Features: March 31st, 2011

The cost of telecom services is an obvious target when public sector organisations are looking for savings, but cutting the budget is difficult. Ben Mendoza describes the difficulty of navigating through the fog of vast amounts of data to find where to cut and how to negotiate with suppliers from a position of strength. He presents a way through the data haze.

There is no denying that telecoms services are an essential utility for any modern organisation. Yet telecom services, as a utility, are truly unique. I challenge you to think of any other essential utility service (not hardware) such as water, electricity, gas etc., where the costs actually get cheaper year on year?

I haven’t discovered one yet, and until I hear of something else, I feel it is safe to say telecoms is truly unique in this respect.
Now ask yourself – Have your organisation’s telecoms costs reduced significantly year on year in line with this ongoing reduction in telecoms costs? The answer is: probably not, and the reason is that although it gets cheaper call by call, text by text, we use more and more of it each year. In fact the rate at which usage is rising outstrips the effect of falling prices by a significant amount.

Let’s give that some scope. A study by ABI research (www.abiresearch.com) predicts there will be more than 7 trillion SMS messages sent in 2011. My daughters alone will almost certainly account for a good proportion of them.

Paying too much

So let’s look at some of the common reasons why organisations pay too much, and let’s follow the process from procurement to payment (P2P). It is generally accepted that the legal responsibility of the financial and procurement officers in all large organisations is to try their best to achieve the optimum balance of cost, reliability and the quality of services they procure for their businesses. Yet many fail miserably when it comes to telecoms. Why is this?

It is true that telecoms needs a reasonable amount of market understanding, and it is true that telecoms is an extremely dynamic market where new technologies spring up almost every day; however, this is the case in most areas of life now and is no excuse for lax practices. There is a “best practice” approach to managing telecoms expenses and it doesn’t involve a magic wand – yet many organisations aren’t using it.

Most procurement professionals love to negotiate deals where they can fix a good price over long period. Imagine how great it would have been to have been able to fix your petrol prices at 2008 levels for 5 years! But that is the worst possible strategy in telecoms contracts since, as I pointed out earlier, prices will keep going down. Take that approach and two years into your contract you will look very foolish, when all around you are paying far less for better services.

In today’s telecoms negotiations you need accurate business data and, have no fear, in telecoms there really is no shortage of data. Most large organisations will (often unknowingly) generate and/or receive millions of rows of telecoms data every month through bills and call logging systems. The trick is to turn that data into information, that information into knowledge and that knowledge into actionable insight. Then you are ready to sit at the negotiating table. Armed with the pertinent insights to our historical usage and likely future requirements we sit across the table from the supplier’s sales representative.

We are a good client account and the supplier knows they are in a competitive market. Deals can be done and we are both keen to do them. So we start to negotiate the charging plans. We might be looking at “pooled” minutes or data “bundles”, or the price of a roaming call from Poland to Germany on a weekday evening: there are actually thousands of data points that can be negotiated. Many cups of coffee later we have hammered out discounted prices on all the critical data points and we have agreed to take the Okey-Kokey data bundle. The salesman collects his papers and heads for his office dreaming of commissions. The phones still work the way they always have, but we wait eagerly for the new service pricing to take effect on our next bill.

Unknown to us, the salesman has returned to base and handed over our new agreement, and the vendor’s billing and accounting department has responded: “There is no way on this earth that our billing system can cope with these special prices, and we’ve just decided that the Okey-Kokey data bundle plan is being superseded by the Incy-Wincy data bundle plan in March… What shall we do…?”

What tends to happen next is nothing much, and the client is eventually sent a bill by the supplier based on their standard rates while, I imagine, everyone on the supplier side quietly hopes the client won’t notice that the rates are not exactly those agreed with the salesman. Well, up until the development of sophisticated Telecoms Expense Management (TEM) tools that remained the case.

Navigating through the fog of data

Think about the following example. Amongst the millions of calls on your new corporate bill is that roamed call from Poland to Germany. The bill says this costs 17.48 Euros. There is little chance you will know at a glance that this is correct. To work it out you would need to know the duration of the call (here we have to take a leap of faith and accept the times on the bill) and then recall what charging plan was used for this number (or at least what plan was supposed to be used, in your agreement with the salesman). You would then need to determine what part of the day this falls into – should it be rated as peak, weekend, off-peak (some calls can span periods); is it Voice, Data, or SMS and was it to a premium rate destination?, After all this and possibly some other considerations, you could finally calculate what the supplier should have charged you.

No normal person is going to be able to do this for the millions of call combinations. The next bill would arrive before you got half way through. The problem is the volume of that data: what organisation can sift through a telecoms bill that arrives on a pallet? This process has to be automated before you can even start to unlock the secrets within.

So what often happens is: normal people limit themselves to looking at the headline numbers on the top page and comparing them to previous bills, to see if the totals fall within a tolerable variance — say 5%?
This clearly is not best practice, and what about expected seasonal variances? More important, this approach completely misses an incredible opportunity to make really significant savings, both now and going forward. Some would call this cost avoidance rather than savings but, either way, the good news is that the money doesn’t have to leave your bank account.

According to leading independent analysts, most corporate telecom bills are in error and can overcharge by as much as 10%. How much was it you said you spend each year?

In my mind, particularly when organisation everywhere are being asked to take a long, hard look at their cost-base and achieve reductions wherever practicable, it is impossible to justify not using Telecom Expense Management (TEM) in any large organisation — yet many don’t have a proper TEM solution. Only a formal TEM solution can fully analyse your bill and tell you what you should not be paying for, while pointing you clearly in the direction of regular across-the-board savings. Until firms do, they will continue to pay a lot more than they should and their executives are clearly failing in their fiduciary duties.

Ben Mendoza is CEO, MDSL