Cutting cell phone costs

Flat-rate plans skim fat off wireless spending.

Are your company's wireless expenses starting to look as large as Martha Stewart's legal bills? You may consider an option for slimming down wireless costs that remains little known or understood by many corporations: customized flat-rate plans.

Are your company's wireless expenses starting to look as large as Martha Stewart's legal bills? You may consider an option for slimming down wireless costs that remains little known or understood by many corporations: customized flat-rate plans.

Instead of buying buckets of minutes for each employee or a pooled bucket of minutes for employees to share, customized flat-rate plans let you pay as you go, at a set rate per minute, with no overage penalties. You negotiate the per-minute rate with any of the major national wireless carriers based on number of phones and a minimum number of minutes or dollars spent per user, per month.

"It's sort of a hidden marketplace," says Michael Voellinger, director of wireless service for Telwares, a consulting firm that helps customers make such deals. "Unless you ask, you'll never know it's there."

When companies allow employees to choose their own wireless phone and plans, the results are messy. Telecom managers end up with complicated brews of various plans, then struggle to maximize efficiency, track costs, and budget for the future. Yet according to The Yankee Group, 48% of U.S. corporations let employees do the picking.

At the same time, wireless spending continues to devour a larger chunk of enterprise telecom budgets. For U.S. firms with 500 or more employees, the average total amount spent on wireless services will spike from $3.6 million to $4.7 million, a 31% increase from last year, according to Yankee's 2004 Corporate Wireless Survey. Most of these costs are wireless voice services, not wireless data services.

A desire to better manage those escalating costs drove Rock-Tenn, a packaging firm in Norcross, Georgia, to examine flat-rate options. Rock-Tenn, which among its 90 locations has about 425 AT&T Wireless users and 250 with Nextel , recently negotiated a flat-rate contract with AT&T Wireless with the help of Telwares consultants. A Nextel deal is in progress.

"It's a cost issue and a simplicity issue," says Bob Zumwalt, Rock-Tenn's director of technology. "You pay for what you use and only what you use. It's easy to comprehend, to audit, to present to business units, and it's much easier to plan for."

Wireless gobbles up telecom budgetsFlat-rate plans usually involve a monthly access fee of $10 or less per user combined with a flat per-minute rate. AT&T's pricing starts at $13 per month and 12 to 15 cents per minute, before negotiations. Discounts depend on number of phones and total expenditure, while carriers require a minimum number of minutes or dollars spent per user, per month.

Zumwalt can't specify his per-minute rate because of a contract stipulation. But based on the two billing cycles since the changeover, he says he expects to reap 30% to 40% savings overall, which represents between $207,000 to $276,000. In a typical year, his company pays AT&T Wireless for almost 4 million wireless voice minutes, with the typical user consuming 800 minutes per month. "Previously, we had buckets of minutes, and we were constantly in the plan optimization game," he says.

But don't expect customized flat-rate discounts to apply to wireless data services. All-you-can-eat monthly data plans in the $70 to $80 range, from carriers such as Verizon and Cingular, will continue to be the most typical option for enterprise clients for the foreseeable future.

Finessing a flat-rate plan

To varying degrees, all the major national wireless carriers will offer flat-rate wireless voice to enterprise customers, says Telwares' Voellinger. And more of his clients are pursuing flat-rate, he says, even though the carriers still push traditional pooling plans.

"The bottom line is the rate plans that have been out there are really complex," he says. "What's driving this move to flat-rate is customers saying 'I need something that's less complex.'"

Along with simplifying wireless cost structure, flat-rate plans also slim down spending. "Where flat-rate pricing has been implemented, we have seen solid, inclusive cost-per-minute numbers running less than 8 cents," Voellinger says.

While every deal is different, enterprise customers typically can save 20% to 30% when renegotiating rates and moving from a mix of standard pooling plans to customized flat-rate plans, says Ben Fox, who negotiates deals for customers at telecom consulting firm TechCaliber. "If you're big enough (say more than 5,000 handsets) you can negotiate the access fee to zero," he says.

Beware of some common traps regarding flat-rate plans. First, don't focus too much on per-minute cost, Fox advises. Focus on the whole usage pattern picture for your company. For example, free night and weekend minutes and mobile-to-mobile minutes can significantly increase a deal's value. And it's easier to negotiate these items than per-minute discounts, Fox says.

"A 9 cent rate across the board might sound good, but if it doesn't take advantage of in-network and off-peak calling, it might not be right," says IDC's Keith Waryas, research manager for wireless business network services. If your company makes 15% to 20% of wireless calls between employees, you could save a lot simply by consolidating to one carrier with free in-network calling, he notes.

Night and weekend minutes won't count toward the monthly minimum amount that carriers typically require. On the other hand, most companies today exceed their allotted number of minutes, as opposed to "wasting" unused minutes, Waryas says.

Another pitfall: Flat-rate plans don't necessarily include roaming. "When it's 69 cents a minute for roaming, it doesn't take long to wipe out savings," Fox says.

Finally, carriers prefer that flat-rate plans involve "corporate liable" phones (acquired through a company contract, with the company having end credit liability) to "corporate-supported" phones (bought by employees, taking advantage of corporate-negotiated discounts.)

Flat-rate plans work best for Fortune 500 or 1000 firms with variable monthly costs, and which are willing to possibly switch carriers, says Eugene Signorini, program manager for wireless/mobile enterprise and commerce at The Yankee Group.

"Unless you have a high number of lines, it's tough to negotiate on flat rates," he says, so mid-sized companies will have a tough time. Still, mid-sized firms may convince some carriers to move on price, especially T-Mobile, which has been particularly aggressive, he says.

Little-used phones may be another area where flat-rate plans could save your company money, says Aaron Cook, a telecom analyst at Intermountain Health Care of Salt Lake City, which runs 12 hospitals throughout the state.

Since Intermountain started using a flat-rate plan about two years ago with MobileSense software to manage and track its 20,000 employees' wireless voice usage, the company has discovered a sweet spot for flat-rate usage. "Our costs were getting too high," Cook says. "We had policies in place but no way to enforce those."

Today, any phone used for 150 minutes or less per month gets put on the company's negotiated flat-rate plan from Verizon Wireless. This includes "disaster" phones that Intermountain keeps on hand in case land-line service goes down. "Flat rate does save a lot of money, but it has to be the right fit for the user," Cook says.

Telecom trends

While AT&T Wireless has offered flat-rate pricing since 2000, the carrier has not seen an uptick in demand for flat-rate plans recently, says Joe Lueckenhoff, a vice president at AT&T Wireless.

Solid savingsLooking ahead, flat-rate will become an option used by more companies, but this trend doesn't look like it will rewrite the wireless voice game, IDC's Waryas says. Most companies will use a mix of plans, including a customized flat-rate plan and traditional pooled plans, instead of putting all employees on one type of plan, he predicts.

For IT managers who do end up examining flat-rate plans, Zumwalt has some advice. Start with detailed research, including a solid baseline estimate of current services and costs.

"Keep your RFP short and to the point," he says. Define your expectations, and don't be bashful about stating acceptable price ranges and service levels. Doing so will help you develop a vendor shortlist, finalize the vendor, and complete the contract negotiation. "This technique got high marks from the vendors and made everyone's job easier, especially ours," he says.

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McLaughlin is a freelance writer in the Boston area. She can be reached at laurianne@mindspring.com.

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