Evolution of Competition
Historically there has been tremendous competition in the telecommunication services industry as evidenced by a consistent 25 year pattern of falling prices. Falling telecom prices has driven usage validating the economic theory called the elasticity of demand. With lower prices people/businesses made more phone calls, connected more sites to their network, increased their data bandwidth and invested in mobility solutions and advanced devices. These actions in turn brought more people to the Internet and wireless connectivity which beget even more demand for telecom services. All I can say is Wow when I reflect for a moment how competition in telecom has revolutionized the way we live, work and play.
I remember pre-divestiture of the Bell Monopoly when a great deal on long distance was $.50 per minute in 1983 dollars. If you were a huge Fortune 50 enterprise, the large carrier I worked for at that time would cut you a real deal at $.39 per minute. Adjust these prices for inflation into 2009 dollars and the great deal of 1983 would be $.75 per minute today! The data side of the telecom industry is just as extreme. Just 10 years ago, a T1 point to point circuit from New York to LA could easily cost $15,000 per month. Today that kind of connectivity and bandwidth can be had for hundreds of dollars and with a lot more functionality and inherent value. Indeed the breakup of MA BELL ushered into being real competition that has led to dramatic quality of life and productivity enhancements that have revolutionized the world. I am proud to have been in this industry and feel privileged to have a small role in this revolution.
The newest frontier of competition has been wireless; which has also been transformed in this decade. Remember being jealous of your neighbor who had the clunky $750 contraption installed in their car? Now everyone has a cell phone and wireless traffic has surpassed that of wireline in many countries around the world. The legacy RBOC entities (AT&T, Verizon and Qwest) are now fast losing residential lines as people are accustomed to using their mobile phones instead. An entire generation has now been raised without believing in or depending upon a landline connection to stay connected. With the mobility explosion and linkage to an ever evolving Internet, the wireless industry has been turned upside down. Who would have guessed all of this 20 years ago?
But what about competition today?
The collapse of legacy wireline carriers earlier in this decade and the consolidation into a handful has led many to falsely believe that competition is no longer alive and well. While granted there is less competition, Enterprises that believe this will get poor results in their sourcing initiative to validate their false belief. In the past, enterprises reaped benefits by sitting back and letting the competition come to them. The best prices and the pioneering contract terms, and support provisions have never been freely offered, however, it today’s climate, it is paramount that the enterprise seize the initiative and take their needs and demands to the suppliers. The days of carriers throwing money at customers to win business without being coached, enticed or motivated are over. World class deals are secured only by recognizing the competitive forces that exists in the market and executing a sourcing strategy that leverages these dynamics. Competition remains alive and well in the telecommunications industry but the buyer bears a much bigger burden in terms of leadership of the process.
Competition comes in several forms. The big stalwarts AT&T and Verizon still seek growth, especially for enterprise segment. Negotiation leverage played correctly works well as it just takes two to tango yet this is more than a two horse race. There remain several viable players, Sprint and Qwest most notably yet many other credible suppliers that focus on certain segments of the industry like local, audio conferencing, VOIP, MPLS and plain vanilla long distance. Few enterprises should put all their eggs in one basket. Utilizing multiple suppliers provides diversity but an added benefit is a readymade source of leverage when it comes time to resource your telecom services. Capable, strong providers remain to compete and offer competitive solutions for enterprises that understand the market and these supplier capabilities. As budgets get tightened in this unprecedented financial climate, enterprises must adapt to the changed competitive environment and take matters into their own hands. Savings and enhanced productivity and service value is there for the taking for those that understand the new market dynamics.
Wireless remains a very competitive segment with the two dominant players AT&T and Verizon having to remain sharp and focused on price, service and support to fend off the inroads of the secondary players including Sprint and T-Mobile and to defend their turf against the other. All these carriers recognize that to take market share away, they will need to overcome the obstacles of new equipment/devices and ensuring an orderly and seamless porting of existing wireless phone numbers. Incentives, performance guarantees, dedicated personnel, equipment rebates, employee benefit and other creative programs are available and all negotiable items. Do not let a limited frame of reference about these incentives lead to missed opportunity. Wireless prices are coming down regardless of what your sales rep may be telling you.
Beyond negotiating price structure and price level, these other incentives are infrequently pursued and rarely freely offered by the suppliers. Proper positioning, coaching and application of competitive leverage is necessary to drive the carrier behavior that results in a world class outcome. Incumbents should re-earn the business on the merits of their total program offer and fear of change should not be allowed to restrict enterprise sourcing actions.
Conclusion
Telecommunication industry competition has adapted from the heydays of the past yet remains alive and well. No enterprise should roll over and play dead; in fact the economic collapse has created new opportunities that go against conventional wisdom. Ignore these opportunities at your own financial peril. Enterprises need seize the initiative and take the action and their demands directly to the carriers. Based on my personal broad exposure to the industy, every time a new precedent setting price was established within the industry, competition was being leveraged 100% of the time. Pioneering price new price points don’t just show up on their own, they must be elicited via competitive leverage.
Rather than lowering expectations in sourcing and negotiations, I would encourage enterprises teams to raise them. The key to any negotiations is defining leverage and the key to defining leverage is knowing all your competitive options and fully engaging the alternatives into your evaluation and decision making process. If there was one takeaway from this blog post besides understanding that competition remains strong and healthy it would be this:
REMEMBER: YOU HAVE MORE LEVERAGE THAN YOU THINK
TelAuthority is the industry authority for the sourcing, procurement and negotiation of telecommunications contracts. We know this industry well and have key relationships with all major suppliers. We would love to tell you more and look forward to that opportunity.
Written By: Pete Wilson
What Comprises a World Class Contract?
The appeal and instant gratification of saving money can lead enterprises down a dangerous and costly road in managing their telecommunications supply chain. While the price points and the immediate savings offered get most of the attention in the procurement process, other equally important factors can easily be ignored to the peril of the enterprise. While savings are nice, even critical in these challenging economic times, they cannot be achieved at the expense of bad contract provisions. In a changing market, the sweet taste of immediate savings will fade away and one day the terms of the contract will bite back with a vengeance.
You may find the market prices have shifted significantly but your enterprise has no leverage nor do you have a robust price review clause to secure a new round of improvements. An enterprise may finally be ready to make a technology change, perhaps to MPLS, VOIP, or WiMax or it may benefit them to implement a new individual liable mobility program and downsize the enterprise responsibility; yet they discover there is no flexibility and they are at the mercy of the incumbent suppliers. A carrier may be falling down on the job, with horrible support, service and network performance; yet there are no defined SLAs and the weak “Swiss Cheese” standard tariff provisions they thought protected them provide no recourse. The sale of a subsidiary or a shutdown of operations, in response to the economy, may have an extra sting if commitments and mitigation clauses are not precisely spelled out in the contracts. There is an almost unlimited list of potential gotchas that could spell trouble down the road.
Negotiating from a position of weakness is never a good idea. To avoid falling into the perils, described above, the time to proactively address substantive contract provisions that provide ongoing flexibility and leverage and which also mitigate risks and penalties for subsequent events is when the contracts are negotiated; definitely not after the fact. As a former carrier executive responsible for addressing these types of enterprise issues, the first thing I would look at is the existing contract to determine what rights and leverage the client had and what legal obligation we the carrier had to address them. If the provisions were nonexistent or simply feel good “chit chat” clauses without any substance, I knew we as the supplier had the upper hand in the negotiations that would follow.
Carriers will tell you not to worry about these things and that they will work with you if they ever become problems. Don’t buy that for a minute. Contracts are between two legal entities, not between two people. People come and go, situations change as evidenced by the current economic crisis. You can ill afford to blindly trust a relationship to fix future problems. While a huge asset, good relationships must also be combined with a robust contract that defines the requisite provisions necessary to protect the enterprise.
TelAuthority is the AUTHORITY on delivering world class results for the enterprise. Working with your client teams, we will address all relevant facets in helping you choose your suppliers wisely with the confidence that you have excellent pricing and the security of knowing you have protected your company from undue risk or liability.
World class pricing by itself does not a world class contract make. Contract jail is no place to be found when action is required. TelAuthority looks forward to discussing your situation and showing you how to achieve true world class outcome in your telecommunication sourcing initiatives.
Written By: Pete Wilson; CEO of TelAuthority, LLC