Cut That Phone Bill

Dec. 21, 2004
Most companies pay far too much for their telecommunications services.

Despite what Bill Gates and Microsoft Corp. would have the world believe about their Windows monopoly, it's a fact of life in business that having a choice of products or services usually means lower prices for those who use them. And in the deregulated world of telecommunications, there are more choices and more ways than ever for companies to slash costs. Today it's possible to pick from an array of carriers -- each offering wildly different pricing plans and billing schemes for both local and long-distance dialing. What's more, several important new technologies have emerged as viable ways to slash expenses and provide a more efficient telecommunications infrastructure. The list includes integrated services digital network (ISDN), digital subscriber line (DSL) and Internet Protocol (IP) telephony. "A user of telecom services has more choices than ever before," says Sanjay Mewada, a senior analyst for the Yankee Group, a Boston-based information-technology research firm. That fact translates into savings for businesses that are savvy enough to take advantage of it. "Most companies pay far too much for their telecommunications services," states Zohar Loshitzer, managing partner of Orchard Telecom Inc., a Los Angeles-based company that helps corporations consolidate billing, negotiate pricing, and manage their voice and data networks. "Once a company understands what services it needs, what it requires, and its calling patterns, it's possible to structure a better deal." Rick Carlton is among the converts. The vice president of enterprise systems for Hotel Information Systems, an Irvine, Calif., company that manufactures software for the hotel industry, has managed to cut telecom costs by about 32%. Two years ago, the firm -- with about 375 employees worldwide -- let individual departments and managers purchase services as needed. When Carlton came on board, he immediately hired Orchard Telecom to conduct an audit of all facilities and soon discovered that by consolidating technology and long-distance carriers his firm could benefit from unified billing, reduced maintenance costs, lower tariffs, and better pricing. "The benefits were easily proven," says Carlton. Among other things, the technology audit pointed out that the company wasn't using the most efficient tools possible. By adding phone lines where needed -- including a T1 line in the firm's Terrytown, N.Y., order-processing center -- Hotel Information Systems was able to actually reduce costs by speeding the time required to verify financial information for customers. The analysis also pointed out that the company could carry intraoffice voice communication across frame relay to a facility in the UK. But the biggest gain came from consolidating a series of long-distance contracts -- previously handled separately through AT&T Corp. and MCI WorldCom Inc. -- under a single account with MCI WorldCom. "We were suddenly able to negotiate a better deal but also benefit from a more efficient telecommunications infrastructure," Carlton states. Loshitzer says the vast majority of companies overlook basic strategies for cutting telecom expenses. Those include understanding incoming and outgoing calling patterns, the time of day that peak call volumes occur, and whether a carrier bills in one-minute, 30-second, or one-second increments. "Once you understand the calling patterns, you can negotiate the best deal with your existing carrier or another company." Often, bargaining for the best price per minute is the least effective way to save money because it doesn't take into account geography and unique calling patterns, he says. "If a company doesn't truly understand how it uses various services and how it communicates internally and externally, it's almost certain to spend more money for inferior technology and services." But it doesn't stop there. Loshitzer warns that many companies pay for telecom services they never use. As employees come and go, service is added and removed. "But sometimes the old service isn't disconnected, and the person paying the bill sees only that it's a working circuit and pays -- even though nobody is using the line." Yet another chronic and undetected problem, he says, is the inefficient use of T1 lines. By allocating the 24 channels to handle voice and data more efficiently, it's often possible to eliminate access charges and lower overall equipment costs. At Active Voice Corp., a Seattle-based producer of voice-mail systems with $60 million in annual revenues, telecommunications manager Jean-ette Wilkins has learned that it pays to pore over the details. Like many telecom managers, she regularly reviews local and long-distance contracts and recently renegotiated the firm's long-distance agreement with Sprint Corp. That alone slashed $100,000 a year from the firm's telecom budget, about 25% of the firm's total calling costs. She also requested that Sprint add a provision allowing Active Voice to immediately rewrite the contract if rates drop. Finally, Wilkins keeps close tabs on invoices and internal calling records -- using software to spot discrepancies in charges and to ensure that Sprint processes credits correctly. Another company that has been able to dial into greater cost savings by understanding its telecom needs is United Check Control Inc., Houston. Scott Schultz, an executive vice president for the company, which processes checks for about 95% of grocery markets in the region, says that by changing the local carrier and establishing a more efficient telecom infrastructure, the firm has been able to cut costs by one-third. Although United Check Control has continued to use the same long-distance company, MCI WorldCom, it recently pulled the cord on Southwestern Bell and turned to Teligent Inc., Vienna, Va., for what it considers a better call-routing setup and a flat monthly charge of $30 per line. With more than 75,000 data calls per day over 30 local lines, United Check Control was paying a "hefty price per transaction using Southwestern Bell," says Schultz. What's more, Teligent offered number portability that the Baby Bell couldn't deliver and provided electronic billing that lets Schultz drill down and better understand calling patterns. "That has helped us understand where potential customer-service problems reside and make needed changes," he states. All this combined with six-second increment billing through MCI WorldCom (the company previously had 30-second increment billing through the long-distance provider) has helped the company ring in a new era of telecom efficiency. Companies such as Teligent, Qwest Communications Intl. Inc., and Level 3 Communications Inc. are attempting to redefine the market for voice and data telecommunications services. Teligent targets small- to medium-sized businesses, providing telecom services -- including local, long-distance, and Internet connections -- for about 30% less than major Bell competitors. It also provides streamlined billing and an array of other nontraditional options. Meanwhile, Qwest Communications and Level 3 are building fiber-optic networks that can carry both voice and data traffic at a lower price than major players such as AT&T and MCI WorldCom. "Many of these new packet-based networks operate at a much lower cost than traditional public-switched telephone networks, and much of the savings is passed on to end users," observes Randy Carlson, manager of telecommunications consulting for Arthur D. Little Inc., Cambridge, Mass. Guy Cook, vice president of data-product management at Denver-based Qwest, believes that this new breed of carrier also can cut a company's maintenance and equipment costs. "Typically, you will find that a company needs a T1 line to support toll-free calling, another to support incoming calls, still another for outgoing calls, and one for IP services, including Internet access," says Cook. "The promise of convergence is that a company can reduce its need from four or eight T1 lines down to two. The traffic doesn't have to be segmented by service type." In fact, Qwest's network uses IP to transmit both data and voice traffic with almost no latency -- a problem that plagues typical IP transmissions and causes annoying distortions. Until now, most companies that wanted to bypass the public-switched telephone network had no alternative but to use the Internet or establish their own virtual private networks. That made voice calls, however inexpensive, a dicey proposition. More common has been IP faxing, which can save thousands of dollars a month in telecommunications costs. Negotiating and switching telecom carriers aren't the only ways to trim costs, however. Carlson notes that ISDN, DSL, and IP telephony all offer potential savings, and all are becoming viable choices in the corporate telecom arena. Take ISDN, for example. At a price of $50 to $100 per month per line, ISDN remains a relative bargain, especially compared with several hundred dollars or more per month for a T1 line. The economical pricing has caused ISDN to take off in recent years. As of January, about 1.4 million Basic Rate ISDN accounts were in service, and the number is expected to grow to 3.2 million by 2001, the Yankee Group predicts. "The economics of ISDN have become very attractive for large and small companies," boasts Joe Simone, senior director for business marketing at Pacific Bell in San Francisco. In terms of capabilities, ISDN's appeal is that it offers a digital line that can transmit data at speeds as high as 128-kilobits/sec (Kbps)and can handle both voice and data simultaneously. It's popular with companies that support telecommuters or large numbers of branch offices, firms that require common Internet access through a LAN, and those requiring low-cost data-backup capabilities and environments with scalable Centrex and call-center services. Yet, ISDN is now being challenged by another upstart technology, DSL. It offers greater bandwidth -- typically in the range of 144 Kbps to 1.5 megabits/sec (Mbps), though service as fast as 7.1 Mbps is occasionally available -- over conventional copper lines and also can accommodate voice and data. Unfortunately, DSL, which can cost anywhere from $100 to $1,000 per month, still isn't available in many areas, though companies such as MCI WorldCom, Concentric Network Corp., and SBC Communications Inc. are now promoting it heavily. "DSL has a bright future but it is going through the same growing pains that ISDN did a couple of years ago," says Yankee Group's Mewada. If recent history is any indicator, the telecom landscape is likely to become more and more complex, offering opportunities for corporate users who make the right choices. "Technology is changing so rapidly that if you don't understand your needs, you're going to make the wrong decisions," says Carlton. Adds Orchard Telecom's Loshitzer: "The days of simply contacting your phone company and requesting service are over. The choices a company makes can significantly impact the bottom line."

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