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Ring up the best phone deal.

Take some time out to understand what's going on in the telecommunications industry, and then tackle your corporate phone bills with a few good strategies.

January will mark the 10th anniversary of the landmark legislation that broke up the AT&T phone monopoly. In those 10 years, a competitive marketplace has grown up as hundreds of new long-distance carriers emerged. Today, the United States enjoys some of the lowest telephone rates in the world.

However, few observers could have predicted the confusion created by myriad rate offerings, deals and the hidden costs of long-distance rates today. For many financial executives, matching their company's needs with the phone companies' offerings is like playing roulette. Some agree to rate plans without knowing all the details, hoping they turn out to be the most economical for the company. And the situation is getting even more complicated.

Companies that sprang up to compete for AT&T's clients have forced the former monopoly to invent ways of maintaining its market share while retaining its long-distance revenues. Enter the highly skilled marketing, advertising and sales professionals, the endless deals and the unbundling and bundling of costs. AT&T's two major competitors, MCI and Sprint, have gone head-to-head with it by using numerous and often complicated service offerings. These sometimes contain pitfalls that can be costly.

Laws intended to heighten competition have only fueled the confusion. Last May, AT&T took another hit with the advent of 800 portability, legislation that transfers ownership of 800 phone numbers from the telephone company to the user, making it easier for a company to change carriers. In the past, long-distance companies like Sprint and MCI couldn't penetrate this market (AT&T had 90 percent) because most companies with an 800 number didn't want to deal with the problems of changing to a new number, such as informing customers and changing letterhead and business cards.

Theoretically, 800 portability was supposed to require AT&T simply to adjust its rates to compete with other long-distance carriers. Instead, another round of deals and offers began, including long-term deals and the combining of inbound and outbound calls under one offer.

You can cut your corporate phone bill by as much as 50 percent through some of the hundreds of long-distance carriers vying for market share by plying deals and packages. But for every program with real benefits, there are two or three others that could cost you even more money than you're spending now.


Therefore, devote some time to better understanding your company's needs and phone-use patterns, along with the specifics of the offer. Understanding the terminology and the various tariffs is very important, too, and you should carefully evaluate how each deal will affect your company both long- and short-term. And don't make the mistake of assuming your long-distance carrier will do this for you. Phone companies, like all utilities, aren't legally required to inform you of the lowest rates available and won't do the internal analysis you need.

On the surface, selecting the most appropriate long-distance carrier and the optimum rate package seems elementary -- analyze your company's calling trends and match them to the most appropriate profile program. And while this is a valid approach, the number of factors involved in selecting a carrier make it anything but simple. It's no longer a matter of comparing apples to apples and oranges to oranges. In many cases, you can't make straight rate comparisons from one carrier to another. Each carrier's rates include a variety of factors, and items and services may show up in different places on a phone bill, making simple comparisons very difficult for the uninformed. In addition, profile programs are often specific to each carrier's package. Nevertheless, knowing a little about the ins and outs of the telecommunications business can go a long way toward clearing up the confusion.

Start by reviewing your company's phone bills from the past few months. This should reveal several trends in your telecommunications usage, all of which you can use to your advantage when negotiating rates. Volume discounts are perhaps the best-known money-savers. For instance, if your company has an office in New York and another in Los Angeles, you often can get special deals based on large volume from one destination to another. But that's not the only way to save money. Phone companies often discount based on the length of time of the calls, and you may also be able to arrange special rates for specific months when the volume of calls increases.

Lately, the three major long-distance carriers have been touting term rates, because fierce market competition and a desire to expand into new lines of business have intensified the need to sign on clients for extended periods (most term rates are for two or three years) and to guarantee revenues. Term rates offer customers percentage discounts for achieving a variety of volume-related targets spelled out in the contract. However, you should realize that when you sign a term-rate contract, you're usually agreeing to percentage discounts off the going rate and not to a specific rate. Once a contract starts, the phone company could very easily raise rates as many times as it wishes, and you'll have to pay the increase or pay a stiff penalty to break the contract.

Term rates are good for companies that have used one carrier for several years and are certain their relationship will not change despite rate increases. But by signing a term deal, you lose the chance to capitalize on marketplace changes for the duration of the contract.


Many long-distance carriers also offer huge cash-signing bonuses to tempt companies to choose their services, and these can be extremely alluring. But as with term rates, the carrier won't necessarily guarantee a rate cap once you sign a deal. Therefore, bonuses usually aren't worthwhile in the long run, and a company should consider them only if it is extremely cash-starved.

Investigate the service quality, too. Remember that technology advances have narrowed the former gaps in transmission quality and switching that existed among the major carriers years ago.

Phone companies also have been quick to play up information-age advances in other service realms. Many now use sophisticated techniques for billing their customers, including magnetic tape for larger companies. For several years, billing information has been available on diskette for desktop computers. Carriers now provide the same information on CD-ROM disks. Additionally, the customer will eventually be able to link directly into the phone-company computers to read their telecommunications expenditures on a real-time basis.

Even with these technological advances in the billing area, you still need to ensure that you're being billed correctly. While phone billing errors are still fairly infrequent, the number of complaints filed against phone companies has multiplied fivefold in the past four years. And while billing errors account for only 0.1 percent of overall billing charges, this adds up in an industry generating $160 billion annually, which means those mistakes could be very costly for individual companies. Typical billing errors include double-billing, improper late-fee charges and incorrect rate charges.


What's in store for telecommunications? Corporations will continue to expand their use of phone lines and will pay more to long-distance carriers. Over the past decade, the number of long-distance calls nearly doubled, due largely to better telecommunications technology in the workplace, such as fax machines and modems.

And during the next few years, the race for market share in the lucrative information-services industry will directly impact long-distance telephone rates. Phone companies' revenues still mainly originate from long-distance phone charges, and they're likely to use those revenues in the technology and information-services race. AT&T is preparing to raise rates approximately 3.9 percent in an attempt to generate more research revenues. If the past is any indicator, MCI and Sprint will probably follow with rate increases of their own.

Competition among long-distance carriers continues to heat up, and a trend toward industry consolidation is clearly evident as large carriers gobble up smaller ones. But since the plethora of choices isn't likely to shrink, selecting the best and most economical long-distance carrier still won't be simple. To cut your bills substantially, learn everything you can about your company's needs, as well as phone-company rates and tariffs, and then take matters into your own hands.

Mr. Wohlafka is an executive telecommunications analyst at National Utility Service, a consulting firm in Park Ridge, N.J.
COPYRIGHT 1993 Financial Executives International
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:The CFO's Guide to Information Management: Telecommunications
Author:Wohlafka, Gary
Publication:Financial Executive
Date:Sep 1, 1993
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