Telecom Savings = Increased Profits
Ultimately, all companies exist to make a profit. In its simplest form, “profit” is income minus expense. For global companies in the interconnected world, telecom expenses are typically the 3rd to 5th largest expense; thus, reducing telecom expenses has a significant impact on the company bottom line.
Telecom Expense=Data + Voice + Mobile
The term “telecom expense” covers three broad cost categories: data transmission, voice, and mobile services. “Data transmission” includes not only the transmission of data from one location to another, but also Internet connections, VoIP (Voice over Internet Protocol), and the like. “Voice” can be thought of as land-line phone service, both local and wide-area (sometimes also called “wireline” although more likely to be mostly transmitted over fiber optic cables rather than copper). “Mobile” covers wireless communications, such as cell phones and other handheld devices. Although these categories have blurred with the advent of wireless-enabled laptops, tablets, and smart phones, most telecom contracts are still divided into these three areas. Telecom service providers may provide any or all of these services, depending on the particular provider and the geographic area serviced by that provider. Major providers, such as AT&T, will provide all three types of service virtually worldwide, either via their own network or through partnering with other companies (for example, particularly in Asia).
Telecom contracts are typically further subdivided into the providing of US services and global services. The average global company would have telecom services for US voice, US data, US mobile, global voice, global data, and global mobile.
How Telecom is Typically Sold
Although telecom providers would like their customers to believe that they treat wireless and wireline services as completely separate and unrelated categories for purposes of pricing, this is not the case as the customer gets larger. For example, if the wireless-only spend is $3M, the pricing structure will be different from a stand-alone wireless deal if the overall spend is $5M.
Telecom providers generally have a graduated price structure–the more one uses the service, the cheaper each increment (minute, MB, etc.) becomes. However, many users don’t understand certain costs, some of which can be quite flexible and negotiated out of the agreement. For example, offsets to the Monthly Recurring Charges (“MRC’s”) or deeply discounted roaming (i.e., discounted connections to the mobile network) or by granting credits for higher levels of increased usage. Telecom expenses in any contract will be impacted by the combination of the above factors, and the overall credit and overall discount is impacted by the sourcing approach the client employs, with more aggressive sourcing approaches yielding the lowest overall prices.
Preparing to Buy: Know What You Have and What You Need
Prior to awarding a contract, one must first ascertain their total overall spend, and of that spend, what portion is attributable to data, to mobile, and to voice. Similarly, how much is spent on international usage (particularly international mobile roaming) versus domestic? One must then ascertain what portion of the total spend is for purchase or rental of equipment, what are the set-up, installation, and/or changeover charges, what are the MRCs, what amounts are penalty charges (or potential penalties, such as for termination of a previous contract), what discounts or credits are available, and what discounts and/or credits have actually been achieved.
Until a baseline showing every portion of the total telecom spend is established by an analysis of the most current month’s billing from each provider, it will be impossible to accurately estimate how much the telecom expenses can be reduced by. Thus, an audit and detailed inventory of current telecom expenses should be performed prior to the end of a contract (and prior to the end of the renewal period) and before extension of that contract. Often we find that even the most successful and sophisticated clients do not really understand either the total cost or the detail level of their costs. If the detailed costs are not be optimally managed and understood, maximum reductions may not be secured.
Three Negotiation Choices
After a company understands its baseline costs for its telecom services, it’s time to think through the negotiation process for the new contract. There are basically three options:
- Keep the present contract in place (the typical telecom contract has an automatic renewal clause, whereby the contract will renew for a given period unless the provider is notified X days prior to the end of the contract). This is not always the case, so the contract should be reviewed carefully to determine if this option exists.
- Negotiate a new contract with the incumbent provider
- Solicit offers from other telecom providers for data, voice, mobile, or any combination of these services.
After a company understands its baseline costs for its telecom services, it’s time to think through the negotiation process for the new contract. There are basically three options:
In most cases, keeping the present contract in place is generally not the best option as 1) telecom costs have been decreasing over time and 2) due to the current recession, providers are more willing to “cut deals” to attract, or retain, their customers.
If a client company is completely satisfied with the price and service its current provider gives, or if there are other non-cost and non-quality reasons for staying with the current provider, then the second option may be valid.
However, in most cases the third option (soliciting offers from a number of providers) will likely give the best combination of lower cost and quality service. Even if the incumbent provider is retained, it is likely that the incumbent will be more willing to reduce the client’s costs if it knows that a competitive bidding process is in place. The best competitive bidding processes provide direct market comparables to the suppliers, in order to provide guidance on expected pricing. This will save a lot of time and help the bidder get to the true market price faster.
Fastest Results, Best Savings
An even better process allows for instant competitive feedback, this is called a reverse auction. Reverse auctions allow multiple iterations of bidding in near real time. This results in more significant savings gains. Oftentimes, there are numerous rounds of bidding the cost down by the suppliers and in some cases there is even more savings to be had in subsequent negotiations after the initial bidding process has taken place.
Implementation: Make Sure You Install What You Bought
Once contracts have been entered into, the job is by no means complete. Implementation needs to be carefully managed to ensure that the intended outcome is reflected in what is ordered. Oftentimes, services are not implemented correctly, which may result in more expensive services or different services being consumed than the ones that were optimally sourced at lower prices. Although overcharges for billing errors may often be recovered, the risk of error during implementation are at the client’s risk, so it must be managed aggressively up front.
Monitor: Make Sure You’re being Billed Correctly
Finally, the new provider must be monitored to ensure that the contracted savings are actually delivered. Often services are not billed at the contracted rates, or additional charges are added into the billing that were not agreed to during the bidding and contract negotiation cycles. With careful auditing, these charges may be identified and recovered. Typical telecom contracts concede the right to recover overcharges after 6 months of billing, so they need to be identified on a timely basis.
How AuctionIQ Can Help
When AuctionIQ is hired to reduce a client’s telecom expenses, it:
- Analyzes the client’s current telecommunication services, service providers, and costs (this can specifically include a forensic audit of the various invoices and charges of your carriers and an opinion of whether you are being overcharged for FUSF and FET).
- Projects potential cost savings available through auctions, optimization or repurposing or realignment of assets, audits, etc.After providing this information, and at the option of the client, AuctionIQ can:
- Conduct reverse auctions or other events and present the results of the event to the client. Based on the results of that event, AIQ can recommend services and service providers to obtain maximum reasonable savings to the client.
- Negotiate with the client-selected service providers to obtain executable contracts.
- Continue to support the client and interface as needed with the selected service providers, then report to the client whether the contracts are being properly implemented.
- Monitor billings, and report to the client whether the contracted savings are being delivered by the service providers.