Feature

Untangling Telecom: How to Get More and Spend Less

Negotiating for networked telecom services is now largely the responsibility of CIOs. Fortunately, help is on the way.

March 15, 2006 — CIO — Mike Benson wasn’t looking forward to negotiating his new telecom contract. The CIO of DirecTV had invited his existing provider, AT&T, along with rivals Sprint and Verizon, to bid on DirecTV’s new contracts for 2006. Benson wasn’t just negotiating for the satellite TV company’s local and long-distance communication needs but for all of its voice, data and networking services.

Not only would he have to untangle the telecom carriers’ incredibly complicated pricing on current services, but he would have to figure out which could offer the best deal on new networking technologies such as VoIP telephony and multiprotocol label switching, or MPLS. And he knew that if he switched from AT&T to a different company, it could take up to two years to complete the transition.

"[The carriers] will assure you the migration will be fine," Benson says. "But in reality something will always go wrong."

Making the right decision is a big load on Benson’s mind. And he is not alone. Now that telecom and IT have converged of late into networked IT services, the responsibility for negotiating and managing telecom contracts in an increasing number of companies has fallen to the CIO. And many are not prepared for the challenge. According to a survey of IT execs enrolled in The Ohio State University’s CIO Solutions Gallery program, telecom contracts are the source of most CIOs’ greatest long-term strategic confusion and biggest all-around tactical, day-to-day administrative frustration. And they openly acknowledge it is their sector of greatest ignorance.

To make matters worse, the telecom arena has never been so chaotic. Deregulation has created a thicket of carriers offering long-distance, local, wireless and networking services at unpredictable rates. These carriers use dozens of different billing formats, and CIOs regularly complain about errors and overcharges.

While the past year has seen unprecedented megamergers, most notably the marriage of SBC and AT&T, these M&As have done little to clear up the confusion. The costs to corporate America couldn’t be higher, in large part because the networking services offered under the telecom umbrella are more sophisticated—and more crucial to enterprises’ day-to-day operations—than ever before. "Many people think of telecom as a cost, and it is, but it provides a function we can’t live without," says Lisa Pierce, vice president of telecom and networks at Forrester Research.

According to Aberdeen Group, the average Fortune 500 company spends $116 million each year on telecom services (for mid-market enterprises, it’s $26 million). According to several telecom sources, telecom costs have jumped into the top three line items for most companies. In addition, up to 12 percent of telecom service expenses are erroneous. Such errors result in an estimated $8 million a year in lost profits per company, according to Aberdeen Group.