Poor Affordability Analytics Create A Disconnect For Telcos

by Mel Prescott

UK Telco regulator Ofcom continues to push operators to ensure they are treating customers fairly with affordable access to phone, broadband, digital and pay TV services. Indeed, today comms providers’ corporate strategies boast deep, trusted customer relationships and are include ever more services to upsell, cross-sell and boost the average revenue per user/unit, while reducing churn. But there’s clearly a disconnect between this and the way some providers approach customer affordability, which shows the need for better affordability analytics.

Why Customer Insight Is Everything

Recent findings on the affordability of comms services published by regulators revealed some surprising insights and glimpse at the scale of exposure.

Out-of-work Universal Credit Claimants can be spending nearly 9% of their disposable incomes on broadband.
One in 20 (5%) households surveyed are not confident about their ability to pay for comms services within the next three months.
Around one in five (20%) households report that they are struggling to pay for at least one comms service, with some considering:
- Cancelling services they can no longer afford.
- Making changes to existing services.
- Reducing spend on other items including food and clothes to cover bills.
- Deliberately missing payments.
- Making changes to the way they pay including by credit cards, payment holidays, or deferral arrangements.
An estimated two million UK households are experiencing affordability issues with either fixed broadband or smartphone.
Unsurprisingly, low-income households and those in receipt of benefits are more likely to have affordability issues.

Against this backdrop, the cost-of-living pressures through macro-economic events are well-documented, while many providers favour implementing mid-contract price increases, often above the Consumer Price Index, leading to some customers paying 8% or more for services.

How Can Providers Better Address Affordability in the Spirit of Regulations?

Comms providers need to be better at proactively identifying financially vulnerable households / customers and managing them accordingly.

Having a customer-level view of all customer relationships and commitments should be a given. On top of that data, providers should apply affordability analytics to identify signals and triggers in the data and customer behaviour, whether this is for cross-sell and upsell marketing exclusions, down-sell to identify and move customers to social tariffs, or generally taking automated decisions in the customer’s best interests.

There is a rich dataset sitting within comms providers’ back offices to help achieve this, but most are unable to join the dots across their fragmented organisational silos. Clearly, any effective decisioning environment that can ingest multiple data sources, apply analytics and generate automated decisions and actions will always be a win-win.

At FICO, we continually help our telecommunications clients ensure they have the very best tools to underpin the identification of at-risk customers, those struggling to pay, or showing signs of persistent debt.

By taking actions that may impact customers, such as promoting social tariffs, operators need to be sure that they apply the appropriate analytics to understand customers at a granular level, as well as understanding the overall make-up of their portfolios.

Forward-Looking Scenario Testing Offers a View of What’s Coming

With the Office of Budget Responsibility warning that living standards are set for a historic fall over the next 12 months, following the Treasury’s Spring Statement, telco executives should be asking themselves what impact this will have on their customer portfolios right down to the individual customer level.

For example, if interest rates are further increased in a bid to slow down the rate of inflation, what is the potential impact to the affordability of the customer base? How many additional customers may struggle to pay bills or look at cancelling some services?

What would any affordability impacts mean to telco pre-delinquency, collections strategies and operations? Again, during periods of heightened financial stress, there’s always a need for careful customer management, marketing exclusion, the ability to automatically move customers to social tariffs, and the ability to have meaningful two-way dialogue with customers through their preferred channels. This can all be orchestrated via FICO Platform, with Business Outcome Simulation a key component.

Business Outcome Simulation enables businesses to mimic market conditions, as well as test alternative versions of current decision services. Multiple scenarios, such as “how many customers would enter the collections process if energy prices increased by another x percent?”, “If x thousand customers miss their next payment, what is the impact to cash flow?”, “If we move x customers to a more affordable service plan, what is the impact to the P&L?” can all be modelled at a portfolio level and the appropriate actions / decisions taken at a customer or account level.

Business Outcome Simulation provides a safe space for analytical experimentation, provides a quick time to market and enables telecoms operators to refine their affordability decisions for new and existing customers.