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Cutting cell phone costs

Flat-rate plans skim fat off wireless spending.

By Laurianne McLaughlin, Network World
October 18, 2004 12:02 AM ET

Network World - 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."

Flat-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.

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