Nine Steps to Better Telecom Service

An effective telecom services agreement is based on knowledge of real market rates, and on the actual fees paid by the customer for existing services.

Annual renegotiations allow for adjustments in response to new market conditions and changing business requirements. Flexibility can be enhanced through a low minimum annual commitment, which should be less than 66 percent of expected annual spend.

Another priority: quality of service, which requires negotiating specific service level agreements with meaningful incentives and penalties.

Risk is a final prerequisite to an effective telecom services agreement. To obtain favorable rates and concessions from vendors, telecom customers must convince vendors that they are willing to change service providers. Put simply: Clients considered to be “at risk” get the best prices.

Getting There

A negotiation methodology can be broken down into nine specific steps, as described below:

1. Discovery
2. Renegotiation
3. Write the RFP
4. Second renegotiation
5. Publish the RFP
6. Finalist selection
7. Negotiation
8. Award
9. Conversion

1. Discovery: The Discovery phase informs the customer organization of what is actually spent on telecom services. Most users don’t know what they have, what they’re using, or what they’re paying for. Customers often have multiple contracts covering the same services, and pay several times for the same service. Discovery addresses this problem through a detailed inventory of existing services, technologies, and rates per inventory item. Comparing specific inventory items against specific invoices and contracts is the only way to establish true rates and to define usage forecasts in terms of volumes and technologies. Similar discoveries – conducted at other customer organizations – provide a comparative context, allowing negotiations to be based on actual market rates.

2. Renegotiation: Renegotiation should begin with a sharing of the Discovery findings with incumbent vendors, along with the customer’s plans for new technology, business growth, and expectations for future rates and terms. The incumbent vendors should be given an opportunity to respond.

The outcome of this initial renegotiation initiative depends on the quality and resourcefulness of the vendor account team. In perhaps one time out of five, the account team will respond adequately to the customer’s demands and put forth an acceptable proposal.

The rest of the time (80 percent or so), the customer will have to escalate the renegotiation within the vendor organization. Specifically, the customer will provide written documentation of contract requirements in terms of rates, quality of service, and benchmarking provisions. These terms are sent up the chain of command in the vendor organization for a response. The vendor will increase the account team’s financial latitude to grant special terms and prices. After a period of about six to eight weeks, the vendor will respond to the customer’s terms.

About half the time, the escalation will elicit a favorable response. If it doesn’t, the customer moves on to step 3, described below.

3. Write the RFP: The process of crafting an RFP forces the client organization to clearly and specifically define requirements. As such, it builds on the benefits derived from the Discovery process, described earlier.

One priority of the RFP is to state goals and expectations for flexibility and quality. Another key is to define the measurement methodology to be used to track performance and adherence over time. The RFP should include specific terms. For pricing, the vendor should commit to coming within 15 percent of the current market, and prices must be explicit and not tied to uncontrolled price lists or confidential contracts. Given the volatile nature of the telecom market, the RFP should also contain a provision for annual benchmarks against market rates. Finally, to ensure quality of service, the terms must include non-linear credits for service outages.

4. Second Renegotiation: The RFP document is a valuable tool in vendor negotiations. Not only does it specify terms and expectations, the RFP’s announcement typically triggers an escalation within the vendor organization. A vendor account team working with such a “threatened” client will generally receive additional support and latitude to grant favorable terms. The fact is, losing profit on a customer is, for telecom vendors, less onerous than losing the customer altogether. As such, a client’s decision to write an RFP in many cases incents a vendor to grant an acceptable level of concessions.

If the vendor continues to fall short of customer terms, the next action is to publish the RFP to the competitive market.

5. Publish the RFP. Taking the RFP to the market is the ultimate escalation with the incumbent vendor. This step can sometimes push the issue high enough into the vendor organization to result in a successful authorization of desired rates, terms, and conditions. Publishing the RFP does not therefore necessarily mean a change of vendors; indeed, most often the incumbent retains the business.

However, some customers – impressed by the quality of competitive responses – may elect to take advantage of change. A vendors’ conference where the customer can address vendor questions and concerns is necessary to ensure a high quality response. During this meeting the client should emphasize that only RFP responses that adhere to the user’s format will be considered.

Compass recommends that responses be considered only from vendors attending the conference. Additional questions from any vendor must be submitted in writing, with questions and answers distributed to all bidders.

6. Finalists Selection: Two, or perhaps three, finalists should be selected from among the pool of RFP respondents. If the RFP is written with specific questions that can be responded to with finite answers, the review and paring process can be a straightforward, quantitative comparison of the respondents’ respective capabilities. Even so, it presents a significant challenge, since few customer organizations can, on their own, properly assess the credibility of the bidders’ responses, particularly if new services are being solicited.

Objective, third-party analysts specializing in telecom and network issues can play a valuable advisory role in response assessment.

7. Negotiation: Negotiations should be conducted with the two best respondents emerging from the finalist selection process. Some specific issues and guidelines to consider include:

• Reject the notion that pricing is volumetric (for example, committing to higher volumes equals a price break)
• Do not allow “best and final” offers
• SLA credits must be linear
• Negotiate charges related to implementation, conversion, and installation
• Don’t pay for systems before they are up and running
• Allow escape for beneficial change of ownership of vendor or fall from first tier
• Allow escape to best contract in case of divestment/ acquisition of a business unit

An effective published RFP will produce a renewed offer from incumbent vendors. Customers should allow time for additional internal escalation from the vendor team during the negotiation process. To avoid the costs and disruption of transitioning vendors, an incumbent offer that falls within 15 percent of best market price should be accepted – provided, of course, that other key terms are met.

Here again, the role of a third-party advisor is essential, particularly since clients rarely understand the vendors’ negotiating “hard” and “soft” spots – in other words, where the vendor will stand firm, and where concessions can be gained.

8. Award: The contract award is a serious issue for both the client and the winning bidder. Compass recommends allowing the winner to publicize the win, as this increases the client’s leverage during the implementation period.

9. Conversion: If the incumbent vendor is awarded the new contract, the negotiated changes in internal billing and invoicing must be implemented. This presents an opportunity to introduce an effective asset management system.

If a new network is planned, the detailed implementation and fallback plans within the previously negotiated contract will now be implemented. The vendor’s ability to execute this conversion transparently from an end-user point of view will set the tone for the life of the contract. Some things will not proceed exactly as planned, and both parties must carefully work around and, if necessary, re-negotiate any issues. However, problems that negatively impact end users must be rapidly and decisively addressed. During this period, clients should never hesitate to escalate and re-escalate within the vendor organization to as high a level as needed to protect users from impaired services.

Carl Pitasi is a Compass senior consultant specializing in telecom and network issues.