Basic contract negotiation strategy

Contract negotiation normally begins with the customer handing over his telephone bills to a telephone company sales representative who later returns with a proposal that compares the customer’s current costs to the telephone company’s latest offering. The new proposal shows monthly and annual savings. The customer and sales representative then enter into a period of negotiation, when the telephone company’s offer will be fine-tuned to meet the customer’s requirements. Once the two parties agree on the offer, the sales representative will present a contract to the customer. The customer signs the contract, the phone company provides the services, the customer receives a bill each month, and everybody is happy. In the real world, however, telecom contract negotiation is never this smooth.

At best, contract negotiation is an annoying distraction from the core business; at worst, it is a nightmare. Account executives just want to close the sale, cash the commission check, and move on to the next target. Both parties have their own agendas, and they often wind up confused and frustrated by the process. There are some practical steps a customer can take to ensure that the negotiations are efficient and produce a favorable outcome.

Know what you want
First, the customer should know his own telecom environment. He should understand what telecom services his company uses and the monthly bill volume of those services. He should also know of any pending changes to the overall telecom environment.

Before talking with the carrier, customers should decide exactly what they want in their next telecom contract. What term commitment is the business comfortable with? Is the company’s volume expected to increase, decrease, or remain level over this time period? What volume commitment should be made to the carrier? Will new services be added? After the customer figures out what he would like to see in the new contract, he can make a specific request of the carrier. A customer who is not specific is at the mercy of the carrier and will rarely receive the most favorable offer.

Know your carrier
Telephone companies handle their contracts two ways. Most contracts are standard templates, but some can be customized for a specific customer. Carriers employ two types of representatives: customer service represen-tatives and account executives. Customers should know which type of representative they will be working with. Most importantly, the customer should know what elements of the contract are negotiable and nonnegotiable.

Customer service representatives are typically low-level employees, working in a call center. They normally can only offer standard contracts. Their hands are tied, and they have little room to negotiate. Account executives are usually highly paid outside sales representatives that are empowered to customize what is offered to the customer.

When negotiating with either type of representative, the customer’s objective is always to get the needed telecom services at the lowest possible price. Carriers have the opposite objective; they want the customer to pay high rates, which increases their revenues and, ultimately, keeps shareholders happy.

Analyze the proposal
The highlight of any proposal is always the bottom line that shows monthly savings and annual savings. It is a good idea to double-check the calculations. “Accidental” spreadsheet errors may skew the numbers. Besides the savings, the other important aspects of the proposal are volume commitments, term commitments, pricing, and special clauses. If the offer is unacceptable, the carrier should write a new proposal documenting each change.

Pricing is often the most difficult issue for the customer and carrier to agree on, partly because customers do not know if they are being offered the carrier’s best pricing. The most effective way to know if the pricing is fair is to compare the proposal to similar offers. Other carriers will be happy to present proposals, even if they know their chances of winning the business are slim. The customer will then know if the original carrier’s offer is competitive. If the original carrier gets word that competitive carriers are submitting proposals, they usually sweeten their first offer.

A consultant can also be a valuable source of pricing information. If a consultant is hired to negotiate your contract, he will expect to be paid a percentage of the savings. You can save money by hiring the consultant on an hourly basis.

The contract
Once the final proposal is accepted, the carrier will offer a contract. Telecom sales representatives are trained to hand deliver the contract, verbally walk you through it, and ask for a signature. “This is the same info that we already discussed in the proposal. All the fine print is just a bunch of legal mumbo-jumbo. Go ahead and sign right here”

Before signing, the customer should read the contract carefully. The contract must list everything the customer has negotiated, especially promotions, credits, and special clauses. This exercise may be a real eye-opener for the customer, because carriers may have thrown in additional conditions that were not previously discussed. Special clauses that are harmful to the customer often show up out of the blue, such as escalating MACs, traffic requirements, exclusivity, and discount caps.

Whether it is done intentionally or not, telecom carriers are notorious for performing “accidental” bait-and-switch maneuvers. Too many customers have negotiated promotions and aggressive pricing during the initial proposal phase only to find out later that these conditions were left out of the actual agreement. When the customer feels the sting and realizes what has happened, the original parties in the negotiations may be long gone. The original account executive has spent his commission check and probably moved into another profession. The new account team will have little sympathy for the customer, and the letter of the contract will rule.

The first phone bill
The final quality check in the process is to make sure that what was negotiated is actually showing up in the phone bills. If possible, schedule a meeting with your account executive to review the first month’s bill. The bill might be easy to read, but this is a great opportunity to make the carrier prove that it has delivered exactly what it promised.

The first few bills of a new contract term are often inaccurate. Look for erroneous installation charges, missing discounts, and excessive fees. The first bill usually covers a partial month, so make sure charges are prorated accurately. With long-distance service, double-check the cost per minute. If the contract is with a new carrier, make your carrier aware of lines that are still billing with the other carrier. A savvy customer will require the carrier to issue invoice credits to make up for these costly glitches.

Local service
LECs only have three types of contracts: line charge, usage, and data services. LECs use contracts for line charges associated with non-POTS services such as Centrex, trunks, direct inward dialing (DID) lines, and intralata data circuits. LEC contracts for usage will cover local calling, intralata toll calling, or both. LEC data contracts will be included later with other data contracts.

Long distance
Long-distance carriers usually divide their customers into three categories: small and medium-sized businesses, large businesses, and national accounts. AT&T calls these three classes middle markets, commercial markets, and national accounts. AT&T has most often offered these markets Customnet, Uniplan, and One Net. The smaller market customers normally have simple oneor two-page contracts, while contracts used with larger businesses are 10 pages or longer. Other carriers categorize their customer base in a similar manner to AT&T. In general, however, the larger the carrier, the less flexible it will be with its contracts. Long-distance carriers providing other services, such as data circuits, will lump all of these commitments into a single contract.

The data-network marketplace has been far less competitive than the longdistance marketplace. Consequently, contracts have remained simple and straightforward. Although the services are often higher dollar and are certainly higher tech, data-service contracts remain rather simple.

Local, long-distance, and data services are all offered by large national carriers such as WorldCom, AT&T, and SBC Communications. The wireless industry has fewer giants and is comprised of smaller regional companies. Consequently, there is little consistency with wireless contracts. Each carrier has its own contracts, and the terms and conditions of the contract vary greatly from market to market and between individual service providers. The good news is that wireless-service pricing and contracts are simple and straightforward and contain few hidden surprises.