One of the most common missed opportunities in negotiations is when  enterprises piecemeal their efforts for the book of business they purchase from a given supplier.  For example an enterprise may buy local, long distance, data and wireless services from Verizon and in many cases there will be separate contracts in place for each class of service, with differing terms and usually service specific commitments.  

The problem with this piecemeal approach is that the enterprise is playing into the hands of the carrier bureaucracy and product fiefdoms.  The different heads of these product groups do not necessarily think alike and have direct influence in terms of what is offered in custom negotiations with enterprise accounts.  This is a big reason why the contracting and negotiation of telecom services remains separated with different contract forms and seemingly different rules of logic. 

Many savvy enterprises have attempted to have their book of business viewed and acted on holistically by the large carriers.  Navigating this internal minefield of fiefdoms and complexity can be very frustrating indeed but it can be done.  Local account teams rarely possess the internal clout to accomplish the holistic handling and many enterprises have abandoned this pursuit and have awarded their services and contracted with the carriers on a piecemealed basis.  Based upon my experience the downside of piecemealed telecom contracts include the following: 

Negative Impacts of Piecemealed Sourcing Efforts

• Higher prices for each suite of services and overall
• Loss of contract flexibility via multiple commitments
• Greater risk of internal business changes
• Receiving less attention and respect from the supplier

Piecemeal approaches to telecom sourcing will almost always under-perform a holistic approach.  By shopping and negotiating holistically, an enterprise’ total telecom spend or even the potential spend is the prize that garners maximum carrier attention.   The issue of being piece-mealed has become more acute over the past several years with the consolidation of carriers and the integration of the acquired entities.  For example, a few years back BellSouth, SBC, Cingular and AT&T were all distinct entities that primarily addressed just one segment of an enterprise’s needs.   Since SBC acquired these entities and renamed the whole of the new entity AT&T, all of the services (local, IXC and wireless) and territory covered by these four companies are now rolled into one entity yet the one entity has multiple heads and they are not always connected.  The same dynamic applies to Verizon and other carriers that service one or more of the industry product segments. 

Because AT&T and Verizon provide the bulk of services to the enterprise market, this posts primarily applies to them, but understand the same issues apply to other carriers such as Sprint and Qwest.  Carriers create the fiefdoms on purpose –  it is in their regulated carrier DNA so to speak. Despite carrier integration with the non-regulated IXC and wireless segments ; the RBOC mentality of fiefdoms is dying a very slow death.  The other driver is human nature and the resulting pride and ego’s the various product groups possess inside their carrier organizations.  These different fiefdoms have real clout and unless negotiations occur high enough up in the carrier organization, bridging the gaps between fiefdoms can be quite challenging.  If the fiefdoms are not brought under the direction of one brain, different rules of logic and responsiveness to an enterprise demands will result.   There must be executive sponsorship to bring the two heads together.

Practical Illustration

Here is an example of what this means in a practical illustration.  For example, if an enterprise spends $10M per year overall with Carrier X, yet purchases only $5M per year of MPLS services and the remainder in local and wireless services; the MPLS product group views them as a $5M per year customer and will respond accordingly when approving pricing.  In this illustration, the other $5M per year spent on other services from Carrier X is not even considered by the MPLS product organization.  In this extreme example, the enterprise will most certainly not be given MPLS pricing that reflects the whole of a $10M relationship and the wireless/local deals will similarly be decided upon independent upon the whole of the relationship. 

Because local services are still subject to some regulation it is understandable the caution carriers take to not circumvent the spirit of state regulations.  Requiring separate paperwork for local services is fine but hiding behind the veil of supposed regulation in denying holistic consideration of an enterprise is wrong.   Even though local services carry a regulation burden, it is no excuse for a carrier to isolate local or any product group and not view their customers in a holistic fashion.  Treat me holistically with the entire package of pricing and terms and I am happy to sign separate local contracts to meet the regulatory burden but look at the whole and not the pieces when addressing my needs.   Creative packaging is  needed to overcome the regulatory constraints and make everyone happy.    Few have the energy and know how to navigate this effectively. 

AT&T vs Verizon

AT&T is further along the evolutionary curve than Verizon as it pertains to thinking with one brain.  This will not happen automatically, it remains an unnatural act; so it is incumbent upon the enterprise to define their strategy in any sourcing initiative to encompass the holistic approach.  Verizon on the other hand has a ways to go.  They remain stuck with an RBOC mentality with wireless, local and IXC services seemingly run by three different heads that do not communicate with each other.  Verizon will figure this out sooner rather than later as their competition is clearly using their weakness against them in the marketplace.  Verizon claims they think holistically but their actions do not support their rhetoric.

Shopping versus Awarding Business

Shopping your business holistically is not the same as awarding your business holistically.  Do not be confused by the main message in this post which is:

“Always shop holistically.  Make sure all business is fully considered when any decision is made for even a portion of the business.”

This does not mean to put everything including the kitchen sink into all your sourcing, RFPs and negotiation efforts.  Doing so may make the process so unwieldy that the lost time factor alone could erase any benefits of a holistic package from the carrier.

Having portions of business under different contract cycles that are not coterminous can be a good thing.  If handled properly, every time any contract comes up for renewal, it provides leverage that can be used to readdress the whole relationship; not just the services in the expiring agreement.  Avoiding or minimizing commitments, especially product specific commitments is a key to maintaining leverage.  When product specific commitments are made, it takes away from  leverage and limits the options available for renegotiation’s.  

TelAuthority is the industry expert to define and execute negotiation strategies to attain market leading results.  If you would like to know more or have any questions, please contact us.  We look forward to hearing from you.

Written By:  Pete Wilson, CEO

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

Think about this. What incentive or motivation does the incumbent carrier have to act with haste in reducing the prices for business they already have? This is the same business they have forecast to retain in their budgets and are counting on to meet their performance goals and personal incentives. When deals are renegotiated supplier personnel have a real motivation to delay and above all minimize the revenue impact of customer renewals and contract extensions. Inside the carrier finance organizations, the dreaded process of writing down existing revenue is despised by everyone. As an enterprise buyer, it is important to never forget that if there ever was an immutable law in telecom sourcing it is this: Incumbent suppliers are never in a hurry to write down existing business.

While sympathy for vendors that one considers partners and friends appears noble, it can be extremely costly to the enterprise that doesn’t also balance their own need for market leading contracts.

At TelAuthority we understand these process dynamics and know how to maneuver around them and eliminate the inherent waste and cost to the enterprise. We know because we have years of experience navigating the cumbersome, seemingly complex and at times frustrating procedures we ourselves helped create when working on the supply side of the industry. I like to refer to the process as gamesmanship, but saving money in these tough times is no longer a game. Time spent performing due diligence, soliciting bids, evaluating options, making decisions, negotiating the underlying contracts and terms, is time well spent but time can get away from you if you lose control of the process.

Carriers are mostly to blame for missed savings opportunities, but sometimes there is a large contribution from consultants and advisors that have no incentive for speed of execution. Some telecom consultants and law firms charge fixed fees and hourly fees to negotiate telecom contracts. These hourly fees can be several hundred dollars per hour. I have seen enterprises wait months for contracts to be drafted with unbelievable amounts of time being spent haggling over the precise wording of relatively insignificant legal clauses. Customers continue to hear “they are working on it” yet in the meantime consultant fees are racking up and thousands to even millions of dollars of potential savings evaporate as the new carrier pricing only takes effect once a new contract is executed. As long as the clock continues to tick, savings are lost. With the advent of Sarbanes Oxley years ago, the days of getting partial relief in the form of retro-credits are all but over; so the burden is squarely on the enterprise buyer not to become a victim of this dynamic.

TelAuthority believes strongly in incentive and performance based engagements. We share a common goal with our clients, to drive maximum improvement in the shortest period of time, while safeguarding network reliability and contractual flexibility. If the only benefit we brought to our clients was speed of delivery or acceleration of results, TelAuthority would be providing a valuable service. But we bring so much more and we look forward to speaking with you about your specific situation and opportunities in telecommunication sourcing.

Written By:  Bob Arnold