Top 10 ways to beat the slump: Telco executives are being tested as never before. When not dealing with shrinking margins and unproven technologies, it's unsympathetic bankers and hostile headlines. But Asia's best carriers are using the slump to steal a break on their rivals. Here's how - Cover Story

Telecom Asia, May, 2002 by Robert Clark, Ian Scales

* 1 GET CREATIVE WITH TAX

Sure, you say, "creativity" at Global Crossing has sent carriers around the world reaching for their lawyers. Global Crossing and Qwest, to name but two, have come under scrutiny for apparently treating regular capacity swaps as long-term sales of bandwidth.

Yet, thanks to changes in technology, and the over-supply of bandwidth, long-haul carriers have quite legitimate options in how they structure their capacity sales. Bernadette Jew, a partner a Sydney law firm Gilbert Tobin, is one who warns against throwing the baby out of the post-Global Crossing bathwater. In the past, she says, bandwidth transactions were on a much smaller scale, and limited to the sale of managed services. There was no question of the customer having any rights of access to the underlying infrastructure.

That has changed thanks to the glut and the general growth of the market. Wholesale customers are demanding exclusive rights of access to specific fiber cores and wavelengths, Jew notes in a paper co-written with colleagues Rob Nicholls and Nick Alston.

They argue that it is acceptable to treat as a sale a transaction in which the buyer effectively has the same rights over the fiber core as if she or he actually owned it. This means the full revenue can be recorded on the P&L immediately, rather than incrementally as in the case of a service contract.

"As a general principle, a lease conveying all or substantially all the economic benefits of the asset should be accounted for as though the lessee acquires an asset," their paper says.

While they do point out that the British-style law is more accommodating than the US of this approach, they warn that the current environment could actually encourage incorrect accounting. Even if done for reasons of prudence, this can be just as harmful to shareholder value as if driven by the desire to increase revenue.

Still, to date, only one or two carriers in Asia have actually used this option.

* 2 KNOW YOUR CUSTOMER--VERY WELL

The level of cellular ownership around the region has not only dried up a lot of innovation, but has also seen too many operators forget the basics--like focusing on the customer. Fortunately, some companies can still show how it is done.

The SMS boom in the Philippines has drawn widespread interest as a mobile data phenomenon, but most of all it is an example of businesses providing a service that meets their customers' needs and budgets.

Better still, the two main operators, Globe and Smart, are now using SMS as a platform to provide further services. In a country where credit card ownership is low, they are cleverly turning the prepaid SIM into a debit card. In one fell swoop they are getting over customers' security fears, stimulating the m-commerce market and, of course, earning some transaction income.

A new service from Smart also enables users to access their Yahoo email accounts from their phone--an idea that makes sense in a country with 11 million cellphones and only 2.4 million Internet connections.

Hong Kong's biggest operator, Hutchison Telecom, has hit on the idea of offering users the chance to keep their Hong Kong calling ringtone while they roam. That means callers will hear the same network ringtone as if the user were still in the territory.

It's a great service for those people who have reasons to give the impression that they are still in Hong Kong rather than, say, at the baccarat table in Macau or a Shenzhen karaoke bar.

Hutchison execs, of course, deny they're encouraging any sort of hanky panky by errant spouses. Nonetheless, they're happy to make HK$5 (64 cents) per user per day out of the service. And maybe they know their customers better than they are letting on.

* 3 GET CASH THROUGH THE DOOR

It's a no-brainer--revenue matters. But as anyone who has run a billing system knows, it's not always that simple.

StarHub had a difficult debut as a mobile carrier in Singapore due to an unstable billing system. Customers were billed late, or incorrectly, or sometimes not at all. The failed Australian operator, One.Tel, would possibly still be in business today if it had a functioning billing platform. At one stage the company was owed A$35 million ($18.6 million). Bills were issued six-to-eight weeks late, and internal accounts figures were two months out of date, which meant figures presented to the board were literally guesswork.

UK consultancy Chorleywood says carriers can lose up to 15% of revenue through fraud and bad debt. Consultant Dan Winterbottom says the most obvious mistake is to lump these together. Fraud involves deception and an intention not to pay a bill, while bad debt is usually recoverable. He recommends the setting up of dedicated revenue assurance group to work with product teams.

Mobile operators have hit on prepaid as a cure for bad debt, as well as a great boost to cashflow, but of course prepaid customers are usually lower yield.

Other strategies are thus required for postpaid: Taiwan regional operator TransAsia uses the simple technique of identifying users with a bad debt as soon as they turn on the phone, and then immediately sending them a call requesting payment.