How to: Q&A: Get more bang for your telecom bucks

Telecom spending represents a big chunk of most IT budgets, but industry competition and negotiating finesse can reduce costs. Hank Levine, a Washington, D.C., attorney with Levine, Blaszak, Block & Boothby, has helped large companies squeeze carriers for years. Levine spoke recently with Network World Senior Editor Denise Pappalardo. Here is an edited version of the interview:

Levine: What you should know about the carriers

How has the landscape for negotiating telecom contracts changed in the past few years?

The landscape has changed in several key respects. First, the rapid price decreases we saw in the late 1990s (10%, 15% or 20% per year) have trailed off. We are still seeing price decreases, but the decreases are more like 5%.

Second, there has been an upheaval in the industry from MCI/WorldCom's bankruptcy to the entry of the [regional Bell operating companies] in the long-distance market.

The third change is next-generation technology's impact on the market. Much in the same way that frame relay shook up the data world in the mid 1990s, IP VPNs and [voice over IP] are starting to do the same. All this is happening at the same time we are seeing growing use of mobile service, various forms of remote access and the death of the calling-card market.

How do less-aggressive price decreases affect users at the negotiating table?

One thing people have to do is temper expectations. There are ways to keep getting 10% to 15% price decreases, but they don't include walking into your carrier and simply asking. You can still do very well, but it takes a lot more effort.

How can users lower their annual contract rates by 10% to 15% if the average is 5%?

They have to be willing to move some traffic to a second-tier carrier, and they have to be willing to change. There is always a better bid from a user's non-incumbent carrier. If you don't show that you are willing to go through the pain of changing service providers, then the ability to get those dollars from your incumbent is compromised.

Is the fact that MCI is still in bankruptcy, although close to emerging, something users should consider?

Yes. The last five years have proven that diversity of carriers is important. We tell MCI customers: Stick with MCI, but you can't give them 90% of your business. Cut that percentage in half.

We say that, with a little less urgency but for similar reasons, to Sprint and AT&T customers and certainly to Qwest customers.

How seriously should users consider the fact that most RBOCs will soon be able to offer national long-distance voice and data services?

There is good news and bad news about the RBOCs. The bad news is that the RBOCs are not ready to support large, nationwide networks. The good news is they are a lot more ready than they were 12 months ago and in another 12 to 18 months they will be ready for prime time.

Why is diversity so critical today?

Diversity assures users that their network will not go dark if their carrier files for bankruptcy. Those with a weak lead carrier, which MCI is the best example, need a lot of diversity and are foolish not to have two T-1s into their major facilities.

Does diversity mean a user's telecom spending will go up?

Actually, it means their costs will go down. People believe what you pay depends on the volume you purchase. That is a lie. There is no correlation between volume of service delivered and the price you get.

The single best prices I know of go to a wonderful little catalog shop in Florida. The guy spends a million bucks a year, and he has people begging for his business. That's because he does one-year contracts and at the end of the year it's up for auction.

His willingness to change carriers gets him the best deal, not the fact that he's spending a certain amount with one carrier per year?

Yes. The carriers will tell you: If you have $6 million in traffic, I'll give you a good price if you give me $4 million; a little better if you give me $5 million; and the best price if you give me $5.5 million of that traffic. The guy who spends $12 million gets the same story and the same prices.

What should Fortune 1000 users keep in mind as they sit down to negotiate their contracts?

It's leverage that gets you a good deal. If you think you're going to get a good deal because you're a long-time, loyal customer, you're wrong. Making the carriers believe you can and will move traffic is the first thing.

Second, know the timeline. Three months before your contract is about to expire is not enough time to do an RFP and migrate traffic, and your carrier knows it. Start thinking about negotiating a year in advance of your contract expiring, get real serious nine months in advance and finish negotiating a new deal six months in advance.

Third, know your traffic. If you know your traffic, you can better compare bids. Don't let your incumbent tell you what type of traffic you have at the negotiating table.

What is the industry standard for contract lengths?

Keep it as short as possible. The industry standard had been three years, but now more deals are being done with two-year terms. With a three-year deal you need a rate review clause with some teeth because rates will have gone down during the life of your contract.

Learn more about this topic

More advice on telecom contracts

A series of column by Johna Till Johnson on negotiating with your carriers.

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