Some things never change

Are we returning to the 1990s, when voice and data rates dropped by 20% or more year over year? How should telecom managers react? The short answer is while we’re not returning to ’90s-era rate drops, lessons learned from that period still apply, particularly when it comes to contract negotiations.

Those following the news may have noted that MCI is aggressively slashing its telecom rates by 25% to 40%. To stay competitive, AT&T and Sprint are following with similar decreases.

Are we returning to the 1990s, when voice and data rates dropped by 20% or more year over year? How should telecom managers react?

The short answer is while we’re not returning to ’90s-era rate drops, lessons learned from that period still apply, particularly when it comes to contract negotiations. A refresher:

Issue an RFP. I know, creating, delivering and assessing a telecom RFP is tedious. But it’s critically important. It’s the best (and in some cases, only) way to ensure your carriers offer competitive rates.

Timing is key. Don’t wait until just before your current contract expires to start the RFP. Ideally you’ll start six to eight months (possibly even a year) before contract expiration. That leaves enough time to gather data, construct a comprehensive RFP and engage in multiple rounds of white-knuckle negotiations. Budget enough time to transition your network to a new provider, if that’s the outcome.

Ensure your RFP is comprehensive. Many telecom managers don’t realize how much they’re spending on services other than basic voice and data, including home-office broadband Internet access, cellular services and services for wireless PDAs (BlackBerries and the like). It’s worth including all these services in your RFP, for two reasons. First, it’s important for you and your company to recognize how much you’re spending and where. Second, carriers make money on “bundled” services. Specifically, they’re more likely to offer you a competitive deal on a low-margin service such as voice if there’s the possibility of also winning your higher-margin data or cellular business. The outcome could be a win-win: You win with lower overall rates, and the carrier wins more of your business.

Don’t limit the playing field. Plan to include at least three to five real contenders for your telecom budget. You might be wondering where I’m coming up with that number, given that AT&T and Sprint are pretty much the only legacy interexchange carriers left standing (given MCI’s somewhat-shaky status). Keep in mind that the incumbent local exchange carriers are keen to get your long-distance business; there’s a range of cellular and wireless data providers; and a new crop of broadband remote-access players can help with your small office/remote office needs.

Push the carriers to describe cutting-edge services. Many telcos are just beginning to roll out services such as VoIP, IP Centrex and Wi-Fi-based remote access. Push them to tell you about their plans so you can make an informed decision, but beware of inking a deal based on futureware.

Eschew long-term contracts. The telecom market is still dynamic; locking yourself into long-term deals for rates and services is counterproductive. Don’t agree to more than three years.

The bottom line is that rates might change, but good negotiating practices stay the same. Happy haggling.