of maximizing income.
From the era of monopolistic PTTs was borne the concept that voice calls and messaging could be priced yielding very comfortable margins. Revenues and profits just kept coming until the more recent era of deregulation.
It’s amazing what competition can achieve, but here it was basically ‘price competition.’ The grab for customers from existing players was driven by price and did not necessarily achieve the desired aim of attracting premium consumers or corporate customers.
Marketing people in the more enterprising operators then turned to their billing departments to come up with ‘creative’ tariffs that looked attractive but did not necessarily demolish margins. The most famous early attempt was MCI’s ‘Friends and Family Plan.’
Mobile operators have pursued a number of interesting and creative ‘flag fall’ or ‘connection fee’ plans that charged a high flat fee for the first two minutes of a call, for example, then dropped dramatically in price per minute for unlimited durations. Very clever when you consider that the majority of calls were completed within two minutes in those days!
Despite improvements in technology and software, especially with the introduction of ‘convergent’ billing, tariff margins, let alone profitability, were not really taken into account. Auditors simply applied the old rule of gross revenues less costs equaling net profit for quarterly and annual reports. It was deemed impossible to calculate margin at a tariff plan level. And why would you bother when profits still flowed and the cost of investigation probably outweighed any potential return?
It was not until the advent of revenue assurance methodologies and tools at the turn of this century that the true extent of uneconomic tariffs was revealed. The industry’s obsession with 99.999% network uptime and call completion was, sadly, not matched on the revenue side.
The obsession to create hundreds of tariff plans to appeal to a market sector or corporate account continues to this day, but it has become even more risky with the growth of data services, particularly around mobile broadband.
Apart from a brief diversion to flat rate, ‘all-you-can-eat-plans’, the market has opted for more complex volume capped plans with surplus usage being charged at incremental rates. If there is a way to make things more complicated, we will certainly find them.
This, and regulatory pressure to warn customers of over-usage, especially when roaming, means that all customers need to be managed in real-time whether they are pre- or post-paid.
However, it is no longer simply a matter of marketing coming up with a new service and billing having to create a new tariff for it. Today’s operators need to be sure that whatever they launch is financially viable. They simply cannot wait until after the event to discover that it is costing them money to provide a service as it is near impossible to retract any tariff once it has been launched.
This is where the concept of tariff optimization really shines. The ability to extrapolate what will happen after a new tariff is launched well before it is released can save an operator millions of dollars in lost income. There will be some that believe this can be modeled using spreadsheets and calculators, but nothing could be further from the truth.
Savvy businesses are utilizing real data in the form of existing customer call and data usage records and processing them in a real-life, real-time environment insulated from their ‘live’ systems. This gives them the ability to tweak plans as many times as required to come up with the optimal tariff for their customers, and their bottom line.
Let’s face it, as long as there are new products and services being created we will feel the need to develop new tariffs, pricing and charging models. Taking the guesswork out these is critical for the economic viability of an operator as competitive pressures mount.