Today, every landline and wireless facilities carrier is both a buyer and a supplier of telecommunications facilities. Telecom companies are organized to deliver services to their customers.
As a result, they tend to concentrate their investments and expertise on the supplier side of the equation. The industry generally has responded in kind. There are several sophisticated applications and service providers that help telecom companies with their customer billing systems. Unfortunately, the wholesale environment is so complex that billing errors still occur. That’s where carrier buyside expense management comes into play.
The same technologies and techniques used by large corporate end users to manage their data and telecom costs also apply to carriers. All carriers have to contend with supplier contractual terms, procurement, provisioning, and they have to manage logical inventory of asset leases. It’s tremendously complex and the quality and accuracy of expense management directly affects company profit margins. For facilities-less carriers, the difference between line costs and sales prices is the core driver of business profits.
Typically, errors raise both corporate customers’ and telecom carriers’ bills by about 10 percent. One international carrier that was leasing access lines in North America found $1 million in overcharges on a bill for about $20 million in limited circuit purchases. They were doing pretty well; they were about 5 percent over. Even so, analysis found disconnects that never were removed from invoices, erroneous partial charges especially at the beginnings and ends of contracts, and misclassified rates and taxes that were not caught.
Their internal team was diligent but they lacked the tools and expertise to delve into the bills they were receiving. For carriers, the issue is complicated by the fact that contracts are negotiated by carrier-relations staff and the bills are received and processed by accounts payable. The actual terms of the contracts often are not properly recorded with accounts payable so the terms cant be enforced. Instead, bills are generally evaluated on a trend analysis that looks at previous months’ bills to determine if current bills are correct.
This approach has many problems. Two major ones are: If you start from a bad basis, you’ll never get it right and; second, this approach never will find stranded circuits, new terms and conditions and other contractual nuances negotiated by carrier-relations staff. As a result, money is lost and effective management becomes impossible.
Expense management metrics.
When considering expense-management carriers should address three major issues:
1. Control. Control is the key to all of the benefits of expense-management. It starts with a comprehensive review of the known asset inventory. Then procurement procedures are put in place that control the ordering process to incorporate the terms and conditions into the expense-management application. Then, as the invoices are received they are reconciled against the inventory and the contract terms and conditions.
Discrepancies, such as invoices for assets that are not in the inventory, are examined to determine if the invoice is in error or if the inventory is inaccurate. Only after invoices are reconciled against inventory and rate schedules are they passed to accounts payable. This process sounds complex and time consuming but, if properly set up, it is highly automated and can help carriers substantially reduce overcharges.
This level of scrutiny is virtually impossible for most carriers for a few reasons: first, many carriers still receive paper invoices; second, the ones that do receive electronic invoices either on CD or electronic data interchange (EDI) do not have the tools to go beyond the top-level summaries. That same carrier client that I mentioned above was receiving invoices on CD.
The top-level bill summaries looked correct but when we drilled down into the source data we discovered that they were paying for circuits that were incorrectly classified by their supplier. This correction alone saved the company hundreds of thousands of dollars. Another aspect of control is to track exactly when installations and disconnects are recorded.
An error of just a few days can add up. These errors can be caught if the procurement process is tied into the inventory and expensemanagement processes. The result of efficient control is that the inventory is up-to-date and accurate. Instead of relying on trend models for payments every line item can be checked for accuracy - the bill paying equivalent of zerobased budgeting.
If a carrier outsources the function using a managed service approach, even the dispute process can be handled by the vendor and, unlike auditors who come in on a project basis and charge a high recovery fee, managed service providers generally only charge for the service and do not take a percentage of the savings.
2. Visibility. The old saying “knowledge is power” certainly applies to telecom expense management. Visibility, the second aspect is a direct result of knowing what you are paying for.
Once you have tight control over your inventory and procurement process you can intelligently negotiate with your suppliers to take advantage of volume discounts and subtle regulatory nuances.
You can examine the case for consolidating spends or distributing your business over a number of suppliers. It also allows you to investigate alternate carriers. You can look at your trends and spends and perform “what if ” scenarios to determine if another vendor can offer a better deal.
3. Savings. All of this translates into savings. When you can compare invoices with terms and conditions, reconcile actual inventory and project expected charges you will realize significant savings.
Fundamentally the question comes down to this: Do you try to build the expertise in-house or outsource it? Often, the most effective way for carriers to handle the buy side is to outsource to a communications-management vendor with expertise in logical asset expense management. By taking a managed service approach where the outside vendor handles the inputting, reconciling and data exchange with accounts payable and other enterprise systems, the carrier can tap the resources of a specialist.
It is difficult to both build the expense management systems and maintain the expertise inhouse when the company’s main focus is on customer supply and support - there is the issue of investment; there also is the issue of staff retention.
Most important, however, is the issue of industry expertise. Even the best staff will have only the experience of your company. With a managed service approach you are able to tap into the outsourcer’s experiences in serving other clients.
They’ve probably seen thousands of contracts and know the nuances of the terms and conditions and how to apply them to the bills in question. They also know how to drill down to discover the source data and apply that to the terms. In addition, outsourcers are accustomed to negotiating with carriers and can track disputes, as well as provide the backup and, in many cases, communicate directly with the carriers’ back offices to quickly win adjustments.
Gary Zimmerman is director, expense management for Avotus Corp. He has worked for more than 20 years in wholesale and enterprise telecommunications. He has extensive experience in both end-user and carrier-to-carrier provisioning and billing in domestic and international settings.
Avotus Corp. www.avotus.com
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