Telecom Expense Management Blog

When you are negotiating your telecom contract, you should set your negotiation goal to be a Minimum Annual Revenue Commitment (MARC) that is 60% to 70% of the total annual spend with a telecom supplier. Your account rep will suggest that he or she can offer lower rates in exchange for a higher MARC. The truth is that, with larger dollar volume telecom contracts, there is very little correlation between rates and the level of MARC.

Define all services and fees that contribute to the MARC and try to get as many charges as possible to contribute. Your agreement should specify that services being used by new businesses or acquisitions will contribute towards your MARC.

Do not commit to using one supplier exclusively. You want to be able to move some services to another supplier during the term of the contract to exert leverage, if necessary. Avoid language that requires you to prove you are giving a certain percentage of your business to any carrier.

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.

In my next post on the topic of telecom expense management and negotiating a great telecom contract, I will write about selecting an optimal agreement term and include a business downturn and business divestiture clause.

In addition to the subject matter-specific information I provided about negotiating a better telecom contract, we offer the following general negotiating tips:

• Begin sourcing services 8-12 months before you need them so you don’t negotiate with your back against the wall.
• If you do have a deadline coming up, don’t disclose it to the seller.
• Understand what you need in great detail (this is the hardest and most time consuming part!).
• Get quotes from multiple carriers to understand the market rates for the services you are sourcing.
• Make a prioritized list of deal points to be negotiated. Be sure to include some items you can concede because they are not important to you.
• Offer a justification for every negotiating position you take.
• There is tremendous power in patience. Always tell the seller you do not have sole decision-making authority. This creates the perception of “institutionalized” patience.
• “Silence is Golden.”
• Never make two consecutive concessions to the seller. You can’t negotiate with yourself and obtain a favorable outcome.
• It is easier to negotiate with friends than with adversaries.
• Nobody likes to be made to look stupid.
• Ask for additional small but important concessions from the seller at the end of the negotiating process as a condition of closing the deal.

A significant source of gross profit for telecom carriers is late payment fees. Carriers often set unreasonably short payment intervals that begin at their invoice date. They then take their time mailing their monthly invoice to you. As a result, many customers receive their invoices with less than two weeks to process them and remit payments. When customers are not able to process invoices this quickly, carriers charge them late payment fees of as much as 6.5% of the unpaid balance!

Your goal should be to get the carrier to waive late payment fees. This goal is very hard to achieve, as there is a time value of money and businesses typically do not extend free credit to each other. If your carrier will not waive late payment fees, see if they will agree to extend the payment interval to something your accounts payable process can make every month, like 45 days. You can also ask your carrier to specify that their payment interval begins on a date you can verify; such as the date you receive their invoice. Do not put yourself at the mercy of the carrier’s inefficient invoicing process. It can be expensive!

Two carriers we know of try to include language in their agreements that limits the amount of credits or refunds they will provide for billing errors to the most recent six months’ overcharges. We recommend rejecting this type of limitation for obvious reasons. Additionally, these limits are not competitive and they signal that the carrier has low confidence in the accuracy of its provisioning and billing processes.

If you plan to implement a telecom expense management solution during the term of the contract you may want to ask the carrier to specify if they offer invoices in Electronic Data Interchange (EDI) format.

In my next post on the topic of telecom expense management and negotiating a great telecom contract, I will write about some great negotiating tips.

When negotiating a telecom contract, you should consider including a technology refresh clause. Technology refresh clauses address the risk that the lower-priced future technology could replace the existing higher-priced technology you currently use during the term of the term of the contract. You should negotiate a commitment from your supplier to upgrade you to future technology at no charge and reduce your minimum annual revenue commitment to reflect lower prices.

You should avoid giving your suppliers the right to migrate your services to a different technology at their discretion. As an example, in the recent past, many carriers attempted to commit customers to migrating from their existing Frame Relay networks to MPLS networks. You want to reserve the right to reject technology changes that create possible compatibility issues or impose significant additional costs.

In my next post on the topic of telecom expense management and negotiating a great telecom contract, I will write about including a technology refresh clause in your contract.

When negotiating a telecom contract It is our opinion that, in most instances, the ideal term length is 36 months. With longer contract term lengths, you risk being locked into a contract as your business changes, as the market rates for the services you use drop, or as technology changes to your potential benefit. For shorter term lengths, carriers will typically not waive installation fees and only offer higher rates.

Your carrier agreement should state that at the end of the term, the contact will continue on a month-to-month basis with no change in rates. Your goal should be to avoid the inclusion of an auto renewal clause in your contract. If you cannot achieve this goal, your “fall back” position might be to include an auto renewal clause that limits each renewal term to one year and requires the carriers to provide 180 day notification of an impending auto renewal according to the terms of the notifications clause in the agreement.

All telecom contracts should include a business downturn and business divestiture clause. A business downturn clause stipulates that the supplier will renegotiate the agreement’s volume or revenue commitment if an unforeseen reduction in the customer’s revenue occurs. A business divestiture clause stipulates that the supplier will renegotiate the agreement’s volume or revenue commitment if the customer’s need for services is reduced due to sale or divestiture of a subsidiary, affiliate or operating unit that uses services provided under the agreement.

In my next post on the topic of telecom expense management and negotiating a great telecom contract, I will write about including a technology refresh clause in your contract.

“Knowledge is power.” “The devil’s in the details.” These truisms apply nowhere better than to telecom contract negotiations.

You should prepare for your telecom contract negotiations by building a highly detailed inventory of the types and volumes of services you currently use, as well as the rates, fees and surcharges you currently pay. The more rigor you apply to this exercise up front, the bigger your negotiating advantage will be.

For local services, build an inventory that lists each phone number or NPA NXX and total associated charges.

For data services, build an inventory that lists each circuit, its NPA NXX, each service element (loops, ports, mileage) and total associated charges.

For long-distance services, build an inventory of minutes used each month for the past twelve months, along with the net, post discount, per minute rates for each call type: outbound, inbound, interstate, intrastate for each state, and international. Be sure you understand what you are paying for long distance access loops, account fees, billing fees, 800 number fees, surcharges, regulatory fees, etc.

For mobile services build an inventory of devices subtotaled by NPA NXX, peak minutes used for each number over the past three months and total associated charges.

Collecting and compiling service information to build a detailed inventory of your services and corresponding rates is often a highly complex and time consuming undertaking. That’s why many busy IT and telecom professionals choose to hire ProfitLink to do the legwork for them. The incremental savings our customers realize by completing negotiations and implementing new lower rates more quickly makes partnering with ProfitLink an attractive investment.

In my next post on the topic of telecom expense management and negotiating a great telecom contract, I will write about communicating your specific needs to candidate telecom suppliers.