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Profitable opportunities in an economic downturn

According to expert forecasts the telecom industry has a bright future; currently there are 4.4 billion mobile subscribers* in the world and this figure is expected to achieve 50 billion in 2020. However, despite this positive outlook the telecom industry has not escaped the consequences of the global economic downturn.

In the years before the downturn, telcos experienced a rapid growth in subscriptions numbers with EBITDA (Earnings before interest, taxes, depreciation and amortization) increasing year on year. Bad debt was not a significant issue, although rather than it not existing at all, it was masked by the continuous growth in revenue. Unfortunately, the financial crisis seriously affected the telecom industry, which has now to tackle a reduction in volumes of new subscribers, a rise in churn rates, increased cost and credit losses, and a growth in the number of subscribers entering collections.

The current market conditions have now presented three key challenges:

This means that there are three main areas where telco organisations should focus their attention; the preventive stage, early collections and late collections. In all stages, the solution for each case is delicate, as ending a relationship too soon could lose future revenue, while ending it too late will ultimately reduce the EBITDA.

Too frequently, organisations ignore the pre-delinquency stage organisation; yet good management in this phase can minimise 'at risk' exposure, reduce overall collections costs, and increase overall revenue generated.

The advantages are clear, but before setting any action the organisation should have a clear vision of the cause of the financial difficulties (i.e. temporary reasons such as a job loss or marital break-up; long term causes like illness; or whether there is a change in lifestyle). Having a complete picture of the customer enables organisations not only to react to problems but prevent them. The first source of information about a customer is always the organisation: customer data is held in different systems (e.g. billing, commissioning and collections systems) and the organisation should be able to make full use of it to create an insight into the behaviour and motivations of each customer.

With analytics and behavioural scores, organisations can identify higher risk subscribers. Using these tools and techniques enables an organisation to have a better understanding of where to focus and which kind of customer should be prioritised. Then, depending on the level of risk and the value of the customer, a different action can be taken. For high value customers, an immediate outbound call offering a product check  to assess their current tariff might be worth the investment; whereas for lower value customers an email with link to alternative product offers, with an extended contract term  would be more cost effective. The key here is to segment the portfolio in different groups with similar characteristics – our experience is that well segmented groups have very high response rates.

In spite of the positive outlook for the telecom industry in terms of increasing number of customers, the forward-thinking credit risk managers will takes a proactive approach to debt management. They know that gaining a new customer is seven times more expensive than retaining an existing customer relationship - and they want to make the most of each and every customer.

David Groom
Managing Director, EMEA
Decision Analytics
Experian

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