Telecom Expense Management Blog

Many service agreements proposed by telecom carriers incorporate by reference an online “Service Guide.” Service Guides are typically buried in telecom company websites and are difficult to access. The online Service Guide imposes additional, sometimes onerous responsibilities on customers. If you use a service or product that is not specified in your service agreement, the Service Guide defines default rates for that service or product. These default rates are usually much higher than market rates. Carriers reserve the right to change the Service Guide at any time at their sole discretion.

These disadvantages to you make it imperative that you define as many rates, terms and conditions in your carrier service agreement as possible, rather than allowing the carrier to define them for you in the online Service Guide. Make sure your contract includes language that says when the contract and online Service Guide disagree; it will be the contract that will govern.

Using the detailed inventory of circuits and current rates you have developed as part of your telecom expense management program and your knowledge of market pricing, negotiate a net rate expressed in dollars and cents for every service you currently use or will likely use during the contract term.

For long distance services, negotiate net (post discount), per minute, dollars and cents rates for each call types: outbound, inbound, interstate, intrastate for each state in which you have offices, and international for each terminating country to which you have significant volume. The carriers should also specify net dollars and cents rates for access loops, account fees, billing fees, 800 number fees, termination fees, validation code fees, surcharges, regulatory fees, etc.

Billing increments for long-distance services can have a big impact on the effective per minute rate you pay. Your agreement should specify that billing for a call will begin at “answer supervision” (the time at which the terminating party answers the call). This may seem silly, but lately we have seen contracts proposed to telemarketing clients that specify very disadvantageous terms in this area. Of course, your goal should be to minimize the initial billing increment and subsequent billing increments.

For data services, negotiate net dollars and cents rates for each service element (loops, ports, mileage).

With local services, it is difficult to get carriers to define a dollars and cents rate for each business line in a nationwide telecom portfolio as these services are tarriffed. At least ask carriers to define net dollars and cents rates for bigger ticket items like T-1 access loops, PRI ports and DID blocks for the NPA NXX ranges in which you operate.

Remember, for every service that you currently use or may use during the term of the contract, you want to avoid signing up for a percentage discount off an unspecified rate in the Service Guide which the carrier can change at any time at their sole discretion.

You may also wish to negotiate an annual rate review and “Rate Drop Match” clause. This gives you the option to renegotiate rates at certain times during the contract term. In the renegotiation, the supplier must match competitors’ rates or allow the customer to terminate the contract without penalty.

In my next post on the topic of telecom expense management and negotiating a great telecom contract, I will write about the so called “regulatory fees” telecom carriers use to pad their profits.

By Kitty Vo, Telecom Analyst, ProfitLink Telecom Expense Management

It is realistic to expect that if a company provides a mobile device to an employee, the employee will use that device to do some tasks related to their personal life. Some employers regard limited personal use of company liable devices as acceptable. The employees of these companies must have the common sense to limit personal use to breaks and to avoid any use that disrupts their work or the work of others.

Tax Implications of Employee Personal Use of Company-Liable Services

The IRS rules regarding mobile devices were adopted in 1989, when mobile telephony was an uncommon and expensive luxury. IRS regulations say that cell phones are “listed property,” which they define as items obtained for business purposes that lend themselves easily to personal use. IRS regulations regarding employer-owned cell phones state “unless the employer has a policy requiring employees to keep records, or the employee does not keep records, the value of the use of the phone will be income to the employee."

The IRS also states "At a minimum, the employee should keep a record of each call and its business purpose. If calls are itemized on a monthly statement, they should be identifiable as personal or business, and the employee should retain any supporting evidence of the business calls. This information should be submitted to the employer, who must maintain these records to support the exclusion of the phone use from the employee's wages."

If the mobile device is owned by the employee, the IRS says "the listed property requirements do not apply. Any amounts the employer reimburses the employee for business use of the employee's own phone may be excludable from wages if the employee accounts for the expense under the accountable plan rules." All of these requirements would be an onerous burden on even the most highly developed wireless expense management process.

As with the 100-year-old Federal Excise Tax on long-distance calls which the IRS phased out in 2007, the rules regarding cell phones seem to have become outdated. They ignore the ubiquity of mobile communications, the low unit cost of mobile services and the onerous administrative burden of compliance.

In June 2009, the IRS caused a lot of commotion by proposing changes to these rules, suggesting that employers assign up to 25 percent of an employee’s annual company-liable cell phone expenses as a taxable fringe benefit. On January 8, 2010 IRS Commissioner Doug Schulman announced that the IRS would wait for Congress to pass legislation on the matter.
As of the 2010 tax year, a new law repeals the outdated regulations regarding cell phones. Section 2043 of the recently-enacted Small Business Jobs and Credit Act of 2010 removes cell phones from the “listed property” category of the IRS code.
My next post will cover designing and implementing an optimal wireless expense management process.

By Hai Yen T. Nguyen, Analyst, ProfitLink Telecom Expense Management

To give your telecom carrier account reps a clear understanding of the types and volumes of services you want to buy, share with them the detailed inventory you have built. Of course, for existing services, you don’t want to share the incumbent supplier’s pricing with a third party. That would give the third party an unfair advantage and weaken your negotiating position with the third party.

Ask your carrier sales rep to respond to you by updating your detailed inventory with their proposed pricing. Ask them to express their pricing in dollars and cents, net of any applicable discounts, and including but breaking out any surcharges, fees, and regulatory fees that apply. Your sales person may resist doing this as it involves more work. Insist that they respond in this way, as seeing their proposed pricing laid out along with your inventory will give you a much clearer understanding of their offer than the most thorough reading of their proposed service agreement can.

In my next post on the topic of telecom expense management and negotiating a great telecom contract, I will write about carriers on line service guides and what you must watch out for.

By Kitty Vo, Telecom Analyst, ProfitLink Telecom Expense Management

I have been blogging on the topic of fact checking Granite Telecom’s and Bullseye Telecom’s savings claims. Our experience suggests their claims of saving customers 20% vs. the ILEC don’t always pan out. In this post, I will suggest an alternative strategy a manager with responsibility for telecom expense management can evaluate.

Let’s review what we know. CLEC like Granite and Bullseye offer a 20% discount off AT&T and Verizon's standard, undiscounted rates. Granite cannot discount taxes that make up 20% of your bill and they often charge more for discretionary surcharges and obscure features.  These factors can result in sticker shock. Granite proposes 20% savings, but when you get your invoice it’s much less - anywhere between 0% and 10%.

What Granite does not tell folks who want to reduce telecom expenses is that the ILECs are able to offer term and promotional discounts that are usually between 10% and 25% off of the retail rates.  In some areas of legacy Bellsouth, promotional discounts can run as high as 40%!

As part of a telecom audit we recently conducted as part of a telecom expense management implementation, we performed an analysis to compare the expected total cost of ownership of signing up for the ILEC's best rates versus Granite’s discounted rates. In every case we reviewed, sticking with the ILEC resulted in larger telecom savings than Granite.

By taking a few simple steps each and every time an employee joins the company or is assigned a company-owned mobile device can help avoid future problems related to company-owned mobile devices and wireless expense management. Most organizations ask prospective employees to sign an employment agreement before they are hired. To support a comprehensive wireless expense management and asset management program, all employees should, as part of that agreement:

• Affirm that they understand that company-owned mobile devices and all information on such devices are property of the company.
• Agree to acceptable use policies of wireless devices and services.
• Agree not to download software that is not approved by the company onto company-owned wireless devices.
• Be notified that company liable mobile devices and wireless services and wireless expenses are subject to monitoring.
• Agree that they waive all rights to ownership or privacy of personal information stored on company-owned mobile devices.
• Agree that they will notify the employer immediately if a company-owned wireless device and/or company owned information is lost or stolen.

Again, the employer can ask the employee to agree to these conditions at the time of hire, when the employee is assigned a new mobile device or at any time.

Safety

Whether the company or the employee owns the mobile device, employees should agree in writing to the following safety rules:

• No hand held use of wireless devices while operating vehicles or heavy machinery.
• Comply with local laws (e.g. No handheld cell phone use in school zones).
• Keep hands-free, work-related wireless phone use while operating vehicles or heavy machinery to an absolute minimum.

In my next post on the topic of wireless expense management, I will be touching on the issues related to data security and network security and how to minimize risk.

By Hai Yen T. Nguyen, Analyst, ProfitLink Telecom Expense Management

When procuring telecom services, your goal should be to commit to buying only the volume of services you will need during the contract term and to maximize the performance / price relationship of the services you are buying. Said differently, you want to buy the correct amount of the best performing services for the lowest price you can. Don’t make the mistake of choosing a vendor based solely on low price.

When assessing the expected performance of various candidate suppliers, you should look at each carrier’s installation interval SLAs, network availability SLAs, reputation for customer satisfaction and the responsiveness of your account manager. To prepare to include the suppliers’ invoices in your telecom expense management process, you should also ask to see sample invoices for the service types you are procuring so you can assess the level of detail and clarity of each carrier’s invoice presentation.

When you negotiate a telecom contract, your negotiating partner will likely be your telecom carrier sales representative or account representative. You will be working with this person throughout the life of the contract (unless they change jobs, which happens quite often), so it is vitally important that you build a strong relationship with them. It is possible to achieve this goal while also negotiating a great deal!

Always keep in mind that a telecom sales person’s goal is to get you to commit to purchasing the highest volume of services he or she can sell you for the highest net rates and the longest term you will accept.

As a result of high turnover in the telecom industry, your account manager may have been recently assigned to your account and may not fully understand the services you use and what you need. Your account manager has little decision-making authority and is dependent on his company’s “Offer Management Group,” who controls the pricing and terms he can propose to you. This makes his job even more difficult because the Offer Management Group is likely overstretched and is working with limited information about your usage patterns and needs.

Your sales rep may offer you attractive looking discounts or net rates on some services and rate elements. To achieve the goals stated above, the Offer Management Group will also likely slip into his proposed contract language that obligates you to pay higher than market rates for other, less obvious services, rate elements, fees or surcharges.

In my next post on the topic of telecom expense management, I will write about Building a Detailed Inventory of Your Current Telecom Services and Rates.

By Kitty Vo, Telecom Analyst, ProfitLink Telecom Expense Management

In my last post I explained how national CLECs like Granite Telecom and Bullseye Telecom provide services to their customers and reviewed the savings claims they use to sell their services. In this post, I will show you how the actual savings don’t add up and explore in detail the hidden costs of Granite Telecom’s and Bullseye Telecom’s services.

Below is actual spend data from a ProfitLink Telecom Expense Management Client who switched some of their local services to Granite as a test or trial. In column to the right you see that the actual savings they realized, calculated by location, vary between 0% and 30%. Our telecom audit revealed that, on a weighted average basis, our Client only saved 10% by switching to Granite.

So, why are the actual, realized savings so much less that Granite’s claim of 20%? There are a number of reasons our telecom audit revealed:

Taxes. Taxes make up as much as 20% of the cost of the local line. Granite cannot discount taxes.

Discretionary Surcharges. All telecom carriers seek to augment their gross profits by padding their monthly invoices with discretionary fees that drop straight to their bottom line. To suggest that government agencies mandate these extra, discretionary fees or that these fees might be taxes, carriers give the fees official sounding invoice descriptions like “FCC Charge,” FCC Primary Interexchange Carrier Charge,” “FCC End User Common Line Assessment” or “Federal Subscriber Line Charge”. The truth is, none of these fees is mandated by any government entity and none of what you are paying is passed through to any government. The FCC and state agencies allow carriers to charge these fees and limit the amount they can charge, but that’s it. Granite charges the maximum allowable for surcharges like End User Common Line Charge or Subscriber Line Charge of $9.40 per line. ILECs other than Verizon charge 45% less than this. These high charges tend to erode the telecom savings Granite and Bullseye customers are hoping to see.

Obscure Features. When you use ILEC local services, often there are features on the lines that are free but are still part of the line's customer service record. Examples of these features are Non-Published Listings and Extended Area Local Calling. Since these are non-regulated features, Granite can and often does add a substantial charge for them. For example, Granite charges $4.50 for a non-published number on a fax line. The ILEC charges $0. For extended area calling, the ILEC usually charges a low flat monthly fee (typically under $1.00). Granite often charges a per call fee that can add up to tens or hundreds of dollars a month in local calling.

No Discount on Non-standard Local Lines. Granite only discounts Plain-Old-Telephone Service (POTS) lines. These are your basic single or hunting lines. For all other services, such as Centrex, analog or digital trunks, remote call forwarding service, and foreign exchange services, Granite charges the full ILEC's retail rates.

Rural or Regional ILECs. Granite has negotiated wholesale discounts with two ILECs: AT&T and Verizon. If your local service is with any other ILEC, then Granite may or may not be able to do pass through billing. With pass through billing, Granite delivers on their claim of providing service on a single bill Granite charges the full ILEC rate and tacks on a $3.00 administrative charge. You end up paying more for your local service.

So what should a manager with responsibility for delivering real telecom expense reductions do? In our experience, the best thing is to get the ILEC’s lowest available rates. In my next post, I’ll do a cost analysis of a telecom expense management customer of ours who looked at Granite’s claim of 20% savings, but stayed with the ILEC to save more money.

It you are responsible for a large portfolio of local telecom services, chances are you’ve been solicited by a national Competitive Local Exchange Carrier (CLEC) like Granite Telecom or Bullseye Telecom. Granite and Bullseye provide services by buying them at a wholesale discount from the incumbent local exchange carrier (AT&T, Verizon, Qwest) and then reselling them to customers. They sell a proposition that sounds like it is an attractive alternative to implementing Telecom Expense Management. The benefits they claim to offer customers are

• A 20% discount off the incumbent local exchange carrier (AT&T, Verizon).
• A single invoice for all services.

Granite’s and Bullseye’s services work well for a single, specific application:   resale of ILEC basic lines (single or hunt lines) with no features or long distance. Granite’s invoice is very detailed and easy to read. Granite is not obligated to include charges from “fly by night” third party billers on their invoice, thereby eliminating a significant source of errors (fraud?) and hassle.

 While it is true that Granite and Bullseye will sell local service at 20% off the ILEC’s undiscounted rates, that does not does not necessarily mean a customer will save 20% off of their total local telecom bill. Here’s a table “cut and pasted” out of a proposal Granite recently made to one of ProfitLink’s telecom expense management customers. On the surface, it looks attractive, doesn’t it?

In my next posts, I’ll show you why Granite’s savings claims did not withstand the scrutiny  of a telecom audit and show you how a Granite customer saved much less than 20% off their total telecom bill.

Are wireless services core to your business or just peripheral? Some organizations allow employees to use mobile devices they own for business use. In most of these organizations, wireless services are not a business requirement for a large portion of the workforce. Other companies just haven’t overcome inertia:  “…employee-liable cell phones are just the way we’ve always done things. “

If a company allows employees to submit personal-liable wireless invoices on expense reports for reimbursement, employees should submit the entire wireless invoice, including call detail, and clearly itemize both business and personal expenses. To avoid this administrative burden, many organizations just pay employees a stipend to reimburse employees for a portion of their monthly wireless expenses. This stipend must be large enough to cover the majority of an employee’s wireless expenses. If not, employers risk employee satisfaction issues. 

If an employee is using a personal liable mobile device for business purposes, they may store company proprietary information on their personal device. An example of this could be a salesperson who keeps customer information on his or her cell phone. As a condition of employment, employees should agree in writing to transfer such data to the employer at any time upon request and to delete company information from the personal devices upon separation from the company.  Such an agreement does not eliminate risk to the employer. Employees are often less than cooperative when it is time to return company proprietary information, particularly when the employee has been terminated. Employers also tend to be inconsistent about applying a comprehensive exit process to employees who leave the company.

In many situations, allowing employees to use employee-owned mobile devices is not a best-practice approach. Establishing a company liable mobile phone policy and wireless expense management process has many advantages, including lower unit cost, better data security, and reduced company exposure to legal liability.

My next post on the topic of wireless expense management will cover key steps a telecom manager must take every time an employee is assigned a company liable mobile device.