Telecom Spending Is Out of Control. And CIOs Still Refuse to Care.

The more things change, the more they stay the same. I apologize for the cliche, but that’s the most accurate description of the telecom industry today and the reckless and irresponsible way in which enterprises are managing their telecom spend. And, of course, let us not forget who is most often in charge of telecom and networking in those enterprises: the CIO.

I say all this for a couple of reasons. The first reason is that since reporting the feature story “Untangling Telecom: How to Get More and Spend Less” for the March 15, 2006, issue, I have had a chance over the last year to talk to many more people about the issues raised in the article. Recently, I have heard more anecdotal evidence that enterprises are hemorrhaging tons of money by not managing their telecom spend in a more standardized, accurate and centralized way. Another reason for the lax management of telecom expenses inside enterprises is due to carrier consolidation and the continued complexity and confusion surrounding rates, billing and contracts. And lastly, things are a mess because CIOs don’t care about telecom — they don’t know much about, don’t care to know more about it, and would rather delegate the responsibility to someone else. And that, my friends, is dangerous.

A couple of recent reports from Aberdeen Group both bolster my contentions and illustrate several problematic and costly trends that will gradually erode enterprises’ telecom management policies and strategies, and overwhelm those in charge.

The first statistic from Aberdeen’s “The Cost of Not Acting: The Total Telecom Cost Management Benchmark Report” (Nov. 2006) should get every CIOs’ attention: The average Fortune 500 company reported that telecommunications and related network services are a top line-item expense, accounting for 3.6 percent of their revenue. OK, so if I’m a CIO or head of IT, and something I’m responsible for has ballooned up to the top three overall expenses of the entire company, and there appears to be a need for better management of the function, shouldn’t I be paying more attention to it?

According to the report, enterprises forfeit anywhere from 12 percent to 18 percent of all the money they spend on telecom “if they do not have a proactive approach to cost management that leverages technology and process improvements through business process outsourcing, hosted or licensed software.” Remember that the respondents to this survey averaged $30 million in annual telecom expenses each year. (One enterprise had $250 million in annual expenses!) In addition, many enterprises aren’t paying their telecom bills on time: Two-thirds of the survey respondents incur late-payment penalties as a result.

The report notes that the challenges in managing telecom-related expenses include “decentralized spending, continually changing inventory, complex billing for a wide range of offerings, and baffling contracts with amendments that are difficult to understand.” What compounds the decentralized telecom spending problem is that “local service providers are often selling to facility managers at regional offices that are eager to buy telecom services on their own.” The report notes that more than two-thirds of “enterprises do not have a program to drive centralized procurement of telecom services.”

And then there’s wireless services, which has turned into a blessing and a curse for companies. In “The Real Cost of Enterprise Wireless Mobility” report (Feb. 2007), Aberdeen contends that it costs enterprises nearly 10 times more to manage wireless services and devices than wireline. That’s a scary figure when you consider that 80 percent of respondents are planning to increase their fleet of wirelessly enabled PDAs. At least with this survey base, it’s interesting to see that the wireless problem has gotten somebody’s attention: “It is no wonder that escalating wireless expenses is reported as a top priority for 64% of our respondents,” the survey notes.

I could keep heaping on the doom and gloom regarding wireless, but Aberdeen’s report sums it up best: “Enterprises do not have visibility into what they are currently paying for wireless services. They do not have an accurate measure of the costs to support devices, and they are unprepared for the proliferation of smartphones.”

If CIOs don’t start caring about telecom, networks and wireless expenses more, I think they’re going to be in a world of hurt when (if they haven’t already) get called out by the executive committee and asked why the company’s telecom expenses are so high. You see, everyone — including CIOs’ peers — knows that telecom costs have been consistently decreasing year over year for the last decade or so. So why, the executive committee might wonder to its CIO, are our costs continuing to rise?

Do you have an answer? Do you have a plan? Do you even care?