Measuring how Telecom Risk Has Changed between 2020 and 2021
Insights from RAG Digital Trust Survey, in collaboration with Subex
On October 26, 2021, Subex hosted their 17th User Conference where Eric Priezkalns, CEO of Risk and Assurance Group (RAG) gave viewers and participants a sneak-peek into the RAG Digital Trust Survey 2021.
Sponsored by Subex, this year’s survey was the biggest and one of the most comprehensive industry surveys, covering 185 risk professionals working for telecommunications providers across Business Assurance, Fraud Management, and Cyber Security. The survey comprised 16 carefully defined questions, selected by a global panel that included risk experts from every continent. Last year, a similar survey was conducted by RAG on revenue assurance and fraud.
An interesting observation from this year’s survey is that telecom providers are increasingly diversifying their services. A sizeable number of responses came from telcos that are fixed-line providers, Internet Service Providers (ISPs), and direct-to-home providers. On another note, among all the mobile network operators that responded, over 80% also provide mobile money services.
This year’s survey threw up some other interesting trends compared to last year, which are highlighted below:
1. 4.9% increase in total operational leakage value
This year, the total operational leakage suffered by CSPs is US $149 billion across all fraud and non-fraud leakages, which was US $142 billion last year. As per the S&P Global report, digital transformation is expanding risk areas for CSPs due to the following reasons:
Demand for data is rising with the introduction of new-age products and services
Competition and complex product structures limit profitability improvements
Capex is rising with the launch of new technologies and digital disruption
In 2020, telecom providers suffered losses equivalent to 2.92% of revenues as a result of errors and mistakes that did not involve fraud. 2.59% of revenue was lost from frauds and other crimes and 2.80% of revenue from frauds related to customers of CSPs. Comparatively, the chief culprit of revenue leakage in 2021 is security breaches, contributing to about 3.3% of total revenues while cost leakages accounted for 2.7%. Fraud and similar abuses are responsible for 1.6% of losses. The cost of fraud to customers of CSPs stood at 1.8%.
2. Investment in technology emerges as a top challenge for CSPs
In terms of challenges, this year’s responses were evenly balanced four areas for technology investment, executive sponsorship, finding skilled people to work in our team, and connecting with people in other departments. Still, 34% of respondents marked technology investment as the topmost challenge in the 2021 RAG survey, a jump from its second position in last year’s survey. Executive sponsorship had dipped from its peak of 37% in 2020.
According to IDC, the big data and analytics market is expected to grow at a five-year CAGR of 12.5%. The analytics market size is expected to become a US $500 billion industry by 2025. Currently, around 32% of new enterprise applications are cloud-native. The offerings of the 5G universe like virtual sports, video gaming, AR packages, virtual studios, etc., can be potential game-changers in an operator’s revenue mix. But, the multi-layered impact of digital transformation is evident in the fact that digital 5G business models have much shorter revenue cycles – and higher risk – when compared with traditional telecom offerings!
Thus, with technology investment being a top challenge, how committed are CSPs to enabling technologies such as ML, RPA, and blockchain for their evolving business models? The next trend tells us more.
3. Machine learning usage has doubled.
Compared to last year, telecom providers using machine learning as an established technology has more than doubled, increasing to over 14% from 6%.
A 2020 TMForum RA survey showed the different ways in which telecom providers are improving risk coverage. One finding is that more than 32% want to use AI/ML for predictive and descriptive decision-making, and to manage challenges related to incident management, automatic creation of business rules, thresholds, process mining, and more.
This year, as per the RAG survey, more than twice the number of communication service providers are maturing their use of machine learning in the risk function. Overall, 26% are in some stage of implementing ML. However, 45% do not deem machine learning useful or affordable, while around half have surefooted plans to leverage ML to mitigate operational risk.
The important point to note here is that half (45%) of the risk functions as per the responses that are not planning to use machine learning is higher than last year.
4. Telecoms are losing revenue due to bad debt.
Improper revenue assurance is costing telecoms sizeable revenues. Out of all RA areas, bad debt is ranked as the main avenue of revenue and cost leakage for 31.7%, a hike of over 3% from last year.
While major system and operational challenges lead to bad debt, these also affect the recovery rates and the treatment of subscribers. According to one study, addressing the challenge of customers not paying their bills requires high follow-up costs in collection efforts and acquisition commissions that become a tremendous overhead for a telecom operator.
Other leakage areas like usage, rating/tariff, and subscription fee errors are similar to last year, with an average of 10% responses. On the other hand, the leakages like excess operating cost, stranded assets, and network/system outages have meagre impact.
5. IRSF, bypass, and SIM-box are the biggest fraud areas
IRSF fraud is the main contributor to the increasing fraud leakage for CSPs as well as customers. Compared to the last year, the proportion of fraud has also increased across areas like network asset/equipment fraud and denial of service attacks. Closely trailing IRSF are other top frauds like bypass, sim boxing, and commission fraud.
On the bright side, the costs of fraud arising from piracy of digital content, subscription and identity fraud has dropped since last year.
Opportunities for Telcos
Comparing the differences in fraud and revenue trends between 2020 and 2021, it is clear that telecommunications providers have significant room for improvement across areas of customer service, regulatory compliance, and operational savings. In the 5G era, there are already high industry investments and programs to define, develop and deliver systems and specifications for the fifth generation (5G) of mobile systems and services.
The quantity of data passing through 5G networks is exponentially higher, increasing the complexity of correlating this data across multiple data points for customers, service, and usage. Adding to this is the challenge of managing different user identities, Network and SLA adherence, and the differentiated quality with network slicing and API integration services coming with 5G. All of these demand an evolution of the existing Risk mitigation methods to mitigate the vulnerabilities in 5G-based models. The AI-led Risk mitigation in the 5G era will open avenues of innovation and breakthroughs through automation and machine learning-driven Decision-making. This will empower Telecom operators to be effective and achieve Operational excellence, uninterrupted service experience, and profitability.
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Ashwin joined Subex in 2006 as a part of the Implementation team for Revenue Assurance & Fraud Management. Over the years he has worked with cross-geographical teams to drive value discovery and creation for telecom operators across Middle East, Africa and APAC as a delivery SME and a Business Solutions Consultant. Beyond his work in Subex, he has been involved in some of the most seminal Revenue Assurance public domain centers (both in terms of his work on popular RA blogs as well as his co-authored work on Revenue Assurance for Telecom Operators). He regularly speaks at various industry events on areas pertaining to Business Optimization.