The Mobile Network Operators (MNOs) are being increasingly challenged to strike a balance between growing revenues, managing customer expectations, reducing operational costs, and complying with regulatory changes. If implemented, the European Union (EU) Commission proposal for the end of international roaming charges, by June 2017, will have an enormous impact on the European mobile industry.
According to EU sources, cross-border retail prices have already been reduced by 80% since 2007. The new regulations will continue to drive down Average Revenue Per User (ARPU) and remove a previously high margin revenue stream. This will force telecom companies to get smarter by cross-selling other services including fixed line, TV media, internet (e.g. becoming true ‘quad-play’), and by optimising operations to reduce costs, while outsourcing non-core activities.
The EU has been working for many years to establish a unified market for communications, within the EU member states. During this time, the European Commission has repeatedly pushed MNOs to lower their charges for subscribers using mobile phones abroad. Nonetheless, these charges remain, on average, four times more expensive than domestic mobile phone calls. Mobile roaming data usage rates can be 500 to 1,000 times more expensive than domestic rates, resulting in ‘bill shock’ for unwary consumers.
The impact of EU regulation on roaming
International roaming charges are proposed to be abolished from June 2017 – that means posting holiday snaps to Instagram, updates on Facebook and Twitter, and keeping up with e-mails while abroad would no longer result in unexpectedly high bills. Operators will no longer be able to charge travellers to the EU’s 28 member states extra for calls, texts and internet usage – a source of high margin revenues for telecom players today. Abolishing roaming charges completely will mean that consumers will pay the same rate as at home.
A coalition of larger telco networks, across the EU, has warned that the legislation is not optimally designed, resulting in delays to the proposals which were originally slated for end 2015. They warn that domestic tariffs for European consumers may need to increase to pay for the changes. While roaming itself may no longer be subject to surcharges, the overall level of tariffs could increase, resulting in non-roaming customers effectively having to foot the bill for roaming customers. How far that will be accepted by consumers, who have enjoyed competitive domestic tariffs, will become apparent over the coming years. Smaller operators, including Mobile Virtual Network Operators (MVNOs), fear that they could be charged more than their customers have been paying previously, while Europe’s largest networks could strike deals with each other to limit their costs.
Here are seven ways telecoms organisations can prepare their organisation for the new rules:
1. Update the telecom business model with ‘out-of-the-box’ ideas
The environment for telecoms has changed dramatically as smartphones and tablets have allowed new functionalities to evolve, such as banking, making payments and online purchases and transactions. This emerging and fast growing trend is forcing telecom companies to come up with innovative out-of-the-box ideas and strategic initiatives like creating pan-European credit teams. Through a centralised hub and spoke credit risk management model, telecoms companies can follow EU policies and design and review standardised credit and collection strategies, to maintain consistency and lower operational costs.
2. Embrace a risk management philosophy
Most telecom companies do not have a dedicated credit risk management function to design risk policies and processes for credit vetting, on-going customer management and collections, or for on-going credit risk monitoring. The global best practice approach is to have an end-to-end life cycle approach, comprising credit risk and customer management, including a customer or household view of accounts, a profitability-based model for customer acquisition and customer management, understanding of legal and compliance issues, and long term strategies based on market and consumer trends.
Industry surveys by Experian have shown that credit risk and customer management functions and processes are generally managed quite separately and, often, these activities are integrated into other business areas, leading to considerable gaps and unclear accountabilities e.g. a wrong account has been activated, a de-activated account re-activated etc. Such incidents can occur in any business area and may lead to significant losses. The essential requirement is to have a dedicated credit risk department to set appropriate credit policies, manage customer triggers in critical processes and to monitor the entire customer life cycle.
3. Use advanced analytics and big data
The extensive growth of customer behavioural data is potentially another challenge to overcome, although, with the right strategies and expertise, the analysis and usage of big data can create new approaches to secure profitability:
Growing data usage delivers rich information about customers and can be used for developing predictive analytical models that anticipate future behaviours and actions for customer segments
The potential insights derived from customer information have created an opportunity for telecoms to implement and optimise new strategies
Smart strategies for using customer information are being used to reduce the number of unprofitable customers and help retain the most valuable ones.
4. Smarter acquisition and retention
Customer data can be effectively used to develop new business models that support sustainable growth. The objective is to maintain existing revenue streams whilst reducing churn. Data enables the telecoms provider to gain insights into more profitable customer interactions and effective communications approaches, using advanced analytics techniques and fraud detection. To retain and build the most profitable customer segments, analytics can be followed by a Strategy Design phase, to align the product offerings with enhanced customer segmentation, using simulation, Champion / Challenger testing and reporting. In addition, up-sell and cross-sell opportunities can be created, to extend profitability, by establishing more complete customer profiles that enable more relevant customer communications.
5. Cutting service costs
Benchmarking of business processes and optimisation across the customer life cycle – from fraud prevention, to prospecting, acquisition, customer management and collections – through regular Business and Strategy Reviews can enable the telecoms provider to reduce credit risk exposure and improve cost optimisation.
6. Implement cutting-edge strategies
Today’s data explosion leaves businesses with two options: drown in data, or leverage it and enjoy the benefits. Those telecoms providers that choose the latter can
- Harness the power of data insight to drive commercial strategy and increase competitive advantage
- Increase loyalty of the most profitable customers and create new up-sell and cross-sell opportunities
- Cost effectively allow value destroyers and high risk customers to churn and leave for competitors
- Use data-driven decisions to evaluate new business models, exploit the potential of new channels to market and minimise risk from non-validated decisions
7. Extract value and hidden potential from the customer life cycle
Optimising decisions across the customer life cycle to enhance business performance is only possible by combining best-in-class predictive analytics techniques, efficient software solutions, and expertise on the best global industry practices.
New rules, new game
The EU has been working for several years on its Digital Agenda for Europe to create a single market for mobile communications and internet services. A major step in this approach is to abolish roaming charges across the EU, which is planned for June 2017. This is one of the major challenges for telecoms, with an EU estimate of a revenue loss of over €7 billion in cash flow across the European Union. The new regulations will continue to drive down ARPU and remove a previously high margin revenue stream. This has to be countered by getting smarter, cross-selling other services, outsourcing non-core activities and optimising all operations to reduce cost.
MNOs should take this new EU regulation on roaming as an opportunity to re-assess the strengths and weaknesses of their business to overcome this challenge and prepare for the future, to ensure business profitability. The review of the entire customer life cycle with the help of external experts can enable organisations to have a gap analysis of their existing business policies, systems, processes, models etc. against global best practices. The outcome of this benchmarking will be a roadmap to implement the identified potential initiatives that will ultimately lead to effective decisioning across acquisition, customer management, collections and fraud prevention.
An out-of-the-box strategic model for pan-European telecoms credit risk teams that creates new models, such as for ‘hub and spoke’, will cater to the need for efficiency of data gathering, de-duplication, analysis, use and re-use, consistently, across countries. Higher efficiency, better productivity and optimisation will enable the business to achieve its goals to retain profitable customers, reduce churn, minimise operational costs and fraud losses, in order to re-establish telecoms companies on the path to profitability.
To find out more about how Experian can support telecoms organisations please contact us today.