AAA & Customer Risk Don’t count your Chickens [Customers] before they're hatched

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AAA & Customer Risk

Don’t count your Chickens [Customers] before they're hatched

Author: Roel Keizer

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AAA & Customer Risk

Don’t count your chickens [Customers] before they're hatched

*

Public Version

**

Master Thesis

(docteraal scriptie)

Performed at AAA

Author: Roel Keizer

Supervisor AAA

Daniel B.

Supervisors RUG

Prof. G.B. Huitema

Dr. T.W. de Boer

S, 22 January 2007

Technology management

Faculty of Management & Organisation

University of Groningen

*_{English proverb, explanation in preface}

**_{Due to the confidential nature of some information used in this study, two versions are created. In the}

public version confidential information is removed. The result is that all references to companies, products and country are changed, appendices removed and certain sections altered.

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Preface

This research is performed in S at the company AAA. With this thesis I will finish my study Technology Management (Technische bedrijfswetenschappen) with specialisations in Discrete Technology and Information Technology. During my studies I always liked the subjects related to production management and logistics and chose most of my additional courses in this area of study. But then the opportunity to finish my studies in X came up. My initial subject of interest became subjective to opportunity. Topic of my master thesis research became risk management in a telecommunications company and I worked in a Finance department.

My project was a bit different than usual for Dutch students. During my time with AAA I worked part time in the Finance department on a project, and in my spare time I worked on my thesis. This gave me the opportunity to get some real work experience, but it also made it a bit more difficult to focus on my thesis. Being away from The Netherlands also had an impact on communication with everybody back home: not being able to speak face to face to my university supervisor Prof. Dr. Huitema, missing discussions with fellow students; All this might have contributed to a bit of delay, but then again Rome was not built in a day…

Don’t count your chickens until they’re hatched. Chickens hatch from eggs, but will every egg hatch? Do not assume success until your success is assured. AAA acquires a lot of customers, but not all customers turn out to be profitable. How should AAA deal with this? This is the topic of my research.

The last year I have had a great time with AAA, thanks to all the wonderful colleagues (too many to mention all). Special thanks to my AAA supervisor Daniel Blair, who helped me develop my language and business skills, and who always made time to provide feedback or to introduce me to new people in the company. I would like to thank Prof. Dr. G.B. Huitema for his patience and feedback and Dr. T.W. de Boer for his effort as second supervisor.

I would like to thank my parents, Piet and Swante, for always supporting me in my studies; Marien & Marèl and Annelies & Erik for excusing me for missing the births of my nephew Bram and my niece Kim; Marien, Daniel, James, Simon and Kim for making it possible to do this thesis here in X; And finally Marianne, who supported me through the whole process.

Although it took a bit longer than expected, I never had regrets finishing my studies here in S!

Roel

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Management Summary

A difficult high pressure telecommunications market has a result on the margins of AAA. The low margins per customer lead to a focus on acquisition to drive enough scale to make profits, but retention is equally important. Payback times related to acquiring customers become longer as margins decrease. This research is written to provide insight in customer risk. Understanding the factors and indicators of customer risk might lead to an improved understanding of the customer. This will benefit decision making regarding the customer.

The goal of this research is to establish a way for a company to improve its customer investment policies. This is researched through a case study at AAA. The research question is formulated as: “Which factors influence customer risk, how can AAA measure these factors and what measures can be taken to control these risks.

Risk is described by various researchers, but never has there been a universal definition. It relates to uncertainty and is often regarded as something bad. In this research risk is expressed as a result of chance and effect. In case of customer risk chance is a result of the factors and effect can be expressed in costs.

Customer risk for AAA can be categorised in churn risk and credit risk. Churn relates to customers moving from one provider to another. Competitors launching offers in the market and try to capture customers currently subscribed to AAA. But not only offers in the market are responsible for churn. AAA billing performance is not always up to standards. Customers have the impression that they are not treated fairly (sometimes AAA is at fault) and switch their products to another provider. Quality of customer contact can be disappointing as well, especially the long waiting times before contact is made with AAA.

Credit risk relates to payment default by a counter party, the customer. Sometimes a customer is unable to pay the bills. A customer in the hospital might not be at home to receive the bill or because of some other reason the customer is unable to actually get to see the bill. But in other instances the customer does not have the financial means to pay. A third reason why a customer does not pay is because he or she is currently in a dispute, and refuses to pay before the dispute is settled.

Credit risk and churn risk affect AAA. In the end it costs AAA money, either through the use of extra resources to handle or mitigate the risk, or directly. In the latter instance one can think of a customer leaving before an initial investment in the customer (e.g. setup costs, some hardware like a modem etc.) is earned back, or a customer who leaves a large debt. This study uses a payback model to express this effect component. Different sales channels and products are analysed to indicate the effect of risk.

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Another part of the study focuses the chance of churn risk or credit risk. If competitors launch offers similar to AAA’s offers and these offers are cheaper than AAA’s, chances are that the customer will churn. Monitoring the market leads to a prediction on which customers are at a higher risk of churning. Currently customers who hardly use Product A or who call a lot to Telco2 mobile are cheaper of with competitors. Besides the offers in the market, billing and quality of customer contact are factors of risk. Billing problems are experienced a lot in the Product Z offer. One can conclude that Product Z has a low billing performance and this low billing performance drives churn. Customers who are not satisfied with the quality of service of AAA are often acquired by Sales channel B. This sales channel raises expectations too high or do not paint the right picture for the customer. This is done to boast their acquisition numbers and consequently the commissions, but this drives customers away. Churn within x months is too high. Waiting times in the call centres and quality of response in the call centres is not always to standards. This is a result of the number of customers that churn and the number of billing issues experienced. All this contributes to customers churning.

To control the credit risk AAA uses a number of scoring methods to indicate which customers are at more risk. Application scoring is used when a customer joins, this method segments customers based on demographics and third party information about payment behaviour into risk categories. Some are rejected at the application, and some are places in high risk categories and monitored more closely. Behavioural scoring is used when a customer is subscribed. This indicates which customers resource should be used on which customers, and this updates the risk categories based on payment behaviour with AAA. One of the tools AAA uses to force people to pay is a service disconnection notice. This tool drives churn as well, so AAA needs to be careful when to use it.

AAA should develop scoring tools to indicate churn as well as credit risk. This can provide improved decision making regarding resource allocation, especially retention activities. Sales channel B should be evaluated, a possibility is to close them, but first the effect on economies of scale should be known. No contract policy that AAA employs blocks one off deals to customers. Competitors use these heavily and customers value these one off offers. Although the No contract policy is a major marketing tool, one might further analyse it.

This case study provides an example of how customer risk can be studied. The concepts can be used in a broader industry than telecommunications, but will be more appropriate to service industries than others.

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ANSWERING THE RESEARCH QUESTION...ERROR!BOOKMARK NOT DEFINED. What is customer risk in a telecommunications industry? ... Error! Bookmark not defined. What is AAA’s relationship with the customer?... Error! Bookmark not defined. Which factors contribute to customer risk? ... Error! Bookmark not defined. What are the indicators for customer risk?...64

How can AAA mitigate and prevent customer risk?... Error! Bookmark not defined. How can AAA improve its decisions regarding customer risk? ... Error! Bookmark not defined. CONTRIBUTION TO THE RESEARCH GOAL...ERROR!BOOKMARK NOT DEFINED. FURTHER STUDYB...ERROR!BOOKMARK NOT DEFINED. Sales Channel... Error! Bookmark not defined. No contract policy... Error! Bookmark not defined. REFERENCES ...69 LITERATURE...69 INTERNAL DOCUMENTS...71 INTERVIEWED PERSONS...71 WEBSITES...71 REPORTING TOOLS...71

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Chapter 1: Organisational Overview

This chapter will provide some background information about the company AAA and the X telecommunication market.

1.1 AAA overview

AAA is X nth_{largest full service telecommunications carrier and is part of the}

Telco1. Full service relates to the type of customers served and the kind of products. AAA serves residential customers as well as businesses of all kind with a range of products. Currently n other players full service to all segments, Telco2, Telco3 and Telco4. Telco2 is the largest in X, followed by the others.

There are around 2000-3000 people working for AAA. These employees are split over several sites in X. AAA offers telecommunication services to consumer customers as well as business customers in every segment (from large customers such as the Customer1 to small home offices). AAA’s revenue is around 1 billion a year. After operation and support costs AAA has a surplus of … million (EBITDA). Subtract depreciation and amortisation and earnings before interest and tax are a negative … million.

1.2 Company history 1.3 Mission

With the aggressive market approach by Telco1 and Telco2, especially in the business segment, AAA changed its strategy. AAA choose to change to a segment player based on disruptive technology instead of a provider that delivers everything to everybody. A major difference to competitors is that customers can cancel a service subscription within a month. Customers are not locked into long term contracts!

1.4 Organisational structure

AAA used to be an autonomous subsidiary of Teleco1 with its own CEO, who reported into Telco1. Early 2006 organisational changes took place and AAA became more linked to the organisational structure of Telco1. At the moment several departments report into the different executive members of Telco1. The research is focused on the Consumer and Support parts of the business. Consumer consumes resources of Support therefore Support is included in the research.

1.5 The X telecommunications market

The old incumbent Telco2 still has a lot of market power and is one of the few companies which is actually profitable. This put a lot of pressure on the margins and this affects AAA. Better regulation of the market is wished for.

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1.5.3 Market effect on AAA

Last year’s financial results were disappointing, EBITDA dropped from 100-…M in year 04/05 to 100-…M in 05/061_{. The current X telecommunications market}

and the financial results have impacted AAA in two ways. Telco1 is currently undertaking a strategic review of its X operations. The future of AAA is either by achieving scale through acquiring another company, a merger with another company or outright sale of AAA to another company. Besides this major change AAA is changing its focus to the small business/enterprise segment. To support the change of customer focus, AAA is restructuring its internal organisation.

1_{Internal document:}

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Chapter 2: Research Question

This chapter will outline the research approach. In this chapter the following topics are described in respective order: Reason of research, definitions, scope of the study, the research question and finally the sub-questions that will help solving the problem.

What is customer risk for a telecommunications party? How does it affect running a telecommunications business? How to influence and deal with it? AAA is going through a lot of changes at the moment. Negative financial numbers were an indication for Telco1 to stir thing around. A lot of initiatives are started to counter the downwards slope of the financial results. One of the changes is the alignment of AAA organisation with the Telco1 business. This reorganisation led to the current organisational structure with a consumer and business split. This new organisational construct should lead to a better focus on the customer. But what are the risks related to the customer?

2.1 Reason of research

A common definition of an organisation is a group of people that cooperate to achieve a mutual goal. In larger organisations it is harder to streamline the organisation to order to reach the common goal. To streamline a company as good as possible and keep it manageable, companies break their organisation in parts or departments with goals. Sometimes it is hard to reach a sub-goal without affecting another department’s sub-sub-goal. If this happens a conflict of goals emerges. Problems like this are common in a lot of companies. In AAA a similar conflict happens between Marketing & Sales and Credit. The aim of Marketing & Sales is creating revenue through acquisition. The aim of Credit is assure payment and minimise bad debt, a way to do this efficiently is imposing strict rules on customers and rejecting certain types of customers. A common goal for every commercial organisation is to serve customers and to generate profits in order to survive. This research will contribute to improve decisions with respect to the common denominator in the three goals above, the customer.

Fact is that at the moment customer churn levels are too high. Within AAA churn is just as high as acquisition. Theory suggests that acquiring a new customer is 5 times more expensive than retaining a customer2_{. From this}

hypothesis we can quickly derive that AAA is losing a lot of money with current churn rates.

Companies in the telecommunications industry have to deal with customers not paying. This is called Bad Debt. Given the materiality of these costs it is important to control these costs. A general assumption is that bad debt can be influenced by managing customer risk.

2_{Olsson 2003}

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One of the outcomes of not checking your customers is that the risk of customers not paying their bills will increase. This will affect AAA in higher Bad Debts exposure, but also a higher workload for the credit department since collections activities will increase. And if a customer defaults after a few months, chances are that the initial investments in the customer are not recovered.

Imposing rules to customers before they can subscribe to services can prevent AAA from losing money. But applying rules too strict will pose a risk to revenue generation. Good customers might not be allowed to join AAA, so potential revenue is lost. The sales department will drive revenue generation, as the credit department will try to minimise bad debt and collect as much as possible. These goals seem to conflict.

2.2 Scope

AAA consists of three different business units (see chapter 1.5). The customer facing units are the Consumer and Business parts of the business. These parts behave in a different way. Business is focussed on high value customers, who are served with custom made ICT solutions. Consumer focuses on standardised packaged solutions (products/services) to serve residential and small business customers. In Business an important part of its business relates to project management, economics and risks are thoroughly analysed before a price is quoted and a project accepted. In Consumer high volumes make it difficult to spend a lot of resources to study customers, this makes customer risk an interesting topic. This study will only focus on the Consumer business of AAA. For this exercise information available within the company will be used. This research is not a data gathering exercise. Emphasis will be on methodology.

2.3 Research Question

Given the above reason for research the goal of this study can be stated as: Research Goal

Establish a way for a company facing customer risk to improve its customer investment policies

This research is performed at AAA, therefore the research question is aimed at AAA. The research goal can be used to formulate the research question: Research Question

Which factors influence customer risk and how can AAA measure these factors and what measures can be taken to control these risks.

AAA invests in customers when AAA acquires customers, but also when AAA initiates retention activities. Growth is pursued to gain more revenue. In this research I study customer risk within AAA. When the factors that contribute to customer risk are known, one can help improve the decision which

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customers to invest in. To gain the insight in the customer risk the paper is structured in three parts: The first part describes the factors. The second part analyses how these factors can be measured and the last part works out how to deal with the risk factors.

Customer investment decisions are choices to spend money to retain a customer, mitigate or prevent risks. This is closely related to customer risk.

2.4 Conceptual model & sub-questions

The research question is decomposed in several sub questions to structure the search for an answer. The sum of the sub questions will provide the arguments to the answer of the research question.

Figure 2.1: Conceptual Model & Reading Guide

In the Definition Phase the context and terms are defined. This will provide the tools to help us reach our research goal. In the Analysis Phase the roots of our problem are explored. This will help us understand where we can apply our tools and creativity to solve the problem. In the final phase, the Design Phase, everything is brought together to solve the research question. In this phase answers are provided to help improve decision making and to provide insight in all the factors involved.

When does customer risk occur? What is AAA’s

relationship with its customers?

Which factors contribute to customer risk?

What are the indicators for customer risk?

How can AAA mitigate and prevent

customer risk?

How can AAA improve its decisions regarding customer risk?

Theoretical Research Internal documents &AAA Interviews De fi nit io n Phase De si gn P h ase An al ys is P h a se Sub-question 2 (Chapter 4) Sub-question 1 (Chapter 3) Sub-question 3 (Chapter 5) Sub-question 4 (Chapter 6) Sub-Question 5 (Chapter 7) Sub-question 6 (Chapter 8) Conclusion Co nc lu si o n Conclusion (Chapter 9)

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The conceptual model provides a reading guide as well. The sub-questions will be solved one by one in separate chapters. Chapter 9 is the conclusion. This chapter will answer the main research questions by using the sub-questions as arguments.

2.4.1 Sub-question 1 – Theoretical Framework

What is customer risk in a telecommunications industry? - What is risk?

- What is Risk management?

- What does the Telecommunications supply chain look like? - Incentives of churn risk

- Incentives of credit risk - What is credit scoring? - What is behavioural scoring? - What is profit scoring?

This chapter will provide the theoretical framework for the study. 2.4.2 Sub-question 2 - AAA’s Customers

What is AAA’s relationship with the customer? - Who are AAA’s customers?

- What are AAA’s products? - What is customer risk? - What is a good customer? - What is a bad customer?

- When does AAA have contact with its customers? - Which processes lie underneath customer contact?

This sub-question will define who AAA’s customers are and how AAA interacts with them. By understanding the processes underlying customer contact insight is provided where AAA is involved and what potential factors of risk are.

2.4.3 Sub-question 3 – AAA’s customers and risk Which factors contribute to customer risk?

- What are the chance components of customer risk? - What are the effect components of customer risk?

In this chapter the terms described in the previous chapters will be brought into relationship with each other.

2.4.4 Sub-question 4 – The indicators for customer risk What are the indicators for customer risk?

- Indicators for churn risk - Indicators for credit risk - What value is at risk?

In this chapter we look at the predictors of risk, but also at the effect of customer risk. Answering these questions will give insight in the chance and effect components of customer risk.

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2.4.5 Sub-question 5 – Prevent and mitigate customer risk How can AAA mitigate and prevent customer risk?

- Preventive actions - Mitigation actions

To reduce risk AAA can use preventive actions and mitigation actions. The answer to this question is the amount of control AAA can exercise on the value at risk.

2.4.6 Sub-question 6 – Improving the decision

How can AAA improve its decisions regarding customer risk? - Create the right environment

- Create the right information

In this chapter a high level answer is given to what AAA needs to do in order to improve the quality of information and improve decision making.

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Chapter 3: Theoretical Framework

In this chapter a number of theories are explored to provide insight and tools to solve the research question. The first part of the chapter describes what risk actually is and how it can be managed. Then I will present some literature related to the telecommunications industry. The last part of this chapter focuses on customer acquisition and retention. By the end of this chapter I will find an answer to the question “What is customer risk in a telecommunications industry?”

3.1 Risk

There are many different definitions of risk, but none of them is universally agreed upon. A famous definition of risk is given by Frank Knight:

… Uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated. … The essential fact is that "risk" means in some cases a quantity susceptible of measurement, while at other times it is something distinctly not of this character; and there are far-reaching and crucial differences in the bearings of the phenomena depending on which of the two is really present and operating. … It will appear that a measurable uncertainty, or "risk" proper, as we shall use the term, is so far different from an un-measurable one that it is not in effect an uncertainty at all.3

He illustrated this distinction with the example of an urn filled with red and black balls. One man is ignorant of the number of each. Another man knows that the proportion is three red to one black.

“It may be argued that “to the first man” the probability of drawing a red ball is fifty-fifty, while to the second man it is seventy-five to twenty-five. Or it may be contended that the probability is “really” in the latter ratio, but that the first man simply does not know it…”4

The difficulty with this definition is that uncertainty is not a risk.5_{Often risk is}

described by uncertainty and exposure or chance and effect. David Vose6

uses Frank Knight’s insight to address measurable uncertainty as variance and unmeasurable uncertainty as uncertainty. In this instance uncertainty can be estimated at best by a perceived probability, like the first man in the example by Frank Knight. Uncertainty can be reduced by additional knowledge. In case of variance or measurable uncertainty a proposition or event has an inherent chance. Like flipping a coin, if the coin is fair the outcome of head or tails is 50%, and cannot be reduced further by extra

3_{Frank Knight, 1921}

4_{Frank Knight, 1921} 5_{Glenn Holton, 2004} 6_{David Vose, 2000}

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knowledge. Or as in the example, if the knowledge is obtained and there are three red balls and one black the outcome can be estimated.

In a number of definitions risk is regarded as something negative. Sentences as “The risk of …” are often used in a negative way. In engineering risk is often defined as probability of an accident times the consequence in monetary loss or even deaths.7_{Then risk is defined as a threat or hazard and}

should be avoided. David Vose proposes to treat opportunities in the same way as risks; only in this instance the outcome is positive. Studies in business economics teach us to translate threats into opportunities. From this thought risk management evolved. In risk management one tries to benefit from the opportunities, while controlling the risks.

3.2 Risk Management

3.2.1 History of Risk Management

Risk has been studied through the whole 20th_{century. In the 1920s some}

important work has been done by Frank Knight, who is mentioned earlier in this paper, he proposed the separation of measurable uncertainty and unmeasurable uncertainty. John Maynard Keynes emphasises the importance of relative perception and judgement when determining probabilities in “A Treatise on Probabilities” in 1921. It was not till 1956 that risk management was mentioned as a study. The Harvard Business Review published “Risk management: A new phase of Cost Control.” In the 1970s a risk management got a big impulse from the insurance industry. In 1972 Dr. Kenneth Arrow wins a Nobel Memorial Prize in Economic Science, along with Sir John Hicks, regarding uncertainty and insurance.8_{Total quality}

management gained a lot of attention and changed process involving quality of thought, quality of process and quality of action, which let to risk management cycles involving assessment and control. During this period lots of different approaches were used in analysing risks. In the 1990s risk management became more standardised. In 1995 a pre-eminent group of leading business thinkers developed the Australian and New Zealand Standard for risk management - AS/NZS 4360:1995. This standard has received a wide degree of international interest and is widely used as a guideline for implementing risk management. Today risk management has a lot of attention. Many consultants and bureaus are specialised in risk management. The next step in risk management is incorporating Risk Management in corporate governance.

3.2.2 The Australian and New Zealand Standard on risk management 3.2.2.1 Introduction

The joint Standards of Australia and Standards of New Zealand Technical Committee developed the Australian and New Zealand Standard on risk management. The standard was developed to help organisations in the public as well as the private sector with incorporating risk management and has

7_Wikipedia:_{http://en.wikipedia.org}_{, 2006} 8_{Sesel, J, 2006}

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been accepted worldwide. In Australian and New Zealand Standard for risk management risk is treated as the chance of something happening that will have an impact on objectives. Risk management is the culture, processes and structures that are directed towards realising potential opportunities whilst managing adverse effects. This is done through systematic application of management policies, procedures and practises. The standard has several sequential, logical stages to gain control of value at risk. The process described in the Standard is illustrated in Figure 3.1.9

Figure 3.1: Risk management process 3.2.2.2 Establish the context

The goal of establishing the context is to know what is at risk. After the context is established risks are identified. This stage consists of two parts, a descriptive part and a creative part. In the descriptive part the organisations objectives are captured. An organisation can be a company, a business unit or department or any other group of people brought together to achieve common goals. It is important to relate objectives and stakeholders together. Stakeholders pursue or (try to) influence the objectives and therefore need to be evaluated. If no one cares about the objectives there is nothing at risk! The objectives are also the measures of success which are jeopardised by the risks. After setting the organisations objectives, noting the relevant stakeholders and their objectives and capturing the success criteria one can get creative.

In the creative part the organisation is simplified so the identification can be done cost effective. The simplification is done by breaking the organisation down in components. The difficulty in this process is keeping the relevant components in scope and maintaining a workable scale. It must specific enough to identify the risks, but also general enough to avoid prejudgement.

9_{The Australian and New Zealand Standard for risk management - AS/NZS 4360:1995}

Communicate and Consult

Establish the context

Identify

the risks the risksAnalyse the risksEvaluate Treat the risks

-Objectives -Stakeholders -Criteria -Define key elements -What can happen? - How can it happen? -Review controls -Likelihoods -Consequences - Level of risk - Evaluate risks - Rank risks -Identify options -Select the best responses -Develop risk treatment plans - Implement

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3.2.2.3 Identification

Risk identification can be done in multiple ways. One is to use checklists to of standard risks which are known to arise in a particular context. Others are more creative in the form of brainstorming. Advantages of checklists are that they are quick to use, but they might not capture every risk, since no context is exactly the same. Therefore brainstorming is a better solution, but tends to be an expensive method. Ideally a checklist is used as a control to make sure nothing is missed, instead of the only method of identifying risk. Alternatives to brainstorming might be interviews, questionnaires or written surveys. Although these are mostly a trade off between quality and costs. Questions that help in identifying risk are: “What can happen?” and “How can it happen?”

3.2.2.4 Risk analysis

In this stage the significance of the identified risks is researched, taking into account existing factors which will operate to control the risk. Risk analysis involves consideration of the sources of risk, their positive and negative consequences and the likelihood that those consequences may occur. The risks are expressed as the likelihood of an event and consequence in the given context. Likelihood and consequence are combined to give an indication of the level of risk. Depending on the significance and complexity of the factors involved, the risk can be expressed in a qualitative, semi-quantitative or a semi-quantitative way. Qualitative analysis uses words to describe the magnitude likelihood and consequence. In semi-quantitative analysis qualitative scales are used, in this analysis some degree of statistical and mathematical analysis is possible. Quantitative analysis uses numerical values. If done in an accurate and validated way intensive analysis can be done. With the increase of computer power it is possible to calculate increasingly complex quantitative models, which lead to further optimisation of risk analysis.

3.2.2.5 Risk Evaluation

In the risk evaluation stage feedback is provided to the initial analysis. Minor risks may be removed to simply the process of risk management. Other risks are evaluated and reviewed against the organisations priorities and requirements. Risks that are assessed too high or too low are adjusted. Evaluation can be done by experts or based on historical data.

3.2.2.6 Risk Treatment

In the risk treatment stage one reviews mitigation and prevention actions. Old measures are augmented in order to response to identified risks. Sometimes complete new strategies need to be adopted and developed to minimise the risks. Important in this stage is to look at the sensitivities of different risk reduction options which are to be used to mitigate and reduce risks. After evaluating options, one should plan when to implement the treatment plans. Treatment options are acceptance, avoidance, reduction and sharing.

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3.2.2.7 Monitor and Review

The monitor and review process fulfils two functions. One is to make sure that as time moves on the risks are still controlled as intended. Changes in the environment or the discovery of new information might have the consequence that procedures and models have to be changed. The other part is monitoring the operation of the other five stages. The risk management processes need to be done cost effective.

3.2.2.8 Communication and consultation

Risk management is a management process involving different stakeholders. According to Australian and New Zealand Standard, one of the key components is keeping the stakeholders involved and seeking their input regularly as well as communicating the output so it can be used.

3.2.2.9 Establishing effective risk management

Besides giving a framework to risk management processes the Standard also provides information about organising and establishing effective risk management in an organisation. It proposes that an organisation develops a risk management policy. First of al current risk management practises and processes need to be evaluated. Then risk management plans should be developed, these plans should define how risk management is treated throughout the organisation. The plans should have support from senior management and be communicated across the organisation by senior management. The ultimate responsibility lies with them, although all personnel are responsible for risks in their respective areas. Accountability and authority have to be established. 10

3.2.2.10 Future

According to Kevin W. Knight, from the Australian/New Zealand Joint Technical Committee Risk Management the future of risk management standards lies in incorporating risk management in corporate governance through active participation of organisations.

“It is only by the active participation of all organizations interested in the management of risk as an integral component of effective corporate governance that will see the development of a relevant risk management standard at the international level.”11

3.2.3 Enterprise Risk Management

A company that did provide a framework for incorporating risk management in corporate governance is the Committee of Sponsoring Organisations of the Treadway Commission (COSO). This non-standards body developed the Enterprise Risk Management (ERM) - Integrated framework. They define ERM as:

10_{The Australian and New Zealand Standard for risk management - AS/NZS 4360:1995} 11_{ISO Bulletin October 2003}

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“… a process, effected by an entity’s board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risks to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.”12

3.3 The supply chain

3.3.1 Supply Chain versus Value Chain

The value chain is described by Porter as a concept that divides a company’s activities into technologically and economically distinct activities in performs to do business.13_{This definition looks detailed at a company or business unit.}

When one expands this view to a supply chain, we have what Porter calls a “value system”. It is less detailed than the value chain, but highlights where value is created. This looks a lot like the supply chain. Confusion is created by the use of the term value chain.

In other pieces of literature like J.Peppard & A.Rylander14_Porters

value system is called a value chain. The value system and supply chain are linked to each other by the relationship between value creation and revenue division.

The supply chain basically links value activities together, just as Porters value system. Therefore in this paper value system and supply chain are used interchangeably.

Figure 3.2: Value & Supply chain 3.3.2 The Telecommunications supply chain

The telecommunications supply chain is not as straight forward as a lot of traditional supply chains. In traditional supply chains one can often follow the physical creation of a product, from raw materials to end customers. The telecommunications industry is one of the drivers of the new economy15_{. The}

new economy relates to the changes in the economy, it is getting faster, high paced, information intensive and more important, not all the old rules apply. One of the messages that Hayes, Pisano, Upton & Wheelwright emphasise is the thinking in networks instead of traditional supply chains, this thought is backed by J.Peppard & A. Rylander in their article “From Value Chain to Value network”. They look at the value chain of Mobile operators. Traditionally the value chain (or supply chain) of Mobile operators looks like Figure 3.3:

12_www.coso.org_{– 15-04-2006} 13_{Porter & Millar 1985}

14_{J.Peppard & A.Rylander 2006}

15_{Hayes, Pisano, Upton & Wheelwright 2004}

Value / Revenue Division Supply Chain Relation En d Cus tom er Raw M at er ia ls / Res o urc es Upstream Value Supliers Downstream Value Buyers Fi rm V al u e

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Figure 3.3: Mobile Telecommunications chain

The traditional, overall telecommunications supply chain can be viewed in a similar way. 10-15 years ago all these activities would be performed by a state owned monopoly. Nowadays there are different players and roles. Besides the different roles the dynamics that have changed. Pepper & Rylander suggest looking at value networks. Value network can be thought of as a set of autonomous units that can be managed independently, but operate together in a framework of common principles and service level agreements.16_{In contrast to the traditional value chain these functions are}

performed simultaneously rather than sequentially, and mutual adjustments are required with respect to network scope, capacity and the technical properties of concurrent services.17_{Because there is a lack of a clear}

consecutive chain Olsson proposes to use three sub-chains.18_{This provides a}

bit more structure than the value network. The three different chains are the connectivity, content and devices value chains. Telecommunication players can fulfil different roles, or combinations of roles in the different chains to create value and subsequently revenue which leads to profits.

Figure 3.4: Telecommunications business decomposed in three chains

3.4 Churn

3.4.1 What is churn?

Churn is the number of individuals moving out of a collection over a specific period of time. In telecommunication this is generally subscribers moving from one provider to another. The measure, the churn rate is usually expressed in churners per month. Churn can be initiated by the customer or by the company. In the latter case there is often an issue related to payment or fraud.

16_{J.Peppard & A.Rylander 2006} 17_{Stabell & Fjeldstad, 1998} 18_{Olsson 2003}

Network Infra-structure & Operations

Billing Retail &

Distribution Portals &Resellers

End

User

Connectivity value chain Devices value chain

Application/Content/ Goods value chain

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3.4.2 Churn and value

Classical theory teaches us that a buyer prefers more value over less value. In case of a buying decision the customer will look at what he perceives is the best value for money. When two products are exactly the same, the buyer will initiate contact with the supplier who offers the lowest price. When a customer makes his purchase he will evaluate his purchase over time. If the perceived value is lower than the experienced value he will probably be unhappy and will not purchase again from the supplier and try another supplier or a substitute. If this happens a customer is moving out of the collection of buyers from the former supplier into the collection of customers from the latter supplier.

Experienced value and perceived value is influenced by a lot of different factors. Marketing literature suggests that value is different than price, although they are closely related. When price is the only differentiator between products or services, they are named commodities. In this instance price and value are as closely related as they can get. When there is a large amount of differentiation between offers, price is more dynamic and perception of the customer is more important. In professional services industry differentiation is often the key to value creation. For example, a service like legal assistance might mean different things to a person prosecuted by the law or to a company applying for a permit to expand its factory facility. The assistance is valued different by the different buyers, and one can argue that legal assistance is not the same service in this case. Although the underlying costs, the salary of a lawyer might seem the same. Value versus price is always a big incentive for a customer to change his behaviour and initiate churn.

3.4.3 Incentives to churn in X

The consultancy firm Y releases various reports about telecommunication industries. This firm is highly regarded. In one of their reports they perform some analysis regarding the incentives to churn in the X market.

The incentives to churn are closely related to what is described in section 3.4.2. When one groups the incentives three overarching categories can be identified: Price, Offer quality and Service Quality. Service quality is related to customer contact. Offer quality is related to the properties inherited by the offer (e.g. internet speed, modem quality etc.) Only Carrier initiated churn is not related to one of these categories, this incentive is discussed in the next section. Offer and service quality contribute to the value proposition, from which the price is the resultant. Another observation that Y made is that 50-60% of churn is related to acquisition and promotional policies from competitors.

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Fraud Dispute Economic

Situation

Willing to pay Unwilling to pay

A b le to p ay Un ab le to p ay Behavioral Component E con om ic al C o m p on en t _Opportunity

(I can get away with it)

Feel for injustice

3.7 Credit risk

3.7.1 What is Credit Risk?

Credit refers to the risk of loss arising from the default of the counterparty i.e. the failure to honour and meet its legal obligation19_{. Credit risk is}

traditionally studied by banks and credit card companies. These companies need to make decisions to grant loans, with the risk of non-payment. Credit risk is broader than the default risk, in the banking industry credit risk also encompasses risk associated with any kind of credit linked-event, such as changes in credit quality (including downgrades and upgrades in credit ratings), variations of credit spreads, and the default event.20

Nowadays the emphasis of credit risk is expanded to other industries as well. Depending on the magnitude of the risk, the amount of money involved, companies use credit risk in the broader sense or as just the default risk. 3.7.2 Credit risk in Telecommunications

Traditionally credit risk was regarded as back-end credit and collection processes. The aim directed to cutting loses and ‘dunning deadbeats’. With increasing competition a dedicated deadbeat could play “skip and switch” for seven years before running out of providers to cheat21_{. This resulted in}

stricter and better policies to deal with the risks involved. The banking industry provided the framework to bring credit risk back to acceptable levels. Important for the telecommunications industry is to consider risk management a core component in of customer life cycle management. Customer lifecycle management relates to the different stages in the customers lifetime with the company, from acquisition to termination of one or multiple services. Today’s profit margins do not allow for credit risk to be part of back-end process. Lots of companies are beginning, in the transition or have changed over to more intelligent approaches.

3.7.3 Incentives for non-payment Discussions with Stuart R (Manager Credit Department) and Felicity C (risk assessment manager) conclusions were made that incentives to non-payment can be projected in a two dimensional diagram (see Figure 3.5)22

Figure 3.5: Incentives for non-payment

The dimensions have a behavioural component, (un)willingness to pay, and a economical component, (un)ability to pay. Unwillingness to pay can be split

19_{S. Das 1997}

20_{T.R.Bielecki, M.Rutkowski 2002} 21_{D.Nestler, L.Tital 1998}

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up in Fraud and a dispute. A dispute is related to opinion or opinions over which parties are actively arguing, in this case the customer calls certain company policies or processes into question. Fraud is another case, this is illegal behaviour. The other party try to use loopholes and deception to scam the telecommunications company for personal gain. The ability to pay relates to the financial status of a customer. The incentive not to pay is simply because the customer does not have the money to make the payment.

3.8 Credit, profit & behavioural Scoring 3.8.1 Scoring Methods

Scoring tools are widely used in consumer lending. In 1950s credit scoring was introduced. This is the first form of a scoring methodology used in history. Before that time decisions wether to grant loans were based on subjective human judgement. Credit scoring is the term used to describe formal statistical methods used for classifying applicant for credit into ‘good’ and ‘bad’ risk classes.23_{Using statistics rather than human judgement has}

several improvements. Rosenberg and Gleit use several other researches to suggest that Credit scoring outperforms human judgement in categorising risk classes.24

Chandler and Coffman pointed out that there are more benefits to credit scoring versus human judgement. They mention improvements in management control. General policies can be altered quicker through changes in the decision rules than teaching the human experts. And it removes human bias in the decision making process. In most countries the law prohibits companies to discriminate in the granting of credit on the basis of sex, race, colour, religion, national origin etc. Chandler and Coffman also acknowledge that judgemental evaluation may have an advantage in truly exceptional cases.25

Reichert, Cho & Wagner conclude:

“In conclusion, it is all too easy to exaggerate the predictive capabilities of credit scoring models. Their real benefit may relate not to any superiority in predictive power but to the highly consistent, objective and efficient manner

in which such predictions are made.”26

This standardisation leads to economical benefits compared to judgemental procedures.

Since the 1950s credit scoring has developed. Newer statistical and mathematical methods and improved computer power made credit scoring available for a broader industry than just the banking industry. The development let to a split which in credit literature is generally referred to as application scoring and behavioural scoring. Application scoring is used to

23_{D.J.Hand & W.E.Henley 1997} 24_{Rosenberg & Gleit 1994} 25_{Chandler & Coffman 1979} 26_{Reichert, Cho & Wagner 1983}

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make the initial decision whether to grant a loan, whereas behavioural scoring is used to decide how to deal with existing customers. In the last few years there has been a shift from minimising the risk of a customer defaulting to maximising the customer profits.27_{Profits are affected by many}

more decisions like marketing, pricing, service level etc. This means more complexity, which makes more advanced models and techniques are necessary. Developments in this area are grouped under the category Profit Scoring.

3.8.2 Application scoring

In essence application scoring is translating predictive data into one number, the score. This score has predictive power whether a customer has a propensity to default or not. This score is created when a customer applies to a loan. The service providing party makes the decision, whether to accept or reject the potential customer, based on this score. Since application scoring is basically a model one can cast it into a general framework (see Figure 3.6).

Figure 3.6: Application scoring model

The model is generally referred to as a scorecard. The input of the scorecard is based on data available on a customer. This data is generally obtained from the potential customer via an application form, but 3rd_{party information}

is used as well. Financial institutions share negative customer experiences with each other. This means that if a customer has defaulted in the past, it is recorded and available for other institutions to use. Some companies specialise in collecting predictive customer information. The model can be based on different mathematical techniques. Dependent on the mathematical technique different parameters are used to calibrate the model to perform at an optimal level. The decision variable is the score threshold (See Figure 3.7). Sometimes two thresholds are used. The thresholds split the population based on the score in sub-populations. One sub-population is immediately accepted, one immediately rejected and if two thresholds are used a third sub-population to further study before assessing (often called grey area).

27_{L.C.Thomas 2000} Model Input Parameters Decision Variables Output Input:

-Application form data -3rd_{party data} (Unique to customer) Parameters: -Depending on chosen model / technique Decision Variables:

-Score threshold(s) Output:-Accept -Decline

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Figure 3.7: Credit score card There are several techniques to score applicants. According to Hand and Henley historically the most widely used techniques

are discriminant analysis and linear regression. Other techniques which have been used in the industry include logistic regression,

probit analysis, nonparametric smoothing methods, mathematical programming, Markov chain models, recursive partitioning, expert systems genetic algorithms, neural networks and conditional independence models. Dependent on the different details of the problem different techniques have different outcomes. To judge the usefulness of different techniques one can look at the accuracy of prediction, but given the nature of the problem and the current understanding of the problem different methods will not improve the accuracy significantly. Hand and Henley believe that significant improvements are more likely to come from including new, more predictive, characteristics. Or from a change in classification strategy, using behavioural scoring or risk-based pricing on loan offers instead of application scoring. Other performance measures include the speed of classification, the speed a scorecard can be revised and updated and the ease of understanding how a scorecard came to its conclusion28_{. The latter is important to provide}

arguments to a declined potential customer, to make sure that it is not based on one of the earlier mentioned illegal discrimination criteria.

3.8.3 Behavioural scoring

Behavioural scoring is used to assess the current customer base. The difference between behavioural scoring and application scoring is that behavioural scores are updated more frequently as time passes and information about payment behaviour becomes available. Behavioural scoring is based on data gathered in a performance period. Information typically used is related to payment, e.g. the balance outstanding and number of periods since last payment. Decisions made include what credit limit to assign, but also what collection strategies to employ. Behavioural scoring models are split into two approaches: Those built on credit scoring methods (static) or and those which build probability models of customer behaviour (dynamic)29_.

Dynamic behavioural scoring models rely on estimated customer states. To estimate the parameters of the states samples of previous customers are

28_{Hand & Henley, 1997}

29_{L.C.Thomas, 2000} Score Pr o p en si ty to d ef ault (in % ) Lower Threshold Higher Threshold Accept Reject Fu rt he r An al y si s

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used or they are modelled by distributions and updated based on probabilities. So far dynamic behavioural scoring is mostly practised in the academic environment. Static behavioural scoring is used more often. Currently they highlight which customers pose credit risk and thus which customers need additional action. There is progression in the direction of incorporating collections tools to customer behaviour (sending a letter opposed to a phone call). Other developments are related to using the similar scorecards approach to decisions related to churn and attrition.

3.8.4 Profit Scoring

Profit scoring ties the profitability of a loan to its default risk. Some progress has been made in this direction, but there is not a commercial methodology available. L.C.Thomas points out that in order to develop a profit scoring model one first needs to develop new approaches to modelling consumers’ performance30_{. There are a couple of problems when one wants to develop a}

profit scoring model. Firstly there are data warehousing problems. The amount of data needed for profit scoring is a lot more than for credit scoring, so it is difficult to ensuring that all accounts include all the necessary characteristics and attributes. To achieve this all customer data needs to be stored in one data warehouse. This could lead to legal problems since some data will be used for different purposes than it is collected for (use of personal information). Time horizons pose another problem. Price changes happen at different frequencies than default issues. When to update the model and at which time interval should the future be predicted. Overall the vast amount of data involved will make modelling a lot harder, with more uncertainty, which affects the accuracy.

A number of approaches are being tried to develop a profit scoring model. Thomas et al. mention 4: Build on existing scorecards, Mimic regression approach, Markov Chain approaches and Survival analysis.

3.9 Conclusion

“What is customer risk in a telecommunications industry?” This chapter explored several theories to answers this question. Risk has to do with uncertainty in outcome, but can relate to positive outcomes as well as negative outcomes. Uncertainty can either be measured or not. Either way one will try to use a probability to estimate uncertainty. This leads to expressing risk as a function of chance and effect. One tries to manage risks by controlling it. This can be done via preventive actions, minimising the chance, or mitigation actions, minimising the effect. Two major risks in the telecommunications industry are churn and credit risk. Churn relates to customers moving from one provider to another. Incentives to churn are related to value offered. In the X telecommunication market this value is decomposed in price, offer quality and service Quality. Credit risk relates to loss arising from the default of the counterparty. Underlying incentives for non payment are willingness to pay and ability to pay. Tools to minimise

30_{L.C.Thomas Et Al, 2001}

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credit risk are scoring methods. Scoring methods are preventive tools. These tools segment customers into categories which require different treatment.

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Chapter 4: AAA’s Customers

In this chapter AAA’s relationship with the customer is explored. First a description and overview of the AAA’s customers is given, then an overview of AAA’s product categories and underlying offers. The third section of this chapter relates to what “Good” and “Bad” customers are from AAA’s perspective. The last part will describe the interaction with the customer and the related processes. The chapter concludes by answering the question: “What is AAA’s relationship with its customers?”.

4.1 Consumer business

The Consumer business part of AAA serves residential customers as well as small commercial customers. The majority are residential customers (or consumers); they make up about 92% of the customer base. The majority of AAA’s customers have a voice product, either with or without other products (85%).

AAA operates through the whole of X. When comparing the split of AAA over the different parts of X one can see that this almost matches the country average31_.

The commercial customers are small businesses with 1 to 4 employees. The bills are generally less than 2000-3000 a month. The ratio commercial versus consumer customers is about 1 to 10.32

4.2 AAA’s Products

AAA’s products can be grouped in 4 categories: Product A, Product B, Product C and Product D. Under these categories are subsets of offers to further differentiate. There are too many offers to go into detail. Offer can be a fixed line telephony with prepaid calling minutes. The prepaid calling minutes are cheaper than post-paid. If one spends more money on prepaid minutes calling turns out cheaper, provided that the customer uses them. Internet consists of broadband in various speeds or dialup. Mobile has a construction with prepaid units providing more credits to spend on calling, texting or other forms of traffic. The Digital TV has different packages related to available channels. All these standalone offers can be bundled. This means for example that a two offers are bundled, generally this leads to a discount for the customer.

These offers are provided through three supply chains, with AAA as the customer facing part in the chains (see section 3.3). AAA uses different suppliers to provide the end product although the customer does not need to use AAA as supplier for each chain (Devices and content can easily be

obtained without the help of AAA).

31

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The offers delivered to AAA’s customers are a function of these components. The components determine a large part of the price, which is often represented as a monthly fee, and therefore influence AAA’s revenue. These components also play part in AAA’s costs.

Besides these components an offer also includes the after sales component of customer contact. Whereas the components above are for a large part supplied by 3rd_{parties, the after sales service and customer contact is}

delivered by AAA. The offer AAA competes with in the market place consists of the components Device, Connection, Content and Customer contact. Customer contact is described in section 4.4.

4.3 Customer risk good vs bad customers

Under perfect information conditions AAA should be able to evaluate if a customer was a good or bad after termination of the subscription. From AAA’s perspective good customers make money, bad customers will cost money. This makes evaluation as simple as a payback model. When a customer subscribes to an offer of AAA, AAA makes an investment in the customer. The customer is entered in the systems, AAA pays fees to 3rd

parties to make sure all the components are delivered etc (more in chapter 5). The customer pays his monthly fees, which will generate revenue. When the customer leaves AAA after a certain period one can subtract all the costs from the generated revenue and if there is a positive balance the customer can be regarded as “good”. Besides the payback there is also the risk that a customer does not pay. In this instance expected revenue is not collected, which can lead to a negative balance. This clearly shows the affect of churn risk and credit risk on profitability. Figure 4.2 is a matrix with the relationship between the churn, credit and the categorisation of “good” and “bad”.

The end goal is that the overall sum of customers leads to a positive balance, since one can never delete all the bad customers from the equation. In this section “good” and “bad” are used slightly different as in the literature about credit scoring (section 3.8). For instance if a customer uses a lot of customer service, a consequence is that AAA pays

for the resource helping this customer. This means that the payback time will increase and therefore the risk of churn before payback will increase as well. Although the customer always pays its bill he can still turn out to be a “bad” customer. A similar, opposite example is a customer who leaves with outstanding debt, but who created enough revenue to cover the debt. The customer will be categorised as a good customer. The latter example explains the question mark in Figure 4.2.

Figure 4.2: Relationship Churn & Credit vs Good & Bad

Good

Bad Bad

?

After Payback Before Payback

No D eb t O u ts ta n d in g De bt Churn Cred it

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Unfortunately a lot of decisions need to be made before a customer actually leaves AAA. Making decisions with hindsight is always easy. In order to make right decisions regarding the customer one needs to make estimates about the underlying factors to determine if the customer is categorised “Good” or “Bad”. The underlying factors will be discussed in other sections, starting with the relationship between the customer and AAA.

4.4 AAA and the customer 4.4.1 Customer contact

The last part of this chapter describes AAA’s relationship with its customers. Figure 4.3 is an overview of the interaction points between the customers and AAA33_{. The customer}

contacts described are from the moment a potential customer becomes a customer till he or she leaves AAA.

Figure 4.3: Customer contact The interactions trigger processes within AAA. When a customer purchases an offer, processes regarding provisioning and fulfilment are started. The offer determines which and how many different activities need to be performed. A customer account is setup and the relationship formalised. After, AAA will inform the customer on a monthly basis about its service usage and AAA will send the bill to the customer. The underlying activities are related to billing. In case of payment difficulties credit activities might start as well. If the customer inquires about services or is experiencing problems with the customer’s services he or she can contact AAA and assurance activities will follow. Or if AAA experiences a problem that might affect a customer AAA might inform the customer. AAA can also provide the customer information about other offers that might suit the customer better. This can also be initiated by the customer. The underlying activities here relate to cross selling. If a customer initiates contact to terminate its services with AAA (or if AAA terminates the service) activities are started to disconnect the customer and end the relationship.

The interactions above all happen after a customer is acquired. Before these interactions start AAA targets potential customers. During the interactions above value is created and therefore revenue. The way AAA targets its customers has a great impact on the type of customers acquired. Customers have different behaviour and ideally one would like to start relationships with potential “good” customers. With further knowledge about the activities underneath the customer contact, one can make better assessments of the

33_{Suzanne B} AAA Customer Buying/selling Billing Service inquiries Problem handling Change products/offers Terminate service

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factors involving customer risks (and consequently improve the ratio Bad/Good customers). When looking at the interaction between AAA and his customers or potential customers we are actually trying to figure out a customer life cycle. The customer life cycle influences AAA’s operations with respect to the customer.

4.4.2 Customer life cycle

From a marketing perspective the customer lifecycle is often described as considering, purchasing, using, and maintaining loyalty to a product or service. A tool to gain customer loyalty is provided by Jim Sterne and Matt Cutler. They have developed a matrix that breaks the customer life cycle into five distinct steps: reach, acquisition, conversion, retention, and loyalty34_.

This means getting a potential customer's attention, teaching them what you have to offer, turning them into a paying customer, and then keeping them as a loyal customer whose satisfaction with the product or service urges other customers to join the cycle. From a more operational telecommunications perspective the eTOM framework35_{can give us some}

insight. According to the eTOM framework customer facing operations include Fulfilment, Assurance and Billing. Part of Fulfilment is responsible for providing the requested offers, products and services, another part deals with selling and market response. It translates customer needs in solutions using the enterprises portfolio. Assurance handles the maintenance activities to ensure that services provided to the customers are continuously available, but also performance monitoring and problem solving. Billing is responsible for the collection of appropriate usage records, production of timely and accurate bills. It also handles problems concerning billing.

When looking at the customer life cycle I define it as the initial contact with a customer till the moment a customer terminates a service. Combining the descriptions above I define the customer life cycle as: Reach, Acquire, Fulfil, Service and Terminate. I treat reach and acquire the same as Jim Sterne and Matt Cutler treat Reach, Acquire and conversion. Reach is getting a potential customer's attention and presenting your offers. Acquire turning potential customers into paying customer. When a customer is turned into a paying customer he is offered a subscription, which has to be fulfilled. Fulfilment is used slightly different from the eTOM model. It only includes the provisioning part, not the selling and market response, since these functions are already captured in the reach and acquire stages. Service is the part during the customer’s time with the telecommunications company that he uses the services. The telecommunications company has to assure that the services are available, bill the customer for his usage and finally collect the money owed. These activities are continuously going as long as the customer is subscribed to a service. Terminate is the end stage of the customer life cycle. The relationship between the telecommunications provider and its customer expires. For AAA the customer life cycle view is pictorially presented below.

34_{J.Sterne, M.Cuttler 2000}

AAA & Customer Risk Don’t count your Chickens [Customers] before they're hatched

AAA & Customer Risk

Don’t count your Chickens [Customers] before they're hatched

Author: Roel Keizer

AAA & Customer Risk

Don’t count your chickens [Customers] before they're hatched

Public Version

Master Thesis

(docteraal scriptie)

Performed at AAA

Author: Roel Keizer

Supervisor AAA

Daniel B.

Supervisors RUG

Prof. G.B. Huitema

Dr. T.W. de Boer

S, 22 January 2007

Technology management

Faculty of Management & Organisation

University of Groningen

Preface

Management Summary

Table of Contents

Chapter 1: Organisational Overview

Chapter 2: Research Question

Chapter 3: Theoretical Framework

End

User

Chapter 4: AAA’s Customers

?