Hang up on high call costs

Telecommunications costs continue to rank, and rankle, as one of the top three business expenses. But savings can be made when ITC managers arm themselves with information, scrutinize bills and battle it out when it comes to negotiations.

Business can routinely save up to 10 percent on telecomms expenses with initial savings of about 30 percent by negotiating contracts via request for proposals (RFPs), implementing telecomms expense management packages and expanding communication services to obtain long-term benefits. But cost cutting shouldn't impede company operations and strategies.

BuddeComm telecommunications analyst Paul Budde said to save on telecoms costs, companies need a strategic overview of operations, orientation and expenses.

"First of all, a strategic overview of costs including how much is spent, where and on what should be conducted along with company strategies, operations and customer service," he said.

"Most companies are better bundling their requirements (mobile, PSTN, broadband and so on) because of benefits like reduced vendor management and tariff discounts, but they have difficulty with evaluations because of fixed-to-mobile migration, which should look at the total use and commitment rather than individual deals," Budde said.

"Always ask for separate offerings and get at least three quotes based on specified telecomms invoices from the last three to six months, and remember you need a solution for your situation, not a generic one." Budde said assessing user profiles and trends will suggest whether a bundled plan is appropriate.

Analysts say that internal benchmarks should cover each department and contract and be measured against industry peers.

Telsyte managing director Warren Chaisatien said savings reviews should be done every three to five years or whenever large change occurs.

"Benchmarking is absolutely essential," Chaisatien said. "You should compare against peers and competitors of similar size, telecomms use and infrastructure to assess cost differences; benchmark departments for efficiency and check that your contracts are not costing you more than agreed."

Earlier this year, industry analysts Gartner prepared a report which recommended organizations create a team to undertake assessments. In the report, Gartner analysts Katja Rudd and Leif-Olof Wallin provided the top 10 tips for negotiating voice contracts.

"Create a team that's responsible for managing the entire [contract] negotiating process, beginning with obtaining the current status, through the requirement assessment to the evaluation and selection of the service provider," they said.

"The team should include senior management support and members from the IT organization, HR, legal, finance and possibly third-party consultants.

"The single point of responsibility makes it easier to negotiate contracts and to establish a status of the current position in terms of total fixed and mobile spending, user patterns, and trends," they said.

Rudd and Wallin say the team should be responsible for fixed and mobile voice usage, because this allows business to establish the focus for future negotiations.

In a report on contract negotiation tactics, Gartner analyst Ted Chamberlin said organizations should compose a request for proposal to gather industry pricing, outline communication requirements, asset information, network topology and service needs. He said the RFP should ask:

What are the service provider's processes, technical expertise and experience, and how do these align with internal expertise and requirements?

What is the provider's track record for this type of contract? How willing is the service provider to support the required type of contract? How willing is the service provider to dedicate individuals to the execution of this contract?

What is the cultural fit between the two organizations?

"The more strategic or long-term the contract, the more important this becomes," Chamberlin said.

He said a smaller request for information (RFI) should preceded an RFP, which would rule out providers that cannot meet future needs and geographical requirements, adding the information should be shared only with potential suppliers.

"Issuing a smaller request for information (RFI) will enable you to rule out providers that can't meet specific needs," he said. "This level of detail and proprietary information should only be shared with potential suppliers and not published for general consumption, because it can be leaked to competitors."

In his study entitled, What Businesses Should Negotiate and Expect in Carrier Contracts, Chamberlin said enterprises should establish a set of contract priorities to structure negotiations.

"The enterprise should decide which changes are nice to have, which changes they would strongly like to have, and which changes are 'deal breakers'," he said.

"If there are more than one or two deal breakers, the enterprise should re-evaluate them. Similarly, within each clause, the enterprise should determine what is the best case and what the minimum requirements are."

Gartner vice president and research director, Geoff Johnson, said business often relies on monopoly providers to keep telecomms records and then, without any level of scrutiny, pays invoices.

"But inaccurate and outdated records can favour carriers over enterprises up to two to one," he said.

"The net outcome of records being out of date is that unused lines and billing errors usually favour carriers rather than user organizations. "Audits easily find 5 to 8 percent savings by resolving billing errors."

He suggests businesses use telecomms expense management (TEM) software tools, which control acquisition, operation, and support of corporate communications assets and network services, in cross-referencing bills.

"A good TEM package will manage services, equipment, installations and maintenance, and support monitoring of essential contract provisions - particularly service-level agreements - and performance penalties, [because its] main focus is on telecomms asset deployment and its billing administration," he said.

Johnson said teelecomms management should indicate the need for carrier bill refunds, support contract negotiations and resolve gaps between enterprise spending according to financial reporting and the aggregate of billing records. He said savings are both direct financial gains and increased corporate productivity.

"A TEM tool should be treated as more than a simple audit aid; it needs to be part of a permanent suite of telecomms and network management tools leveraged to manage telecomms planning, procurement and operations lifecycle," he said.

Most importantly, Gartner says businesses must always use RFPs when renewing contracts. Refuse automatic renewals and review contracts every three to six months; these should take into account next-generation network implementations.

"Contracts should include a technology refresh clause [which] can include migration to VoIP or migration from fixed to mobile, within the contract term," according to Gartner.

"Exit plans should also be included, covering termination conditions, (quality, repeated breaches and price exceeding market), business impacts of early termination, and alternative providers."

And while investments into VoIP, e-commerce and digital media promotion require initial investments they reap long-term savings.

"Look to updating old telecomms technology, such as replacing dedicated PSTN lines and linking departments with broadband connections," Gartner said.

"Updating technologies may be an expensive upfront investment, and it can be difficult to measure and quantify savings.

"But in the long term it will save money in carriers, management and scalability."

How competitive are telco's offerings today? E-mail Sandra_Rossi@idg.com.au

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