The Tax Man Cometh
As if eavesdropping on your phone conversations wasn’t enough, Uncle Sam wants a chunk of your pocketbook. The IRS is starting to ask whether employer-subsidized cell phones and PDAs are taxable benefits to employees, says Aberdeen Group’s Joe Basili. Basili hears that the IRS would only consider voice a taxable benefit, as it is nearly impossible to get carriers to detail data usage. The agency is looking for new revenue streams, adds Telytics’ Gary Eckert, and enterprises in all likelihood soon will be required to track employees’ business and personal use of wireless devices. Companies would have to create directories where employees would list personal calls; the fields automatically would populate in subsequent entries, since the TEM interface would remember the numbers. At the end of the year, companies presumably would calculate business versus personal calls; they and their workers would report the information accordingly. “If they determine that a company is essentially subsidizing an employee’s personal use of a cell phone, the IRS expects that to be taxed as additional income,” Eckert says, adding, “A lot of people carry two phones
THE SCENARIO IS ALL TOO COMMON: a corporation pays for dozens, if not hundreds or thousands, of cell phones and other wireless devices each month, but rarely knows whether employees are incurring overages or not using all of their minutes. Anecdotes of such situations are plentiful. Ronnie Bice, founder, president and CEO of master agency TeleSource Inc., recalls one nationwide retail client in particular. The company operated 1,500 locations, employed 120 district managers and paid for 175 cell phones. Employees bought their own devices and chose their own rate plans, expensing the costs. TeleSource discovered usage and charges were all over the place and solved the problem by putting the company on a corporate rate plan, and building a Web site for provisioning discounted devices and rates to all workers. Even after paying TeleSource, the company saved 45 percent each year on its wireless spend.
Gary Eckert, president and CEO of Telytics Inc., a Carlsbad, Calif.- based telecom consultancy, relates similar tales. One standout client was a technology company needing to oversee its 3,000 employee cell phones. Telytics restructured the company’s wireless rates under its existing carrier and performed a series of optimization strategies, resulting in yearly savings of 37 percent on wireless costs.
Telecom expense management (TEM) for wireless services is inherently more challenging than its wireline counterpart. The differences are fourfold. First, with mobility comes multiple untethered handsets and PDAs that more than likely are procured by employees and, thus, removed from corporate governance. Second, compared to landline carriers, wireless operators can be more difficult to work with, imposing requirements such as contract extensions every time a user switches rate plans. Third, companies generally designate someone to oversee wireline costs, but not wireless costs. Fourth, wireless devices need policy management, something many enterprises fail to address.
Indeed, businesses are hungry for control over their employees’ wireless usage, but often don’t know how to attain that oversight until experts step in with analysis, inventory and optimization tools. This is where the opportunity lies for channel partners.
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Source: Aberdeen Group, 2006. Note: enterprise respondents were asked to name their top three mobility management challenges. The numbers don’t add up to 100 percent because respondents were asked to list seven challenges overall.
Reining in the cost of wireless spend involves five steps: vendor sourcing, device procurement, asset management, invoice reconciliation and payment, and reporting analytics, says Joe Basili, a research director in the global supply management practice for Aberdeen Group. Basili found in a recent survey that 64 percent of enterprise respondents consider the management of wireless voice and data expenses to be among their top challenges. That was followed by device support at 57 percent, and data security for mobile workers at 40 percent. The problem is that haphazard supervision of wireless assets is rampant. Ten percent of enterprises have no group centrally responsible for wireless, Basili says. Forty-six percent say their IT departments are responsible for it, and 26 percent told Aberdeen Group they have no formal program for managing wireless mobility. “There are still many enterprises choosing employee-liable plans,” Basili explains. This leaves companies blind to employees’ habits, whether that means making too many personal calls or using camera phones in confidential environments.
The critical step in reducing a client’s wireless expenses is conducting an inventory, says Rick Valencia, founder, chairman and chief strategy officer of ProfitLine Inc. An inventory assessment, he says, will show executives how many, and which, wireless assets belong to the company. This helps businesses keep track of equipment they own and gives them the legal right to monitor transmissions and updates.
After TEM, DLM
An emerging, little-known aspect of mobility management is device lifecycle management. Aberdeen Group’s Joe Basili thinks this is a critical addition to basic TEM a lot of vendors aren’t discussing. Certainly it will provide another revenue stream for channel partners. The idea is that a third party administers services such as help desk support, or security measures such as remote software installation and remote kill, which is the ability to wipe stolen or lost devices clean of sensitive data. Another value-add would be to offer immediate replacement if a device breaks or is damaged and the user needs a new gadget, complete with his or her data intact. Basili emphasizes that device lifecycle management will require channel partners to make alliances with one another, since no one entity can do everything. It is especially crucial for services to appear seamless to the end user, he says. Partners need to “look at themselves in the mirror,” acknowledge they only offer part of the solution and build alliances with fellow suppliers, Basili says. “Not just sales alliances,” he stresses, “but truly operational alliances where back offices and applications actually have some form of integration.”
After those details have been sorted out, the results are entered into a TEM system, which is a hosted or premises-based software program that logs and analyzes data. The next move is matching workers with corporately sponsored plans. Remember that enterprises usually use more than one carrier, whether for business continuity assurance or geographic coverage concerns. And, it is imperative, analyst Basili points out, to place employees on company plans so the employer has the legal right to determine how, when and where devices are used.
When providing corporate calling plans, companies should offer three or four options from which employees may choose. That way, they can opt for the plan that best fits their calling patterns. For example, a salesperson is more likely to need 5,000 minutes per month than his desk jockey colleague. This also is where pooling plans come in especially handy, say wireless TEM vendors and partners. A pooling plan is a rate structure where two or more lines share a set pool of minutes. Fifty-one percent of enterprises are on these plans, says Ron Babich, director of business development, sales and marketing for Telesoft Corp., a developer of TEM systems. Here’s how it works: A pooling plan might include 100 users and allot a total of 10,000 minutes per month. Such a strategy eliminates overage charges; there are rare cases, though, when high-volume users exceed the pool’s minutes and need to be switched to a different program.
One catch with pooling plans, Basili notes, is they only apply to voice. Data is purchased separately. Another caveat is pooling plans might have regional billing restrictions, a problem that occurs when a cellular provider has acquired a rival company and has not integrated billing systems, Telytics’ consultant Eckert remarks. He also says some pooling plans charge a premium per user; $5 per head for a total of 5,000 users quickly adds up. Selecting the right plans is an art, says Eckert. For instance, he says, just because a pooling plan might be cheapest on the surface does not mean it is a great deal. Suppose there’s a $40 option that comes with 500 minutes. With 1,000 employees, that equals $40,000 and 500,000 minutes per month. The cost per minute is much higher than, say, a $100 alternative with 2,500 minutes, Eckert says. “Even though you’re paying more, you’re getting more minutes proportionally, so the cost per minute is actually cheaper. So if you have any flexibility, it may actually be better to do a mixture of plans that you put in the pool,” he says. To that end, he recommends considering choices with fewer peak minutes and more in-network time if professionals, such as health care workers, talk with one another more than with people outside of the company.
With inventory complete and calling plans firmed up, the procurement process comes into play. Some channel partners negotiate with carriers and vendors on behalf of their clients; others have customers conduct the negotiations and choose plans on their own. Still others offer hybrid options, allowing clients to order equipment and services through an Internet portal and then obtaining the requested devices for the client. The latter is TeleSource’s preferred method.
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Wireless services and equipment cost enterprises nearly 10 times more than wireline counterparts, according to a new study from Aberdeen Group. With this in mind, it is imperative to help businesses not only keep track of their wireless assets, but also provision value-added services such as remote kill, network security or device replacement. That is research analyst Joe Basili’s contention in his recent report, “The Real Cost of Enterprise Mobility: Wireless Costs Ten Times More to Manage vs. Wireline.”
Additionally, procurement translates into more money for partners, as they can charge a per-device fee for management. Verizon Business, for example, charges approximately $1.50 per wireline device, but the fee hovers around $5 for wireless equipment, says the company’s senior manager of product marketing for network managed solutions, Cliff Cibelli. (Verizon Business, by the way, has a partner program for its wireless TEM platform but does not see much demand from partners, likely because of the size of enterprise it targets. Look for the company to open up for “wider distribution” in 2007, Cibelli says.)
Procurement leads right into the asset-management phase, or what wireless TEM platform providers call “optimization.” Optimization is not a component of wireline TEM and it differs from the more well-known audit process. Auditing involves reviewing bills to find erroneous charges or overcharges and recovering that overpayment. In contrast, optimization, in part, looks for users on the wrong rate plans — something that can change monthly. “The easiest way to think about it is the audit is in the rearview mirror and when you’re optimizing, you’re using your headlights to look down the road to a better result,” says Steve Hundley, president and CEO of ProfitLine. Optimization typically takes place every quarter and manages total, not individual, wireless expenditures, he adds. It is a manual process a company must instigate and one that goes beyond examining the number of minutes used, says Julian Williams, also a senior manager of product marketing for network managed solutions at Verizon Business. For instance, it cuts off access to features a company doesn’t want to pay for, such as 411 calling or text messaging. Optimization also finds devices that have not been used for some time and cancels the service to them, Williams says. Many platforms, including Verizon Business’, even send monthly e-mails to users showing how many minutes they have consumed, how many 411 calls they have made, and so on. This changes user behavior, Williams says, and saves employers money.
When enterprises start tracking the wireless devices they’re paying for, they also need to enforce policies that give them the right to determine the features and information allowed on that equipment, to protect confidential or proprietary data, or cap costs. Here are some key issues to consider:
Once everything from inventory to calling plans to usage policies is entered into the TEM software platform, all the data are available to perform monthly reconciliation, pay bills and generate management reports. A good TEM platform will show all carriers’ charges simultaneously and feature links to the user’s various departments, such as human resources and accounting, says David Perdue, CEO of TEM software developer Asentinel. That way, everybody remains in the loop. “When Sally Jo quits the company … we get that knowledge right away, which means we can cut off the cell phone right away,” he says. Channel partners providing wireless TEM underscore, though, that TEM systems require consistent maintenance and optimization to stay accurate. The tools facilitate analysis, consultant Eckert says, but a knowledgeable expert must take that raw data and determine the best course of action.
IT REALLY WORKS?
Given all of the expenses involved, a natural question might be, does wireless TEM really save enterprises money? Vendors and channel partners say yes. “I wish I could find a customer that would give me 100 percent of what they’ve saved every month,” TeleSource’s Bice jokes.
Be aware, however, that if a company has not optimized recently “they will get a very big initial hit,” says Eckert. “If you’ve done a very good job, the customer is not necessarily going to get that 30 percent savings every time.” Of note is that Telytics does not charge its clients monthly or flat fees for TEM. Instead, the consultant deploys its in-house platform, then teaches customers how to manage carrier contracts and procurement processes. “This is all about educating customers,” Eckert says. Asentinel’s Perdue agrees. “The partners that we’re selling to are, frankly, more interested in selling their consulting capability to the end user and our tool is a means to an end.”
Not every channel partner’s business model operates this way, and it certainly is common for agents, resellers, integrators and others to earn monthly residuals from the sale, and even hosted management, of a corporation’s TEM system. Telesoft’s Babich says channel partners should expect to make margins of at least 30 percent on wireless TEM software and 100 percent on services when responsible for back-office tasks.
The overall aim is that a wireless TEM platform and its associated channel partner fees will save enterprises more money than they were losing to disorganized spending. And with cost controls nailed down, Aberdeen’s research indicates the next trend will be lifecycle management, or outsourcing services such as remote kill for lost or stolen devices, and over-the-air security patches for PDAs. Basili acknowledges the idea is relatively new to partners, and forecasts it will gain prominence as corporations master their wireless outlay. Consultant Eckert finds the idea interesting, although he says such services will not necessarily save a client money. “They’re more part of an overall process for managing wireless,” he says, but adds that examining total wireless expenses “is just good business practice.”
Curious about mobility management? Make sure to attend the Spring 2007 Channel Partners Conference & Expo in Las Vegas and sit in on the panel that will show wireless dealers how to help customers choose service plans and devices and get a handle on expenses. The seminar will take place on Sunday, March 4, 3:30 - 4:20 p.m.
|Aberdeen Group www.aberdeen.com
ProfitLine Inc. www.profitline.com
Telesoft Corp. www.telesoft.com
TeleSource Inc. www.telesourceinc.net
Telytics Inc. www.telytics.com
Verizon Business www.verizonbusiness.com