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PWC Focuses on Revenue Leakage

5/19/2002 8:00 PM Eastern

The myriad of new cable services is causing an unwanted side effect, according to a study by PricewaterhouseCoopers LLP.

The accounting firm said cable operators and digital-broadcast satellite providers acknowledge that they are "leaking" revenue, which costs them 1 percent to 2 percent on their operating margins. Their target is to reduce that number to one-half of 1 percent.

"The broadband industry appears to be at an inflection point with more financial executives realizing revenue leakage is a problem that needs to be addressed," said Ted Schaefer, a partner in PWC's Broadband Profitability Maximizer team.

The most common problem on the video side — now spreading to data and voice services as well — stems from the fact that what an MSO may provision is not necessarily what a customer gets billed for, Schaefer said.

"These new products are rolled out fairly quickly and the back office is in a catch-up mode," he said. "Operational support systems don't have the functionality cable companies need."

The transfer of subscribers from the defunct Excite@Home Corp. to MSOs' own provisioning and billing systems has exacerbated problems. Customers may get provisioned or reprovisioned, but the same information isn't always automatically transferred to the billing system. "There's a difference between what's been provisioned versus what's in the billing system," he said.

The manual entry of data into the billing system at a later time also can generate incorrect information. In some cases, consumers may not get bills at all for high-speed data.

Companies need to look at reconciliation processes now, he said, before they launch tiered services that complicate the picture.

Telephony services can suffer the same fate when it comes to features like voicemail and three-way calling being included in different packages. "It's a more complicated product. What's been provisioned doesn't always match what's in the billing system."

In addition to piracy on the video side, Schaefer said many MSOs have been swamped with varied and complicated marketing packages inherited from system swaps.

"You inherit different package programs, and they don't always go back and clean up old packages that have been put into place. Many MSOs haven't streamlined the process," he said.

And, in some cases, those older packages aren't as profitable. They also complicate the ability of customer service representatives to do their jobs when they have to juggle legacy package prices with current models.

Schaefer said operators need to designate someone as the revenue guru. "There's different specialized groups that handle different pieces of it," he said. "No one's looking at it from an end-to-end standpoint. You need to have people that wake up thinking about revenue on a daily basis."

In addition to designating a point person, Schaefer recommends that MSOs integrate revenue capture throughout their culture, touching engineering, sales and marketing, billing and operations. Those employees also need the tools to successfully close the revenue holes.

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