Expert Negotiators of World-Class Telecom Contracts

Identifying Spend Detail In My Next Carrier Negotiation

If you’ve ever tried and failed to understand the totality of your company’s monthly telecom billing, you are not alone.  Very few companies have a clear, complete understanding of their telecom contracts and invoices. Even companies that outsource the job to a telecom expense management (TEM) firm are hard-pressed to sort things out fully.  And the inventories kept in TEM platforms are usually insufficient as a demand-sets for cost determination.

And that confusion, those missing or loose ends, can hurt you. They can adversely impact telecom negotiations, result in missed savings opportunities, and cause you to inaccurately allocate costs across the organization.

The Challenge

If your business were an episode of Survivor (and in many ways, it is) and you were challenged to gather all your current carrier contract documents and one complete month of carrier invoicing, could you do it?  If the answer is no, again, you are not alone.  You are a part of the majority.   Could you do it during the commercial break or would it take you days or even weeks? Would you be able to hunt down all the paper invoices? Would other invoices be online? Would you need other departments to pull it all together? When time ran out would you feel confident you had everything?

Confusion Is Your Enemy

Many companies are challenged in their ability to provide a complete picture of their telecom contracts and invoices by things like acquisitions and mergers that result in legacy agreements or disparate accounts payable centers processing different pieces of your billing.

What’s worse, many carriers rely on this melee of staggered start/end dates, or multiple and complicated contracts, to perpetuate their ability to prevail in negotiations. Confusion is their ally, it’s your enemy. After all, what you don’t know hurts you, not them.

We’re Spending How Much for That?

Shouldn’t your TEM-based inventory be the spend basis for new contract negotiations?   Well, it’s not their fault, but line and circuit inventories in TEM platforms are very different than spend inventories required for carrier negotiations. And asking carriers to supply what you need is also a loaded request.  It’s not their priority for sure, and timeliness and accuracy are often an issue.  Never the best way to start contract negotiations. Even the most well-intentioned of carriers might leave something out.

But without a complete set of documents – contracts, addendums, amendments – and the terms and liabilities those documents represent, you cannot fully leverage your buying power. It’s a bit like going into battle without understanding all the weapons, tools, and strategies you have to fight with.  If you don’t understand 100 percent of your spend the way the carrier does, you will never succeed at fully minimizing your costs and maximizing your savings. The carrier will concede points on high-visibility line items only to raise them in obscure areas of the contract where you lack visibility.

HD Telecom Negotiations

TEM firms can help, but they’re designed to process invoices and allocate costs. They are not built for, nor are they intended to help with, negotiating contracts. For that, you need raw data, the original invoicing to get to your net effective rates.

That’s what professional telecom negotiators do. They help you gather all your documents; they help you understand what you’re paying for; They help you get the maximum savings possible.

Once you have the big picture, a high-def version of your contracts, addendums, amendments, invoices, services, you can determine your net effective rates; you can start to leverage your buying power. Now, you’re talking to the carriers on an equal footing. Now you know what they know. Now you’re getting the best terms, the best rates, and the best service mapped to your business as it is today. It all starts with establishing the spend baseline.

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How Long Should Carrier Negotiations Really Take?

How Long Should Carrier Negotiations Really Take?

Reality – 2017:  Smartphones rule the enterprise communications space and users “must” have the latest device.  Deciphering mobile telecom bills and utilization patterns seems like it requires a second college degree.  To add to the challenge carrier rate plan models and “subsidized vs. unsubsidized” device purchasingoptions change monthly.

The thought of renegotiating mobile contracts, or any telecom contract, is daunting.  You hear of price-compression occurring here and there, but where exactly is it happening?  And typically, organizations expect their IT procurement folks to hold, or even lower the costs on the expense category while improving the service.  Crazy waters to navigate!  So when is the right time to take this all on and how long should the contract negotiations take?

Whether mobile or fixed communication contracts, the industry average to negotiate a new telecom carrier agreement is now about 5 to 7 months. Why? Because it’s complicated as ever, and that’s part of the carriers’ strategy: The longer they delay implementation of your new contract, the longer you’re paying higher rates. How long should it take to negotiate a new telecom contract? Six to 12 weeks, tops! That difference between three months and 12 months of negotiation can cost you – up to one-third of the savings opportunity you can realize from a properly negotiated new contract.

Properly armed with the right industry knowledge and the right negotiating tools, you can take control of the negotiating process itself and ensure you’re getting the best possible prices, terms, and conditions as quickly as possible.

Rate Effective Date

If your carrier wants to drag out negotiations, you can stymie their efforts by putting a rate effective date in place at the outset of negotiations. A rate effective date places a stake in the ground that says, ‘You can drag these talks out if you want to, but when the deal is agreed, those rates are effective retroactively to such-and-such a date.’ You’d be surprised at the incentive a rate effective date can be in getting a telecom carrier to move negotiations along.

Myth, Facts, and Making Deals

By incorporating myths into their presentations and injecting them into your negotiations, telecom carriers can make sure the focus is on anything but the facts. Your job is the opposite – using the facts you’ve armed yourself with to keep the talks on track.

This is why it’s so important to have all your documents and data at hand from the get-go. In a previous Insight (“Know Your Contracts and Invoices”) we discussed the importance of data collection ahead of talks with your telecom carrier.

When you have the facts – a complete, accurate “book of business” – the carrier’s myths are irrelevant. When you have them at the start of negotiations, no time is lost and you can capture every savings opportunity as quickly as possible.

Delay Is Your Enemy

The closer you get to the contract expiration date, the less time you have to migrate your operations to a new telecom carrier. The carriers know this; the less time you have to migrate, the more leverage they have, the less attractive the deals they will offer.

Benchmarking Is Your Friend

Smoke and mirrors, especially around industry benchmarks, only work to the carriers’ advantage. If you come to the negotiating table with full knowledge of the industry benchmarks you and the carrier both know the price points, terms, and conditions of what’s possible. There’s nowhere for the carrier to hide, one less roadblock that can be thrown in front of you getting a better deal.

Price and Terms Together

There is no rule, written or unwritten, that says you can’t negotiate pricing and terms and conditions in parallel. If you have unique legal points that you need to incorporate into the contract, put those on the negotiating table along with the pricing issues right up front. Your telecom carrier may tell you these need to be separated or you should take things one step at a time, but that’s just another way to delay the process, especially if you haven’t set a rate effective date at the outset of talks.

A Better Call

Negotiating with your telecom carrier without an understanding of what’s possible, what’s standard, and what’s in your best interest is like ordering a meal at a restaurant from a menu without prices. You have no idea what you should be paying and what’s the best value for your money. Make a better call, the best call, by arming yourself with all the information and data before you begin negotiating your contract to ensure you get the best deal for your business.

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The Industries First Global Telecom Sourcing Alliance Is Formed

May 12, 2014 – Pinehurst, NC:  G2 and BBW announced today the two companies have partnered to form a Global Telecom Sourcing Alliance.  The Alliance brings an extended Global reach and enhanced capabilities for both domestic and international carrier negotiations.  The Alliance now has benchmarking data and negotiations expertise that encompasses all seven continents across the full spectrum of carriers and technologies.

Justin Fuller, EVP of Business Development for G2 commented, “This partnership just made sense and allows us to continue leading our niche industry into the future.  The growing demand for international expertise and the professional negotiation of contracts that support global infrastructures needed to be addressed.  And while both G2 and BBW individually have substantial international experience, the two firms together fill the gaps in both benchmarking data and insider carrier knowledge”.

While many TEM (Telecom Expense Management) companies have attempted to enter the global market this Alliance is the first partnership formed with a single focus on managing Telecom Contract Negotiations across the Globe.

Craig Robinson, Owner of BBW, added, “Both G2 and BBW have delivered significant value for our respective clients for many years, we can now extend our service to clients on a global basis. G2 and BBW are built to leverage superior market data for the sole purpose of negotiating world class telecom buying agreements with the carriers”.

G2 was founded in 2000 and is headquartered in Pinehurst, NC.  G2 is the industry leader in Telecom Contract Negotiations through its representation of many of the largest telecom spenders in North America.

BBW was founded in 1993 and is headquartered in London, UK.  BBW serves a wide range of national and multinational clients and specialize in negotiating major international telecommunications contracts. 

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Disconnected: Bridging the Gap Between IT and Procurement

As technology has evolved, traditional corporate roles, and the delineations between them, have blurred. Nowhere is this perhaps more evident than in the corporate telecom arena where IT and procurement now overlap each other vying for ownership of the telecom relationship. Sometimes this causes confusion – and occasionally, some rivalry – over which department should wield the reigns.

The answer, if you’re doing things right, is both. IT and procurement each have a stake in the outcome of how you source and procure telecom services for the enterprise. Procurement will drive the ‘paper’ defining the relationship between your provider and you, and IT will manage the technologies being bought, implemented, and maintained.
Both must work together to achieve the best results for the organization but they often have different goals. Those goals need to be reconciled for the relationship to work effectively for the entire organization.

Man in the Middle
The procurement team is there to protect the company’s financial assets, to ensure the best pricing, and yield the greatest efficiencies possible. IT is there to make sure the right technologies are in place to serve all the organization’s legitimate telecom needs.

While procurement is tasked with ensuring compliance with purchasing policies even as they seek to reduce costs, the highly specialized, complex nature of telecom contracts often means they are operating without all the benchmark intelligence necessary to guarantee the best possible deal. That’s where enlisting the expertise of a telecom negotiating team can prove to be one of a company’s best assets.

Inherent with the roles it is often assumed that IT will be biased (of carrier relationships, technologies, etc) and Procurement will play the unbiased role. Sure, pricing is pricing and services are services but there are factors beyond the spreadsheet that need to be considered and vetted.

Without a bridge between IT and procurement, both departments can find themselves with a deal that satisfies neither one of them. Procurement is wrangling contract terms for the development and implementation of telecom systems they won’t have to manage and IT is left trying to manage systems that may meet purchasing guidelines but don’t do the job or sufficient resources weren’t set aside to complete the implementation as contracted.

The key to a successful outcome is to engage a telecom contract negotiator at the outset. The negotiator can evaluate the services at the lowest element in the carrier’s billing systems, breaking it down to its most fundamental state.
They can identify and remove anomalies in the existing arrangement and validate and incorporate future requirements in the new contract. This “book of business” is then presented to the carriers in the context of leading-edge pricing benchmark intelligence. The floor isn’t so much opened for bidding as the gantlet has been laid down; you’re telling the carrier you know what you need, what you don’t need, what’s possible, and what is acceptable. You’re no longer asking the carrier, “What’s the best you can do for us?” You’re telling them, “Here is what we expect.”

And that’s the difference between getting a good telecom contract and the best possible contract. Procurement is satisfied because negotiations complied with internal processes and the most competitive terms were realized for the company. IT is content because they were able to match the new agreement with their existing and future infrastructure needs.IT was also involved in defining the resource requirements to meet their service level agreements to the organization.

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Sourcing Telecom: Is it a Marathon or Relay Race?

Who would ever run a race where the rest of the field gets to start halfway closer to the finish line?

Not many. This is why the players in our niche industry don’t negotiate from carrier proposals – those deals that represent your best efforts to get savings on your own. The low-hanging fruit is gone. The race seems over before it begins. You really have to perform to win.

But for those in peak condition, the race can change. It becomes a relay. True experts don’t give up before the race starts; they look for the baton from their teammate and sprint to the finish line.

Having a professional telecom contract negotiator evaluate your telecom carrier proposals and finish negotiations offers your company the best of both worlds: you get to claim savings through your own efforts and any additional improvements earned by a third-party is pure value because it is savings otherwise kept by the carrier.

However, this service is little known or practiced – because most consultants avoid it. It is easier to negotiate the first dollar of savings instead of the last. Taking on 11th Hour engagements requires the confidence and ability to improve upon what may already seem like remarkable savings.

There is a significant difference between what a company can achieve on their own versus the results of a truly professional negotiator.

Look into this service and ask these questions. The best negotiators will give you the following answers:

  • My carrier proposal already represents a lot of savings. Why should I wait to sign? An assessment to determine if a worthwhile savings opportunity exists will only take 48 hours.
  • How much will this savings opportunity assessment cost? Any reputable firm will provide the analysis at no charge. The onus is on them to prove they are worth being hired.
  • I have leveraged the carriers through a competitive RFP, how can any savings remain? A third-party negotiator is armed with the resources and market intelligence to improve upon what seems to be significant savings. The least we have ever seen a proposal improved is 12%.
  • How do I know the savings you claim is real and significant? Here is an easy test: the consultant should only work under a performance-based or incentive fee basis. No one will take on work where they have no hope of getting paid.
  • How much time is it going to take for someone to take over negotiations and finish the job? A true professional is going to work more quickly than most –even in a complex environment such as telecom. Expect the project to take two to three weeks.
  • Isn’t that two to three weeks a lost opportunity cost? Yes it is, but the return of additional savings will easily eclipse that loss. And, a professional will likely make up for lost time through the carrier contract review and approval phase.
  • I’m experienced and negotiated the carriers hard, how is there more? The carriers are experienced, too, and motivated to keep margin. By definition alone, on any given day most deals are average. Size, competition and carrier relationship do not matter. Truly, without evaluating from fact-based, recent and aggressively-acquired market intelligence it is all guesswork whether a deal is bad, good or great.
  • Do I have to switch carriers or modify my network? No, this is a financial exercise to maximize savings and improve contract terms and conditions. Your network and business are not disrupted.
  • Will you supply me references for clients where you conducted the same type of 11th Hour Negotiations? A consultant should have plenty of references who are your peers and from companies that are well-known, capable and with complex networks.
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A Bad Call for Telecom Sourcing – Part II

In the traditional world of auctions, no matter what’s up for bid—art, memorabilia, cars, jewelry—there can only be one winner, one successful bidder. Everyone else in the room is, by definition, a loser.

When it comes to telecom contract negotiations, e-sourcing (AKA reverse auctions) works much the same way with one exception: There is still only one winner, but it’s always the same winner—the telecom providers.
And the reason is simple; the business model itself is flawed for something as complex as enterprise telecom services.

E-Sourcing: The Big Disconnect

Look at any reverse auction interface closely and you’ll soon see what’s missing and why e-sourcing commercial telecom services will always fail to yield maximum cost savings or industry-leading terms and conditions.

Benchmark Intelligence

An e-sourcing application doesn’t include benchmark intelligence—the precise industry insight you need to put your telecom service terms into context. An e-sourcing application isn’t designed to include this type of information because it can’t. It has no view into where the industry stands across the entire spectrum of telecom service terms.

Carrier Relationships and Project Leadership

Reverse auctions cannot factor in the types of soft negotiating skills that produce hard results when skilled negotiators apply them. What are they supposed to have, a box you tick off that says, “We’ll go somewhere else if we don’t like your bid.” It doesn’t work that way.

Carrier Processes

Every carrier has its own set of internal processes it uses to develop pricing schemes. Not one of them is going to share those internal guidelines with an e-sourcing application where their competitors can see them.

The telecom carriers understand all too well the leverage they have because migrating to a new service provider is a costly and risky proposition for an enterprise. That leverage effectively means they are not going to provide (or divulge to competitors) their best prices. It dilutes their profit margins in a public arena where they expect to lose more than 90 percent of the time. From their perspective, it’s not worth it. They either won’t submit a bid, thereby decreasing the competitive environment or, they may submit an unsustainably low bid strictly to disrupt the process and if selected, withdraw the bid or tack a flurry of fees onto the contract to recover their losses.

Dialing Back on Reverse Auctions

More than a decade old now, reverse auctions may be successful in some commercial situations but not for telecom services. They are a simple tool unfit for a task as complex as enterprise telecom service negotiations. None of the intangible assets that yield the greatest savings and the best contract terms and conditions are part of an e-sourcing application.

Given the complexity of commercial-grade telecom services and the wide variations between Tier 1, Tier 2, and Tier 3 carriers, a reverse auction tool cannot provide a true apples-to-apples comparison between providers and their bids. There are always factors, terms, and conditions beyond what shows up on your computer monitor during the auction. This makes a productive comparative analysis virtually impossible.

Every carrier has a Special Pricing organization, a strike team, if you will, that has the keys—and the authority—to the carrier’s best pricing packages. No carrier is going to implement that as part of their reverse auction bidding process. They can’t; it takes a team and a whole lot of up-the-chain-of-command approvals to affect that.

Often, a telecom services contract is about more than just price. There are dozens upon dozens of terms and conditions that impact the contract and, in turn, the price. A reverse auction cannot factor in those fine points. Likewise, a reverse auction has no negotiating skills; it cannot communicate to the provider many of the subtleties a skilled negotiator brings to the table, the likes of which add substantial value to the terms you finally settle on with a carrier.

You could try to e-source your next surgery, but even if you could, you probably wouldn’t; there are too many things to consider. You might be able to reverse auction your child’s college education, but you won’t. Too many variables, too much riding on it.

Much like surgery or a four-year investment with long-term consequences, telecom is a vital part of your operation. It’s a critical piece of your infrastructure, plus it’s a fixed line-item in the budget. And like those two endeavors, telecom services aren’t well-suited for something as simplistic as a reverse auction.

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E-Auctions: A Bad Call for Telecom Sourcing?

In the movies auctions always look glamorous and exciting. People with tons of money bid millions of dollars on priceless works of art.

In real life, auctions are far less appealing – or successful.

Not only are the items up for auction typically far more mundane, but the bidders are a combination of people who really know what they’re doing, the professionals, and those who have no idea what they’re doing, the rank amateurs.

The professionals—jewelers, antique dealers, auto dealers—stop bidding when the bids exceed the point where they can profit on the purchase. The rank amateurs drive the price up, often beyond what it’s worth or what you pay for a similar item at a store or online.

Auctions for telecom sourcing, e-auctions, tend to fall in the latter category. The perils are the same but the stakes are higher as anyone at a Fortune 1000 company responsible for telecom contract management can tell you.

Telecom Contracts Are Simply Too Complicated

It’s not that e-auctions can’t or don’t work; they can be very effective for simple, specific things. An example might be a 10 mm stainless steel screw used in manufacturing. You set the specs— 10 mm in length, stainless steel material, a pan head.

But telecom contracts are complex products. There are a handful of professional players—the telecom providers—and they know the ins and outs of the game. Heck, they write the rules of the game. And the rules say, keep pricing close to the vest, make apples-to-apples comparisons difficult, and rely on the fact that most customers have limited experience in wireline or wireless contract negotiations making them vulnerable to all sorts of one-off hidden charges built into the contract.

Because a telecom RFP is a complex document, there are lots of opportunities to negotiate the finer points of the contract.  To negotiate the best deal you have to evaluate all financial concessions beyond just targeted price points.  A carrier contract contains literally hundreds of price points, features charges, taxes and possible hidden fees.  E-Sourcing does not address each and every rate or charge.

There’s also no place in an e-auction for you to let your current carrier know you’re prepared to walk away from the relationship if the pricing isn’t right. There’s no mechanism in an e-auction that lets the carrier’s sales team consult with the executive finance team to get you better pricing. And, without the blessing of the carrier’s finance team, the e-auction chips will fall where they may. And where those chips fall are usually not to the customer’s benefit.

E-auctions also do not necessarily attract the best bids. Incumbents understand that customers are aware of the migration costs involved in switching carriers. Non-incumbents recognize the advantages an incumbent has for those exact same reasons and are therefore reluctant to publicize their best prices, which would further commoditize rates and erode margin, in an environment where they are likely to lose 90 percent of the time.

Bid Like Your Job Depends On It… Because It Does

Just like in the movies, the prospect of an e-auction for telecom sourcing can seem exciting. But the reality of telecom contract management is much more sobering. A skilled telecom contract negotiator can help you navigate the finer points of the agreement and put pressure on carriers where they’ll feel it most. Because they have a broad range of experience and knowledge, you’re not going into a negotiation unarmed and uninformed about what’s possible.

E-auctions have their place in business. Telecom contract management is just not one of them.

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Leverage What You Have

Talk is not cheap. Ask anyone at a Fortune 1000 company responsible for overseeing the enterprise’s telecom sourcing or telecom contract management.

Not only is it not cheap, it’s as complex as can possibly be—which is precisely how the telecom providers like it. The more complex the telecom agreement, the easier it is for them to add fees, hide costs, and generally jack up how much you pay to connect your company to your customers.

But, while talk may never be cheap, it can be cheaper and your telecom contracts made simpler and more easily managed.  The key is understanding the rules of the game, something the telecom giants have worked diligently to keep from you by creating complex, (pardon the pun) circuitous, contract language, by changing those rules, and moving the goal posts at every opportunity.

Pulling Back the Telecom Contract Curtain

Some politician (let’s not quibble who) said, “You have your known unknowns and your unknown unknowns.” And whether war or politics (or telecom cost control, for that matter), unless you know what the telecom providers know, you can’t possibly know how you’re being taken to the cleaners with your telecom contracts. That’s where a knowledgeable telecom contract negotiator can help. Not only do they see hundreds of telecom contracts to understand what’s possible, but the good ones have staff that have been on the inside, who know firsthand what to look for. In contracts of any kind, it’s often not what’s on the page, but rather what’s left off the page that will do you in.

Consolidating Contracts

Because your business—every business—evolves, your needs change over time. And, technologies and markets evolve too. The result is often a mishmash of telecom sourcing with multiple, overlapping start and end dates for the various pieces of your telecom services, from wireless contracts to long distance services, conferencing to data transmission services. A knowledgeable telecom contract negotiator can help you consolidate contracts and bring about simultaneous, coterminous agreements, regardless of where you are in the telecom contract cycle, with one or multiple carriers.  Internal and external carrier consolidation opportunities should be evaluated; they are powerful steps that can be taken to maximize savings while minimizing liabilities.

Mind the Gaps

One of the ways telecom costs escalate is when services are added without being made part of the master service agreement (MSA). It’s simple. Where you might be inclined to give your best customers your best price because, you know—they’re your BEST CUSTOMERS—telecom providers are often not so inclined. So, you call your rep and ask them to add a feature. They say, “Thanks, I’ll take care of it,” and there you go. You get top-drawer rates for your contract-negotiated services and you pay top dollar for the feature you just added because it wasn’t incorporated into the MSA and therefore doesn’t leverage your entire book of business with the carrier.  Introduce an environment where sourcing and carrier management is decentralized and these gaps only grow greater resulting in substantial lost opportunity costs.  Internal politics and business unit structures aside…leverage what you have.

Say What?

Telecom contracts are some of the most cleverly constructed documents around. Add the layers of complexity that come with using multiple carriers and adding or changing service needs midstream, and suddenly, telecom sourcing begins to resemble negotiations more common in international treaties than those among business partners. But, such is the way things are.

Remember, this is the information age and information is power. Know what you know and recognize what you don’t know when it comes to drafting your telecom RFP and negotiating your telecom contracts. Then, hire someone with the expertise to at least put you on a level playing field with the carriers. That’s the only way you’ll get some straight talk from them.

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Front-end vs. Back-end Costs in Telecom Sourcing

That recently negotiated contract may not produce as much savings as you expected. Similar to buying a car with hidden fees like maintenance plans and creative financing, most telecom contracts have back-end costs that can significantly cut your savings. The carriers’ contractual sticker-prices proclaim double-digit reductions knowing they will recover margin through utilizing methods and tactics that are rarely uncovered, acknowledged or challenged.

Carriers readily concede savings on high profile areas of your business to make their deals more attractive. They know these hidden methods will work to help get back what they lost.

The carriers will recover lost margin through tactics and techniques that their customers cannot easily combat. The carriers rely upon their customers not having the means to analyze pricing and invoicing or to have the leverage and precedence to stop them from employing these methods. In our consulting practice, we routinely witness the carriers using the following tools to recover margin on the “back-end” of a new contract:

  • No detailed invoice reporting is available to break costs down to the lowest element in the carrier billing system with all net-effective rates. Without this information, it is impossible to target all potential areas of rate reductions, accurately calculate savings and audit the implementation of new rates.
  • The carriers purposefully set high commitments compared to new run-rates. At best, the carriers have leverage to impose less favorable rates if commitments are not met. At worst, shortfall penalties.
  • Carriers focus on reductions for big ticket items, but then embed rate increases elsewhere within the hundreds of price points found within the contract.
  • Carrier failure to keep customers in parody with the downward movement in the market. The longer the tenure with the carrier the further behind rates will be to the average deal. The carrier is rarely leveraged to provide the same aggressive price points they offer to a new customer.
  • Given the proper carrier precedence and leverage all feature charges can be waived.
  • The overcharging or passing through of taxes which is at the sole discretion of the carrier, not mandated.
  • Purposeful delays in the negotiation process and the implementation of the new contract rates result in months and months of higher margin retention.
  • Staggered contract end-dates (non-coterminous) and bifurcated service agreements preclude clients from leveraging business appropriately, thereby lowering the potential for deeper discounts.
  • Rate implementation errors which are never identified by the customer.
  • Inaccurate proposal savings analyses. In our nearly decade of analyzing proposals, we have yet to find one carrier-developed savings analysis that is accurate and not tilted in their favor.

As former carrier negotiators and professional consultants, we understand these tactics the carriers use to increase your costs. G2 builds superior solutions within our negotiation process to eliminate the effectiveness of these back-end costs.

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Can You Afford Another Telecom Tax Increase?

A year and a half has passed since the FCC mandated that carriers must pay Universal Service Fund (“USF”) charges for MPLS services.

The USF is managed by the USAC (Universal Service Administrative Company) and supports programs for rural health care providers, low-income consumers, schools, libraries and high cost companies serving rural areas. The contribution factor changes quarterly and is adjusted depending on the needs of the various Universal Service programs.

To understand the impact, the federal USF contribution factor for the third quarter of 2010 was 13.6 percent.

The carriers have all reacted to this surcharge in various ways. Most have challenged the FCC and/or delayed the USF filing in order to impose these taxes on their customers before they start paying it directly. In any case,if your MPLS costs have not gone up, they soon will. Whether applied retroactively or going forward, the implementation of the surcharge depends on the carrier and the contract terms of individual customer agreements. In any future contract revisions these taxes can and should be appropriately identified and may be favorably negotiated to lessen their impact.

The FCC regulations do not mandate that carriers must pass through USF surcharge to their customers. Rules simply state that the carrier must report MPLS revenue and contribute to the USF accordingly. It is simple to understand why the carriers are motivated to impose these charges onto their customers, either in whole or in part. However, these pass-through charges are discretionary. Concessions can be made and in the very best contracts, there are opportunities to decrease or totally avoid these new taxes altogether.

Reference links:

  1. USF Contribution Factor and Quarterly Filings
  2. Universal Service Administrative Company
  3. Telecommunications Reporting Worksheet, FFC Form 499-A (2009)
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