Telecom Expense Management

Telecom Expense Management – What You Need to Know About Taxes & Surcharges

Contributed by Robert Halik and Rob Tyler

There are only a few things you can count on in life, and – as Mr. Franklin pointed out long ago – taxes are among them. But that doesn’t mean we shouldn’t question taxes and their validity. In the world of business, there are many legitimate federal or state taxes and surcharges that, in most cases, all companies are liable for. But when it comes to the corporate phone bill, there are often many charges labeled as ‘taxes’ and ‘surcharges’ that are not mandated by federal or state authorities. There are various reasons why this deceiving practice is permitted – most having to do with legal considerations – but many of these pseudo ‘taxes’ or ‘surcharges’ are simply charges used by carriers to recover their administrative costs.

An Example of a Non-mandated & Negotiable Surcharge:

• Local Connect Surcharge: This charge often appears on a long distance company’s bill.

Examples of ‘True’ Taxes:

• District Taxes – Some jurisdictions charge a telecommunications sales tax to help pay for new construction projects in the public interest or help support schools etc. This type of tax would typically be applied to all carriers.
• Local Sales Tax – Many local governments will charge a telecommunications sales tax. This type of tax would also typically be applied across all carriers.
• PUC Fee – Some states add a surcharge to fund their Public Utility Commission.

Arm Yourself with the Facts

There are two key questions to answer before you negotiate your next carrier contract:

1. What taxes are your organization truly liable for?
2. Which surcharges are legitimate from a business perspective?

Once you’ve answered these questions, all remaining pseudo taxes and surcharges are available for leverage during your next round of negotiations. Your present carrier will need to consider how important it is to retain your business. During contract renewal, the incumbent carrier will be forced to make concessions on administrative charges deceivingly labeled as taxes or surcharges.

True taxes and surcharges often represent a percentage of service costs; percentages will be set by the governing federal or state authority for the applicable jurisdiction for those services. Depending upon tax laws, some organizations are eligible for tax exemptions while others are not; the main question to pursue is whether your organization is eligible for exemption from a certain tax or not.

Death and taxes may be unavoidable, but taxes, at least, you can do something about!

Veramark Technologies is a leading provider of Telecom Expense Management and Call Accounting Solutions.

The Importance of Proactive Telecom Network Auditing

Contributed by Robert Halik

Although most enterprise organizations review or audit their invoicing post implementation of new services and/or new agreements, many do not perform adequate subsequent proactive telecom network reviews to ensure rates remain in compliance with contracted rates or the current applicable tariff/service guide price directives.

Depending upon the size of the network spend and the types of services within your network, proactive detailed reviews should be conducted at least twice yearly (static networks undergoing little change); while most enterprise organizations will benefit from detailed audits on a quarterly basis.  Very dynamic or complex networks undergoing significant growth and/or change activity will often require close monitoring on a monthly basis.

Trending and variance analysis should also be performed monthly to flag billing errors or anomalies that could result in the unwarranted increase in network expenses; realizing credits from vendors for overbillings is nice but it is even nicer if overpayment for telecom services can be prevented in the first place – ask any network expense manager.

There are a multitude of reasons why Murphy’s Law holds special sway within the confines of the telecom network expense world.  Listed below are some of the top reasons why service providers struggle with the accurate invoicing of telecom services:

• System and process issues related to improper order placement
- Large providers often have groups housed within silo structures that do not communicate well together
• Short-staffed personnel are forced to do more with less in a down economy
- Tired, frenzied personnel make more mistakes
• Employee turnover
- When good employees leave, so does their knowledge
• Providers typically prioritize prompt invoicing over accurate invoicing
- Providers are less concerned with accuracy than driving revenue
• Technological advances constantly introduce new services
- New services are often not well understood by those tasked to work with them
• Merger activity burdens billing staff with a multitude of legacy billing platforms
- Most providers struggle to consistently bill accurately via one billing platform so adding additional billing systems to the mix exponentially increases the potential for errors

Takeaway
Effective proactive telecom expense management analyzes invoices for billing errors and pursues claims for all prior period overbilling, while also striving to proactively analyze telecommunications expenses in order to eliminate unnecessary costs for needed services going forward. Organizations receptive to partnering for additional TEM support can realize immediate benefits of a success fee driven telecom network audit.

Success Fee TEM Audit Benefits

• Telecom expense management expertise is tapped with no up-front cost
• Improved visibility will bring a greater sense of control to your organization
• Realized savings will self-fund additional network expense management initiatives
• Greater visibility and knowledge will facilitate improved policy management

Veramark Technologies is a leading provider of telecom expense management and Call Accounting Solutions.

Reverse Auctions - Do They Have a Role in Telecom Expense Management?

In a reverse auction, a buyer solicits pricing on specified products or services from multiple providers. Competition between providers tends to drive prices down. When properly used as part of an overall sourcing strategy, reverse auctions are very effective at lowering costs and reducing negotiation cycle times. However, in many cases – including many telecom expense management (TEM) sourcing situations – reverse auctions are not always the first solution you will want to pursue.

When to Use – and Not to Use – Reverse Auctions

If low price is your top priority with respect to commodities, reverse auctions often make sense. For example, if you’re shopping for printing supplies or computer equipment, a reverse auction may be the way to go – especially if there are many vendors vying for your business. Reverse auctions are appropriate for these purchases, which tend to be transactional in nature, characterized by short term contracts, and involve little collaboration.

However, if you’re shopping for a complex product or service, or if you are seeking to establish or maintain a strategic vendor relationship, reverse auctions may not be advisable. There are many other factors to consider in strategic sourcing, including vendor knowledge and experience, the degree of collaboration and process integration, and other factors that influence the value of the business relationship.

Reverse Auctions in Telecom Sourcing

Reverse auctions are often not the right choice for sourcing telecom services because there are typically few potential providers, which will limit the price impact of competitive bidding. But more importantly, the variety and complexity of carrier contracts cannot be negotiated in the context of a simple bidding war. They typically call for face-to-face negotiations in which the customer’s greatest asset is knowledge of their own usage and spend data along with the carrier’s performance history. While rates are important, the ultimate cost for telecom services is a product of SLAs, service plan selections, and other negotiated terms and conditions.

Another very important factor when considering reverse auctions in telecom sourcing is the cost of switching vendors. Reverse auctions should only be used when there is little or no cost associated with switching to another qualified vendor. The cost of switching can significantly offset any price savings secured through the auction process.
 
Reverse Auctions and RFIs

When reverse auctions are used in sourcing telecom products or services, they are often used in conjunction with an RFI process to first qualify suppliers and make sure their offerings are comparable and meet requirements. After quality and service standards are assessed through the RFI, the reverse auction can be used to get the best pricing available from the qualified vendors.

The Bottom Line

In many industries, reverse auction is the primary sourcing strategy. It’s highly effective for large-scale, centralized purchasing of raw materials and commodity products and services. With respect to telecom expense network management, it will typically play a secondary role or be utilized as a “last resort” tactic. For example, it often makes sense to purchase equipment via this method but telecom services are typically sourced through more strategic methods. (A reverse auction is rare with respect to procurement of services – it would be a last resort attempt to secure more competitive pricing after all other options have failed.)

The best way to reduce the cost of telecom services is to enter negotiations with hard data, furnished by a comprehensive telecom expense management system that tells you exactly what you’ve used and spent in the past and what kind of performance your suppliers have provided – so you know exactly what you need to get at the bargaining table.

Veramark Technologies is a leading provider of telecom expense management and Call Accounting Solutions.

Managed Sourcing - An Essential Part of Telecom Expense Management

No single telecom expense management (TEM) capability has greater potential impact on your telecom and IT expenses than the ability to negotiate effectively with providers and source telecom services at the best possible prices. An effective managed sourcing approach will help you reduce the bottom line and provide competitive advantage by allowing you to secure superior contract terms and conditions, and lock in rates below market average.

Elements of an Effective Managed Sourcing Solution
A managed sourcing solution can reduce telecom service costs by 15% - 50% over the life of the contract, while improving overall vendor performance and service levels. The secret is to follow a disciplined process and cover all the bases. To deliver maximum value, every managed sourcing process must include the following key steps.

1.  Assess - The initial step of any successful managed sourcing initiative is to fully assess the current situation and future needs of your organization. This assessment becomes the baseline establishing project scope and guiding the service acquisition process:

• Compile existing cost, usage, and contract data
• Analyze current capabilities against best in class
• Create a situation book detailing the services deployed across the enterprise
• Review existing contract terms and commitments
• Determine the best services and solutions to satisfy the organization's present and future needs

2.  Benchmark - Obtaining the lowest rates requires access to fresh market and contract data as well as modeling tools to effectively compare vendor offers with the best rate, terms, and conditions available. An effective benchmark process will:

• Identify market competitors for contracts with similar requirements and volumes
• Compare all critical rate element and contract terms against the best in market
• Establish your element level price targets and preferred terms

3.  Source - Sourcing can be time consuming and difficult to manage. Do yourself a favor and invest in sourcing solutions and online forms that streamline the entire sourcing process. Sourcing tools can help you:

• Quickly prescreen and determine the eligible vendor pool
• Easily tailor RFP/I/Q processes and documents specific to your organization's needs
• Enable a collaborative response evaluation process
• Immediately analyze offers relative to the competition and best available market rates
• Conduct online bidding / reverse auctions when appropriate

4.  Negotiate - After you have made the final vendor selection, you’ll need to draft an agreement with the following attributes to be agreed upon by both parties:

• Contract rates as agreed upon during the sourcing phase
• Terms and conditions that allow the utmost flexibility in operations related to volume commitments, use of technologies, changes in financial condition of either party, adherence to service levels, etc.
• Terms and condition language that can withstand the scrutiny of your legal partners as to enforceability

5.  Implement - After the contract is signed, rapid implementation across the organization is necessary to maximize operational and financial benefits. A successful implementation must include these steps:

• Define implementation scope
• Populate implementation project plan
• Assess and mitigate risk early in the process
• Manage implementation against contract terms
• Hand-off to on-going operation

6.  Verify - After implementation, you’ll need to verify that billed rates are in compliance with the new contract:

• Review vendor invoices to validate rate and discount compliance with negotiated terms
• Verify that invoices agree with service inventories
• Identify and document discrepancies

7.  Resolve - Resolving billing and performance issues is a necessary component of any service or sourcing lifecycle in order to maintain a good relationship with both the user and vendor. An effective resolution process includes:

• Concise communications of the discrepancy to vendor
• Predefined process detailing how billing and service level issues are to be resolved
• A mechanism to fix billing and service problems and prevent the reoccurrence of these time-consuming issues

Part of a Larger Solution
Managed sourcing is available from TEM providers as either a professional service or as part of an ongoing TEM lifecycle solution. As part of a TEM lifecycle solution, managed sourcing provides additional value by working synergistically with other aspects of TEM, such as contract, invoice, inventory, and dispute management, to deliver maximum impact on efficiency improvements and cost savings.