Telecommunication Costs | VOICE NETWORK

Telecommunication is one of the largest controllable IT expenses for many companies, and it is a great place to begin your cost reduction efforts. Telecommunication services and contracts include land phone lines, fixed data lines, mobile and cellular communications, services, private branch exchanges (PBXs), call centers, and data network. Telecommunication costs are a low-hanging fruit for cost savings in many organizations as it is often an unmanaged expense. Many times, companies include telecommunication as one of IT's responsibilities often because of smart phones, and IT is not staffed or prepared to manage it. One advantage of telecommunication savings is that many of the cost savings actions have no negative impact on the business.
There are significant differences in pricing of telecommunication plans across carriers. Telecom is a competitive commodity, and vendors are typically willing to negotiate. Switching costs are also minimal, which encourages them to work with you (unlike the Enterprise Resource Planning software market). It is well worth your time to find the best combination of required services and support at the best overall price. There are thousands of telecommunication plans available, and it is an extremely confusing area. Companies save a considerable amount of money by reviewing how their telecom plans are structured overall. Consider switching or consolidating carriers after thoroughly reviewing costs. Do modeling to see if it is better to buy out an old plan or ride it out.
Telecom invoices are very confusing. Many specialized consulting companies are able to conduct an audit on your telecommunication expenses and guarantee significant cost reductions, which makes them well worth the expense to employ. These audit companies will charge a flat rate or charge a percentage of the total money they are able to recover. The auditing company also typically works directly with the telecom provider to get adjustments and corrections. As these companies specialize in telecom invoicing and audits, they are familiar with common mistakes. They know what to look for and know what reductions to expect from carriers. They also stay abreast of new offerings from telecom providers and can bring these offerings to your attention when they can lower your costs.
The following are tactics that companies have used to save costs on both land and cellular telecom:
  • Make sure you have complete information on your current inventory and contracts. Make sure you are using all the lines for which you are paying.
  • Centralize telecommunication services and billing through one area of the company to ensure you negotiate the best rates and appropriately monitor charges.
  • Determine and document your requirements, develop a request for proposal (RFP), and obtain multiple bids before selecting one or multiple vendors. Do not base decisions solely on cost, but consider a vendor's track record, experience, additional services, reputation, ease of support and customer service, contract specifics, and flexibility. Consider reverse auctioning for telecommunication services.
  • Negotiating telecommunication agreements is complex and time-consuming. Consider obtaining professional assistance from specialized experts. This service is well worth the cost and saves a considerable amount of money. Do not necessarily rely on the telecom rep to get you the best rate as they are motivated by account growth. In fact, if you significantly reduce your rates, your rep may actually try to be reassigned. The companies providing this service have the advantage of knowing the current rates other companies have been able to obtain. They can also structure their service in many ways. They can come in and cover all aspects of negotiating a contract for you or just provide consulting services at key points during the process. There are countless positions in between these two options that can be customized to offer the specific service you need.
  • Obviously, negotiate costs defined in the contract. Costs are typically dependent on a number of factors and terms that are adjustable. Consider trimming services or features to reduce costs. For example, a key determinant in the cost of the contract is the level of service defined, so do not define service levels beyond the business needs. Other factors that impact cost are size of contract, length of contract, termination clauses, and financing arrangements. In your terms, specify the ability to short pay disputed bills.
  • Times of economic pressure offer a great opportunity to renegotiate contracts as it is a buyer's market.
  • Vendors will offer additional discounts to get all your business. Of course, be aware that if you have a single provider your risk increases and leverage decreases. Include clauses of prenegotiated discounts if you should move all your business to a single provider.
  • Be aware of switching penalties, steep fees, and cancelation clauses before you begin the process. However, do not let cancelation charges discourage you from switching providers or evaluating alternatives. The savings may be more than the switching costs or the new vendor may absorb some or all of the penalties or switching costs.
  • Make sure you specify contract terms and costs for equipment, design, installation plans, transition services, testing, monitoring, warranties, maintenance, training, payment terms, and conditions.
  • Automate telecom billing and payment or consider a service provider. Online payments can lower the internal costs of processing, and may result in discounts.
  • As you add or terminate employees, or close offices, ensure processes are in place that allow you to make appropriate changes to telecom and network charges and invoices.
  • Consider outsourcing the management of telecom expenses, particularly if you are not doing a good job at it. At a minimum, do frequent audits.
  • Start negotiations early, for example, six months before your current contract expires. If you are trying to negotiate weeks before your contract expiration, you do not have favorable leverage. If your commitments have been met early, you have considerable leverage.
  • Always take advantage of rate review opportunities. Do not just renew existing deals because prices continue to drop. Contract extensions are typically more than 10 percent higher than rates you could realize with a competitive RFP process.
  • Identify noncompetitive pricing opportunities before beginning negotiations. Consider getting third party benchmarks to establish negotiating goals.
  • Make sure negotiated rates are included and fixed in the contract. Stabilized discounts are not the same as stabilized rates because discount rates in the contract that apply to a service table on the vendor's website can lead to unexpected rate changes during the contract term.
  • Make sure effective dates of new rates or discounts are clear and specific. Consider asking for a credit to cover the time from when the contract is signed to when new rates and discounts are effective. In exchange for price reductions, many carriers demand two and three year extensions that can destroy your leverage. Make it clear that you will not sign more than the term you had originally intended.
  • Carefully review and understand commitments. Avoid monthly commitment rates and consider either annual or term commitments. Try to negotiate a term commitment at a low percentage of the contract spend. For example, a $1M term commitment for a three-year contract with an expected expenditure of $2M that will be satisfied after 18 months. This provides additional leverage to negotiate better rates after the 18 month point, or provides a transition period if you decide to move the service to another vendor. If you cannot negotiate a term commitment, settle for an annual commitment, but keep the commitment amount low. Pay attention to minimum service periods for lines, circuits, and ports; they can be worse than a revenue commitment. Understand what counts for the commitment and what is exclude, commitment adjustment clauses, if commitments are gross or net, and commitment carry-forward or carry-back clauses.
  • Review termination charges because they should not be more than you would have paid and they should not result in a loss of discounts.
  • Pay attention to taxes and surcharges. Costs can add up and increase over time. Examples of taxes and regulatory charges include the Universal Service Fund, Federal Access Recovery Fee and, Federal Annual Regulatory Fee/Carrier Cost Recovery Charge. These fees and surcharges can be more than 20 percent. Be sure to include these costs when comparing vendors and considering changes, and to include taxes and surcharges when calculating credits.
  • Make sure the contract includes terms for any major changes such as potential downturns in business, office closings, mergers, acquisitions, or divestitures; these can have considerable contract ramifications. Negotiate an "acquired entities" clause prior to needing it. For example, try to get the right to consolidate acquired agreements and to retain the right to have multiple carriers to maintain leverage. Make sure terms include a reduction in the commitment for divestitures or office closures.
  • Be aware of additional charges for managing the account, such as network management reports, managing toll free numbers, paper-based bills, updating the asset management database, account management, site surveys, and management of the service level agreement. Negotiate these charges up-front and try to get them at no additional cost. Make sure you specify any services you need in the scope of the agreement or have language for the total charges to be incurred.
  • Consider the payment due date. Ensure you can pay in the specified time because you may not receive the invoice until 7 to 10 days after the date of the invoice and you could incur late charges. Consider asking for an early payment discount or credit. Specify that you will not be charged with late payment penalties on disputed charges.
  • If you find an error, go back and get credit for past billings. For disputed amounts, a customer can go back two years and ask for corrections. However, a carrier can make billing adjustments back six to twelve months. If the contract defines time limits regarding how far the vendor and customer can go back on billing errors, consider your experience with the vendor. Most error corrections tend to favor the customer because vendors tend to forget to apply discounts or apply them incorrectly. Therefore, push for a longer timeframe, such as a year. If you have a particular vendor that tends to error by forgetting charges and then hitting you with back billing charges, push for a shorter term, perhaps three to six months.
  • Closely manage to your contract. After implementing a new contract, carefully review invoices to insure the new discounts are applied correctly. Meet with account teams on a regular basis and have them do the work to demonstrate accuracy. Review service level agreements, track spend compared to commitment, new orders, disconnects, and additional project volumes. Make sure you give notice for extensions and renewals as required in your contract. If you have excess spend over commitments, consider moving services (e.g. conferencing, outbound long distance, ISP ports, remote access) to get additional savings. Obtain reports on lines with zero usage to identify unused lines.
  • If allowed in the contract, consider doing an audit to recover some money. This will also send the message to your carrier about managing to the contract. Evaluate the various pricing methods for an audit because audit fees can be on a time and materials basis, contingency, contingency with a cap, or a fixed fee.
  • Educate employees on ways to reduce telecommunication costs. This could include guidance on when to use conference calls versus external conferencing services. Many internal systems are less expensive and can conference up to six parties. Train employees not to use directory assistance from desk phones because it can be costly. Use laptop air-card for Internet connections on trips rather than using expensive hotel or airport connections.

Network Design

There are many ways to design a network However, some network designs are more cost-effective than other designs. The following are ways that companies can improve the cost effectiveness of their network design based upon their needs:
  • Dedicated solutions are typically more expensive than shared solutions. A dedicated circuit between two locations will cost more than installing the two locations on MPLS. Assuming one of these locations is your data center, you are now able to use this MPLS connection to support other multiple locations. Once you add a site to the MPLS network, it will have access to all other locations. This solution provides the ability to use more cost-effective bandwidth at the data center (higher bandwidth drives a lower cost per KB), which reduces the amount of equipment required.
    Top Tip: Validate assumptions

    "We saved money by understanding how the field offices and sales people do their work. Their needs have changed overtime, and we re-validated our original assumptions. This included requirements related to up-time, mobile capacity, response, and redundancy."
    —Mykolas Rambus
    Forbes Media

  • The use of MPLS will substantially save costs with the implementation of a disaster recovery site. You are able to connect the disaster recovery site to the MPLS network and immediately have access to all sites.
  • Use Internet services where applicable. Internet service does not come with a service level agreement (SLA), nor does it require the same time to restore as other services. However, overall Internet services such as DSL and dedicated T1 access have become more reliable. If the particular location does not need the SLA provided by other services, installing an Internet connection saves costs.
  • Supporting Microsoft services over a WAN requires expensive high levels of bandwidth. Investigate WAN optimization products that provide Local Area Network (LAN)-like response times over a WAN without the need to increase bandwidth.
  • Validate assumptions about how the business functions as the business needs might have changed over time and you may need to make network design changes. For example, one company looked at how sales people in the field completed work and was able to reduce costs by making changes to the network design. These changes more closely match how work was being done—including at home, at Starbucks, and at the office. Up-times and redundancy needs in field offices were also different from when they originally designed the network.
  • In times of desperation, approach the business with the costs of backup services to primary WAN connections. Include statistics of outage frequencies and durations. The business areas may be willing to run the risk of an outage given the costs to provide the backup during tough times.
    Top Tip: Design the network for growth

    "We redesigned the network and changed the way we think to reduce overall costs. Rather than reactively adding bandwith on a project-by-project basis when we hit a constraint, we built the global network for growth. This is much more cost effective and reduces costs by the way we acquire and procure bandwith."
    —Roger Champagne

  • Stay abreast of new technologies and consider using them to lower telecom wireless and data services costs. For example, MPLS can carry data and voice traffic at lower costs, or use session initiation protocol (SIP) to consolidate local voice, long distance, and data services.
  • Review chatty applications, the possibility of content or data distribution, and application re-design improvements to reduce network bandwidth requirements.
  • Investigate wide area Ethernet access as an alternative to DS3s and T1s.