How to win the telecom megamerger game

Telecom has always been an industry in flux, and the recent merger mania promises more changes to come. Whether it's SBC buying AT&T, Verizon taking on MCI or Sprint merging with Nextel, there's a new crop of telecom giants emerging that are capable of offering a broad range of services, from local and long-distance phone service to VoIP, broadband Internet, wireless, cable TV and satellite.

So what does this mean for telecom buyers? Among other things, fewer competitors, short-term turmoil in terms of account management and a long-term need for more sophisticated vendor management.

But users can take advantage of these tumultuous times by remaining informed about the new ways telecom services will be bundled, insisting on volume discounts and demanding solid customer service in their contracts. Here are some tips from experts and large telecom users about how to win the megamerger game.

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Telecom has always been an industry in flux, and the recent merger mania promises more changes to come. Whether it's SBC buying AT&T, Verizon taking on MCI or Sprint merging with Nextel, there's a new crop of telecom giants emerging that are capable of offering a broad range of services, from local and long-distance phone service to VoIP, broadband Internet, wireless, cable TV and satellite.

So what does this mean for telecom buyers? Among other things, fewer competitors, short-term turmoil in terms of account management and a long-term need for more sophisticated vendor management.

But users can take advantage of these tumultuous times by remaining informed about the new ways telecom services will be bundled, insisting on volume discounts and demanding solid customer service in their contracts. Here are some tips from experts and large telecom users about how to win the megamerger game.

Fewer players can be a good thing

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It's easy to imagine that with just two or three big carriers to choose from, customers will be knocked out of the driver's seat. "Particularly with the convergence of voice and data coming over a single network, people think they'll have to put all their telecom eggs in one carrier's basket," says Ted Chamberlain, an analyst at Gartner.

However, that's not necessarily a negative. Fred Gratke, assistant vice president of telecommunications at the Burlington Northern and Santa Fe (BNSF) Railway Co. in Forth Worth, Texas, says that two or three national carriers is enough to drive competition. "It's actually a good thing, because the two or three that are left will be stronger and more financially stable, and that should translate into better service reliability," he says. "There will always be at least two if not three national carriers, and that's enough to keep them competing for our business."

BNSF uses AT&T and SBC as its primary carriers, and MCI and Verizon for its secondary carriers. It also maintains relationships with Sprint and Qwest."We value having carrier diversity slightly ahead of obtaining the best price," Gratke says.

Gratke does expect some short-term confusion as account teams are shuffled around, but once things settle down, "It will be simpler, because whereas before there were two account teams from two different carriers, now there will be just one," he says. "That's one less set of people and reports and billing."

Negotiate a volume discount

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Every company wants to deal with the fewest number of service providers possible, not only to enjoy less complication but also to leverage volume discounts, says Johna Till Johnson, president of Nemertes Research . With the megacarriers offering a wide variety of services, this should be more possible in the future.

Johnson recounts the story of a client that issued an RFP for all of its telecom services, including voice, data, cell phones, BlackBerries, Internet and remote access. In this case, Sprint was perfectly positioned to offer a good deal, except that it initially wouldn't count wireless toward the minimum revenue commitment. "They changed their mind when they were about to lose the deal," Johnson says. "That's what end users care about - a volume discount that doesn't have to do with a particular mix of services, as long as they're writing a check for several million a year."

Gratke agrees. "If we can have a more complete offering from one carrier, then we'll be driven to take that offering," he says. "It will increase our ability to leverage the relationship and get volume discounts."

Volume discounts, however, depend on the effectiveness of the carriers' back-end systems to track whether customers are living up to their minimum revenue commitments, which now is poor and may worsen in the near term with the merged systems.

Get hit with billing headaches

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Customers are already bracing for trouble with day-to-day account management, says Bob Pojman, senior vice president of technology and network services at BISYS Information Solutions, a New York banking applications integrator. BISYS uses AT&T as its primary carrier but also has multimillion-dollar agreements with Verizon, SBC and Qwest to take advantage of competitive pricing in particular geographies.

There's no competitive difference among the various carriers' backbones, Pojman says, and most are standardizing on MPLS. Instead, he looks for carriers' abilities to bundle services at competitive prices and offer electronic interfaces and streamlined processes for ordering, provisioning, billing, troubleshooting and changing services.

That, he says, will take time. "In the short term, it will be somewhat chaotic," he says."They're going through right-sizing their new organizations and deciding which internal systems stay and go, and it will probably take 12 months to ferret that out."

Chamberlain agrees."The customer interface to the carrier will be the hardest thing," he says, adding billing is already atrocious."Take someone like AT&T, which with SBC will have to adopt a local billing structure - that's going to be tough."

Cozy up to senior execs

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To offset the inevitable chaos, customers such as Paul Lowenwirth, vice president of telecommunications at Viewpointe Archive Services in Houston, say they will strive to stay on top of their vendor relations during the transition.

Viewpointe primarily uses MCI and Sprint for its high-capacity broadband services, as it archives digital images of 100 million checks per day from banks ranging from JP Morgan to BankOne."I wouldn't allow the carriers to put me in a 'trust-me' position," Lowenwirth says. "We'll work hard to maintain or improve the types of relationships we have today, because if we become less significant in the view of the new larger organization, I would have very severe concerns."

Lowenwirth says the mergers will eventually benefit customers, as they will create more financially secure entities."Through our senior-level relationships, we'll be able to take advantage of that, as opposed to being concerned that we'll get lost in a monolithic entity," he says.

Hone vendor management skills

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Although technologies such as MPLS and VoIP are complex and challenging, in-depth knowledge of cutting-edge technologies will take a back seat to vendor management and negotiation skills, in addition to understanding how businesses can take advantage of new telecom services, Johnson says.

WAN personnel will need to understand how services are offered and bundled to get the best package for their business needs. They'll also need to work on ways to ensure service-level agreements and minimum annual revenue requirements are being met, she adds. For instance, how do minimum revenue commitments get redefined when you're talking about data packets in addition to voice minutes? "I'm not saying technical expertise is no longer a requirement," she says. "We'll just go for a period where it's secondary to understanding your company's bandwidth usage."

For instance, it will be important to know not just how to set up VoIP but also the usage patterns. Is the same end user who's going to do 15 hours of teleconferences per week also using the Internet to simultaneously download data from the Oracle database?