Value-Added Services in Telecom: Models, Challenges and Solutions
Value-added services (VAS) play a pivotal role in the telecommunications industry, expanding beyond conventional voice calls, SMS, and data offerings. VAS enrich the user experience, increase top-line revenue, and enhance profit margins. Notable examples of VAS encompass caller tunes, astrology services, devotional content, contests, online games, and sports updates.
The VAS Value Chain:
- VAS Providers: These entities create content services tailored to specific regions and geographic locations.
- Developers: Responsible for crafting content and VAS applications, developers are essential in bringing these services to life.
- Content Aggregators: Acting as intermediaries, content aggregators collect applications and content from developers and distribute them in line with customers’ unique needs.
- Technology Enablers: These providers offer the essential technological infrastructure to access VAS services, forming the backbone of their availability.
- Handset Manufacturers: Handset manufacturers assume various roles, including embedding software links in mobile devices, enabling direct access to content portals and services.
- Mobile Operators: Mobile operators are crucial in offering the mechanisms needed to deliver content services to end-users.
Common VAS Service Models:
i) Revenue Share Model: In this scenario, Mobile Operators are responsible for billing subscribers. Once customers or telecom subscribers begin using VAS services, the rating is performed by the Telecom Service Provider (TSP) in accordance with their subscription. The generated revenue is subsequently shared among the various entities within the value chain, operating under a revenue-sharing model.
ii) Direct Carrier Billing (DCB) Model: Tech giants like Apple and Google have a significant sphere of influence, encompassing a significant portion of the value chain elements. In this scenario, these industry titans establish direct agreements with mobile operators, with subscribers making payments directly to these giants, while the Telecom Service Provider (TSP) receives a smaller share of the revenue. This framework is commonly known as the Direct Carrier Billing (DCB) model.
While TSPs secure a slightly larger portion of the pie compared to the DCB model, intense competition places them under heightened scrutiny, emphasizing the paramount importance of preventing revenue losses while providing and hosting VAS services on their network infrastructure. The rationale for this vigilance is that if revenue leakages were to occur, and TSPs were unable to collect the owed funds from subscribers, the resulting impact could be significantly significant, as outlined below:
1. Undercharging: Undercharging refers to a situation where a telecom service provider (TSP) fails to collect the full, rightful revenue for the value-added services (VAS) offered to subscribers.
- Revenue Loss to TSP: When undercharging occurs, TSPs are deprived of revenue that they rightfully earned, directly impacting their financial health and profitability.
- Liability to VAS Providers: TSPs have revenue-sharing agreements with VAS providers. Undercharging means TSPs must still pay VAS providers based on expected revenue, despite collecting less from subscribers.
- Reputation Damage: Consistently undercharging may lead to a loss of trust and credibility among VAS providers, content aggregators, and the subscriber base, making it difficult to retain and attract partners.
- Business Impact: Undercharging can lead to VAS partners switching to other mobile operators who can better ensure the correct revenue is collected, resulting in a loss of business opportunities.
2. Overcharging: Overcharging occurs when subscribers are billed more than the actual value of the VAS they have used. While this might seem beneficial, it comes with its own set of drawbacks.
- Subscriber Dissatisfaction and Churn: Overcharging can lead to subscriber dissatisfaction, and in extreme cases, it may cause subscribers to leave the network (churn), resulting in the loss of subscribers.
- High Customer Support Costs: Overcharged subscribers are likely to complain and seek resolution through customer support channels, significantly increasing the costs associated with maintaining call centers and addressing grievances.
- Reputation Damage: Negative word-of-mouth among overcharged subscribers can damage the TSP’s reputation, potentially leading to brand erosion.
- Regulatory Penalties and Legal Action: Charging subscribers more than what is fair can result in penalties and legal actions imposed by telecom regulators and government bodies, potentially being financially crippling and harming the TSP’s standing.
3. Telecom Fraud: Telecom fraud is an ever-present threat in the VAS sector, as fraudsters continuously evolve their methods to exploit vulnerabilities.
- Revenue Impact on TSP: Telecom fraud can significantly impact a TSP’s revenue, with fraudsters diverting funds that should rightfully go to the TSP.
- Subscriber Blame: In most cases, the victim of telecom fraud holds the mobile operator liable for the fraudulent activity. Subscribers expect their TSP to ensure the security of their transactions.
- Refunds and Financial Strain: When fraud occurs, TSPs often have to provide refunds to affected subscribers, leading to financial strain and revenue losses.
- Negative Publicity: TSPs’ inability to prevent fraud and safeguard subscribers’ interests can result in negative publicity, potentially deterring potential customers and partners.
How can Subex help?
Subex is globally renowned for its leadership in Business Assurance, Fraud Management, Network Analytics, Partner Management, boasting an impressive track record spanning over three decades. Our commitment goes beyond securing revenue for TSP. Our flagship Business Assurance solution, on Hypersense, empowers mobile operators to optimize revenues and ensure a robust return on investment (ROI):
- Risk Identification and Mitigation: The Hypersense Business Assurance tool serves as a comprehensive solution, aiding in the identification of risks and providing actionable mitigation steps.
- SME-Backed Audit and Custom Controls: Our expert Subex SME team conducts sprint-based audits and delivers customizable controls, seamlessly aligned with TM Forum’s standards.
- Granular Risk Assessment: These controls meticulously evaluate business risks at every stage, encompassing VAS providers, content aggregators, subscribers utilizing services, service rating, and billing.
- Multifaceted Application: Hypersense isn’t confined solely to the Revenue Assurance and Fraud Management (RAFM) team; its benefits extend across various functions such as Finance, Network, Sales, Marketing, and more.
- Strategic Insight: Our solution empowers organizations to gauge their performance concerning strategic goals and objectives across diverse revenue streams, not limited to VAS alone.
In summary, while Value-Added Services in telecommunications offer revenue opportunities, they come with challenges across the VAS value chain. The choices between revenue-sharing models underscore the crucial need for robust Business Assurance. Undercharging, overcharging, and telecom fraud are potential pitfalls.
Subex’s unwavering commitment to achieving telecom excellence ensures that our partners can confidently navigate the intricate landscape of Business Assurance, Fraud Management, and VAS optimization. For more information, please feel free to reach out to us at email@example.com.
Ready to Transform Your Value-Added Services in Telecom?
Martand, an experienced professional in the Global Delivery function at Subex, boasts over 15 years of expertise in various facets of the Telecom industry. His extensive background encompasses Revenue Assurance, Team Management, Business Consulting, Customer Risk Management, Billing Operations, and Business Assurance. He has collaborated with leading Telcos in the APAC, Middle East, US & Canada, and Africa regions, delivering his expertise both on-site and off-shore. In his role as a Subject Matter Expert, Martand takes on the responsibility of Solution Design, Business Delivery, Customer Success & Satisfaction, and Project Management.
Request a demo