Reducing Uncollectible Revenue from Residential Telephone Customers

Motivated by a dramatic growth in Bell System uncollectible revenues, a set of uniform, objective, and nondiscriminatory credit-granting practices have been developed which will apply to the 12 million new residential telephone customers each year and result in an annual reduction of $137 million in bad debts. These savings will be factored into the regulatory rate-setting process, and thus a substantial benefit will accrue to the telephone customer.The cornerstone of the new credit procedures is a set of credit-scoring rules to determine which new telephone service applicants should provide preservice security deposits. By more accurately identifying high-credit-risk applicants and requesting deposits only from them, the reduction in bad debt can be achieved with fewer total deposit requests. These new credit-scoring rules were developed through what is perhaps the largest credit study ever done, involving the credit profiles and telephone payment histories of over 87,000 customers. As a consequence of the study, a new methodology for constructing simple but effective credit-scoring rules has been developed which could be of general use in a broad spectrum of applications, including credit problems of other industries as well as other “classification” or “screening” problems.