Contract negotiation

Businesses that do not diligently manage their telecom expenses always pay too much. Telephone companies make a lot of money from customers who do not proactively manage their phone expenses. The customer audits his bills, fine-tunes his telephone accounts, and takes action to reduce his costs. This post will offers proactive cost management strategies for dealing with telecom contracts. Negotiating a new contract is the single most significant way for a business to cut its telecom costs.

The basic elements of a telecom contract and the most common special clauses that may be in a contract, then offers advice on how to negotiate a favorable contract with a telecom carrier. The information applies to all types of telecom contracts, including local service, long-distance, data, and wireless service.

The three phases of procuring telecom services are represented by the following documents:

The proposal;

The contract;

The phone bill.

The carrier first gives a proposal for services. A contract is signed. Then, a month later, the customer receives his first phone bill. To avoid being overcharged, the customer must give careful attention to each of these three phases. Only then can a business stay in control of its expenses. Phone companies are normally not out to deceive their customers, but their complex bureaucratic processes frequently put the customer in an unfavorable position. Telecom contract negotiation has many pitfalls that open up a business to undue financial risk.

Every customer’s situation is unique. Service offerings and contracts vary from carrier to carrier. But some things remain consistent, and this will explain the contracts and tactics most frequently used in today’s marketplace.

Paging billing cycles

Paging customers can choose to pay their bills monthly, quarterly, semiannually, or annually. Carriers offer price breaks to customers on quarterly, semiannual, or annual billing. The longer the billing cycle, the lower the price. With annualized billing, carriers have lower administrative costs, which include the costs of processing, printing, and mailing an invoice. They are willing to pass these savings on to customers because their own internal processes are streamlined. Table 1 shows typical pager pricing for a local digital pager.

Table 1: Typical Pager Pricing for Digital Pagers

Using the pricing shown in Table 1, a business with 10 pagers pays

10 pagers * $10 per month * 12 months = $1,200 per year

If the company converts to annual billing, it will only pay $800 per year. The hassle of receiving a bill and cutting a check each month is also eliminated. A customer can almost always cut its paging costs by shifting to annualized billing. But, if a pager is taken out of service during the year, make sure the pager company issues a prorated refund for the months that the pager will not be in use.

Save with term agreements
Like other telecom services, pager providers offer 12-, 24and 36-month term agreements. The carrier benefits by locking in the customer’s revenue for the entire term, and the customer benefits by receiving a lower monthly rate for each pager. Signing a 12-month term agreement with a paging supplier usually knocks $1 off the monthly cost per unit. A 24-month term agreement gives a $2 discount, and a 36-month agreement gives a $3 discount.

If the negotiated pager cost is already low, such as $5 per unit, a term agreement will probably not create any additional discounts. Paging is a low-margin business, and carriers make sure each transaction remains profitable for them.

A loophole with pager term agreements is that carriers sometimes fail to specify a minimum number of pagers. A business with 100 pagers that becomes dissatisfied with its paging company could theoretically move 99 pagers to another paging company and face no penalty with the original carrier.

Consolidate to one carrier
One of the most basic rules of telecommunications management is consolidation of services to one vendor. The majority of companies I have worked with use multiple paging vendors because they have no centralized control over their telecom services. Newly merged companies still use different vendors, and employees are often allowed to choose their own vendor. One single company site might have up to three or four separate paging providers. It is difficult for accounts payable and the telecom department to keep up.

For example, a leading managed-care corporation has more than 50 nursing homes. The company was aggressively buying and building new nursing homes at the rate of one per month. The new corporate telecom manager noticed the following trends:

- The staff at each nursing home used an average of five pagers.

- The corporation processed more than 100 separate invoices each month.

- Some invoices were for a single pager; others were for as many as 24 pagers.

- Ten different paging vendors were used.

- It took two full days each month just to process the pager bills.

- Although about a third of the pagers were with PageNet, the pagers were billed on a number of different invoices.

- The average cost for digital pagers was $11 per unit.

- Many of the accounts had pager protection, which cost between $1 and $2 per month.

The telecom manager decided to only keep the PageNet pagers and replace the others with PageNet pagers. PageNet assigned an account executive to the account, who immediately consolidated all billing into one bill that would be sent directly to the telecom department at the corporate office. Pager protection was canceled, and the large volume allowed the manager to negotiate a low price of $4 per unit.

In most cases, a national account is not cost effective, because pager companies cannot offer one price and one bill. Each region is run as a separate company and the pager companies can only offer price breaks based on the number of pagers in their own region.