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Policy is in pole position for delivering return-on-investment

Vanilla Plus Policy Insight

Vanilla Plus Policy Insight

July 3, 2013 CSPs are under ever-growing pressure to generate profits from their substantial network investments. The problem is they have to achieve this while continuing to invest in more and more network capacity to support the needs of users. Here, Dr Christian Gayda explains why that makes it easy for policy to demonstrate the return on investment it can deliver

Winston Churchill once said: “However beautiful the strategy, you should occasionally look at the results.” In an industry that is managing change at a record pace, it makes sense for service providers to heed this wise advice when they consider their strategy for each new back office solution. But when it comes to measuring the results of an integrated policy management and billing solution, things can get a little complicated. 

Take two aspirin and call me in the morning

Mobile data usage is growing at breakneck speed – 70% worldwide last year by some reports. While this growth is good news, according to Gartner, increased data use only resulted in a relatively modest increase in ARPU. This means that communication service providers (CSPs) will actually see a significant reduction in revenue per megabyte over the next few years. This makes it all the more important to have a dollars-and- cents understanding of how policy management and data services impact your organisation.

Today’s policy management tools work a lot like aspirin: whatever the problem, there is probably something that a good policy management solution can do to help fix, alleviate or ease the pain. From ensuring quality of service, enabling tiered pricing, monitoring the competition, troubleshooting network problems and reducing bill shock, to enforcing SLAs, managing network resources, and understanding customer behaviour, the list of benefits goes on and on. It’s the chicken soup of telecoms. But how do these benefits translate to bottom line results?

There have been several attempts to associate a number, or a ranking, against some of these policy- driven benefits, especially those related to the fuzzy and hard-to-define issue of customer experience. Gartner and some other analyst firms have done an admirable job at this difficult task, but these numbers are still very arbitrary. What does a ranking of a 5.0 or a 3.1 actually mean? CSPs want to know, what do

these benefits and rankings translate to when it comes to what matters most – the bottom line; specifically, reducing costs, increasing revenue and improving margins? What’s the ROI for policy? Can it be measured and defined in terms of actual dollars – or euros, yen or pounds? We think it can.

Why policy, why now?

The world of mobile communications is becoming much more complex: new data-intensive services, new technologies, new handsets and devices, new content, new partners, new pricing and promotion strategies, and even entirely new uses for mobile devices – from home security monitoring and e-health care, to car diagnostics, smart meter utilities and a quickly growing list of other M2M use cases are all contributing to the complexity.

Even the savviest subscribers are scratching their heads when it comes to how to manage and understand all these choices – and it’s no wonder. Mobile bills have become almost impossible to make sense of. The majority of service providers have dropped their all you can eat data plans, making the ability to understand data charges a complete mystery to practically every subscriber. And international data roaming sparks fear in the hearts of even the most seasoned world traveller. This confusion has led to a host of problems, and it’s why CSPs are turning to policy management as the solution.

A real-time policy control solution that is pre- integrated with a CSP’s billing and charging platform can go a long way in solving many of the issues highlighted above. But how does that translate into bottom line results? We believe this critical question has not been adequately addressed. Redknee has studied this issue in depth, looking at three key areas where policy management is making an impact:

1. Call centres
2. Marketing strategies
3. New Services

While there is no typical CSP, for illustrative purposes it was necessary to make some assumptions. We based our findings on a service provider with 20 million postpaid subscribers with a growth rate of 5% over three years. 40% of those subscribers are using data services, which equates to eight million subscribers on their data plan. This subset of subscribers – those using data services – was assigned an expected year-over- year growth rate of 10%. Redknee extrapolated data from TM Forum to create these underlying assumptions for our calculations, along with the following:

• Every subscriber contacts the call centre at least once per quarter.
• Call centre agents cost €20 per hour.
• Average fees charged for new plans are €6 per subscriber.

Now that we have our assumptions in place, let’s take a look at three different scenarios where policy management can have an impact:

1. Reducing call centre costs Customer care centres are the ground-zero of customer communication and the volumes of calls they receive are a good indicator of overall customer satisfaction. But the customer care centre is also a cost centre. While lower call volumes might mean higher customer satisfaction, it also means lower costs. Our research indicates service providers can reduce call centre volumes by 20% through effective policy management. This reduction comes directly from CSPs ability to deliver greater pricing transparency and to communicate more effectively with subscribers so they understand – in real time – what data services they are being charged for. Real- time notifications give subscribers more control over their mobile experience and a better understanding of charges, reducing instances of bill shock and overall data charging confusion.
Based on the typical CSP outlined above, the cost savings achieved from this reduced customer care center activity is estimated to be more than €10 million per year.

2. Increasing revenue through tiered pricing Policy management is also critical for supporting tiered pricing packages for data. As mentioned, the days of unlimited data are over. Tiered pricing of mobile data packages allows more subscribers to try and enjoy data services at a price that fits their budgets. This has been proven to help grow service adoption over time and lead to increased ARPU. Redknee estimates that
for the service provider defined above, tiered pricing can generate an additional €79.6 million in revenue per year.

3. Using policy to support new services, new rate plans and new promotions Offering creative service packages such as video or mobile internet gaming packages, and new try-and- buy promotional plans can significantly boost the bottom line. This is particularly true as high-value content, new services and the demand for data continues to grow. Redknee estimates that new data services help to retain subscribers, for a total value of nearly €10 million per year for the typical service provider. The value creation for policy management in relation to supporting new promotion plans, such as trial programmes that help to drive up service adoption rates, is estimated at €720,000 per year.

A note on churn reduction In addition to the three major factors outlined, churn reduction has become a major priority for CSPs as mobile penetration goes above 100% in some regions, making competition for users more intense. Churn is frequently difficult to quantify; many CSPs do so by calculating the average cost to replace a customer with a new subscriber. Averaged across the subscriber base, the actual cost of retention can vary.
Effective policy management has been shown to increase retention levels by providing subscribers with more personalised tariff plans, transparent and fair pricing, better communication, and more control over their entire mobile experience. Redknee estimates policy management can reduce retention costs by as much as 10%, although the financial impact of this reduction will depend on the operator's marketing model.

Long term benefits Policy management has become more than just a network tool. It has quickly become a requirement – providing value for practically every department within a service provider organisation.
Redknee estimates that for a small tier-1 CSP, the cumulative three-year value generated from implementing a pre-integrated policy management and billing solution can be more than €123 million – potentially higher with churn reduction factored in. While these figures are for illustrative purposes and the actual impact will vary for each service provider, policy management equates to real bottom-line benefits.


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About Redknee:
Redknee monetizes today's digital world for communications service providers. Our market-leading portfolio of monetization and subscriber management solutions includes real-time billing, charging, policy and customer care modules and is available on premise, cloud-based, or as Software-as-a-Service. With a central focus on driving customer success, Redknee's products power growth and innovation for operators globally. Established in 1999, Redknee Solutions Inc. (TSX: RKN) can be found on the Toronto Stock Exchange. For more information about Redknee, please go to www.redknee.com.


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