Telecommunications Cost Management

How Businesses and Practices Can Achieve Dramatic Savings on Their Telecommunications Costs. 

By William Dubovsky

Situation: Improving Profitability

All enterprises are under increasing pressure to improve their bottom-line - to "do more with less." While increasing sales or revenues is an obvious way to increase profitability, reducing costs can be equally, or even more effective - especially in highly regulated industries or professions and non-profit organizations.

The first step in cost management is to examine anything that you purchase repeatedly. Be careful not to reduce costs by reducing quality or service levels - instead look for creative ways to bring your expenses down.

Since it’s not uncommon for some businesses to spend 10% of their gross income for telecommunications services, this is an important area to start looking for savings. In fact, some service-oriented businesses find that their telephone expense is the second largest budgeted item after salaries.

Telecommunications costs are usually overlooked because they are overhead and not used directly in the businesses’ ultimate product or service. These bills are the most complicated of all utilities to evaluate because of the diversity of rates and alternatives and from the arcane terminology used. Auditing and analyzing telephone rates and bills has been compared to completing income tax forms ... it takes more than casual attention to detail and it is increasingly difficult to keep up with the latest competitive tariff offerings.

The good news for businesses today is that there are over 1000 phone companies competing fiercely for your business - the confusion is with: "Which one(s) to choose?"

Unfortunately cutting through the hype by comparison shopping for phone services can be mind boggling. A recent issue of Long Distance for Less, a bimonthly directory of phone rates and services that is used mainly by consultants and businesses, devoted 96 pages of five- and seven-point type to a description of AT&T’s 68 calling plans for residences and businesses.

Business owners are also annoyed at the constant barrage of sales representatives calling on them with some new "lower price, slightly better" program and are leery of making the wrong decision. They cannot afford to spend hours of their time calling hundreds of phone companies to dig up the world’s best deal.

Signing with the wrong service provider(s) costs businesses many thousands of wasted dollars annually without them even noticing it. That’s why many decision makers are turning to telecommunications cost management consultants for expert advice, realizing the competitive advantage of exploiting the new technologies and programs available to them.

The "Big 3" interexchange carriers (IXCs) as well as the Regional Bell Operating Companies (RBOCs) have long dominated the market, spending millions annually to make themselves household names and trying to convince the public that their product/service line is unique and of a higher quality than that of their competitors’. Many assume that because they are the biggest, they are the best.

The Fact Is That Telephone Service Is A Commodity - Minutes Of Service Over Technologically Similar Networks With Little Product Differentiation. All have digital switches, largely fiber-optic networks and high quality service teams. In fact, promises of state-of-the-art technology can be matched, and their rates usually bettered, by many of the less well-known, quality carriers.

What to Look For In a Calling Plan

Long distance users who believe it's too confusing or not worth their time to figure out which long-distance calling plan is best for them can often save money merely by switching to one of the discount plans that have no minimum calling requirement. Even if you’re not too ambitious, just call your current carrier and see if you can get a better deal.

Basic long-distance rates are like sticker prices for automobiles. No one should pay sticker price for a car or standard rates for phone service. It's a starting point from which all discounts are taken. Even the lightest long-distance user can go to an alternative carrier and get a discount on standard rates.

Any Business Spending More Than $50 A Month On Long-Distance Can Save 30% Or More Over Standard Rates By Getting In On A Calling Plan, And Up To 53% By Switching To A Quality Alternative Carrier.

1. Finding the "right" calling plan that fits your business needs.

Analyze your calling patterns (or have it done) and do a rate checkup at least once a year. Plans change frequently and rates may rise without your noticing. A flat rate per minute may be a better deal if you call longer distances or only call during the day (peak hours). Be careful because flat rates at some times of the day may be higher than a company's standard rate.

Since most commercial customers use the phone weekdays during peak hours (8 a.m. to 5 p.m.) they typically receive flat rates from the major carriers. However, certain businesses that use the telephone after peak hours, or have distance-sensitive use, should be rewarded with even lower rates. Sales organizations, telemarketing, real estate, the travel industry, shipping, news/media, religious, hospitality, financial and healthcare, to name a few, can take significant advantage of off peak rates when calling residences, businesses or offices in different time zones.

Compare apples to apples. Percentage savings can be misleading. Look at the base rate of each plan. If you get 25% off, but the base rate is 50% higher, it’s no deal. Let’s say you switch to a company that will save you 15% over AT&T, Sprint or MCI’s rates. That’s over their basic rates - not their lowest rates. You may already be on a discount plan that already saved you 20% or even 25% off the basic rate. What’s really important is your ACM (average cost per minute) and how much you will actually save each month/year in dollars and cents.

Be careful. Even "spinners" -- the customers who jump from plan to plan to grab freebies -- need to be wary of getting suckered into calling plans that more than offset the value of whatever perks they pick up.

Evaluate the peak/off-peak and distance charges for interstate, intrastate, long distance (inbound/outbound), international long distance.

Save money on your actual usage. Often a low flat rate is not as attractive as having peak/off-peak rates. Sometimes 6 second billing is not as useful to you as one-minute billing, etc. There are no hard and fast rules; it all depends on your actual usage.

Look for a plan that allows you to include your residential usage and provides an opportunity for your employees to lower their rates. (This provides a nice employee benefit, at no charge to you. You may even be able to turn it into a profit center.)

Examine the "fine print."

1. Is there a minimum monthly usage commitment?
2. Is there a minimum length of call?
3. Is the carrier requiring that you sign a term contract?
4. What are the penalties for contract cancellation, or penalties for failing to meet monthly minimums?
5. Are there monthly "billing" fees? Custom billing fees?
6. Are there any sign-up fees?
7. Is there a minimum monthly usage or time-of-day limitation?
8. Are you charged for "ring time" or busy signals?
9. Are you charged for incomplete 800/888/877 toll-free calls?
10. Will new equipment be required and at what cost?
11. Is the carrier at liberty to raise your rates whenever it wants?

Check the term of the discounted rate. Some carriers will give you special rates for 3, 6, 12 months and then revert to a base fee schedule. They are counting on you forgetting your rates, not checking your bill each month, and then raising your rates.

Beware of any program that will give you lower rates for a limited period of time.

Make sure it covers all times of day, and days of week, you’re most likely to call. Example: one popular program offers long distance service for 10 cents per minute, 7 pm to 7 am and weekends. If you make calls during the day, 7 am to 7 pm, you pay an average of 25 cents per minute, which is no bargain at all.

What’s not in print - the carrier’s track record. Does the carrier have a track record for reliable, quality service and good customer support? Most important - if the proposed carrier has a pattern of filing frequent tariff increases, any short term savings proposed may be offset by rate hikes.

Many smaller businesses and organizations have their call times rounded up to the nearest full minute and are billed for up to 59 seconds after they hang up the phone. You should make sure that service providers have the capability to bill in at least six-second increments.

For example, if a call is 1 minute 5 seconds, some plans round up to two whole minutes. That’s 55 unused seconds - multiplied by 10, 100, 1000 or more calls, it could add up to a significant cost per year. With a program that bills in tenths of a minute (6-second increments), you would only pay for 1 minute, 6 seconds. Depending on the average duration of your calls, this factor alone can result in an average monthly savings of 4%-30% (15% on average) and is especially noticeable if you make many short calls, modem connections or faxes.

There are many ways to avoid being overcharged at payphones. Here are some general tips for making these calls:

1. Never make a long distance call by dialing "0" or "00", if you can avoid it. You could be paying an average of a dollar per minute, making these among the most expensive calls that you can make. If you have no other way to make the call, (an absolute emergency) use 1-800-CALL-ATT.

2. While 1-800-CALL-ATT or 1-800-COLLECT is not as expensive as dialing "0", they still have high surcharges and per-minute rates. In some cases, private payphone owners have illegally blocked access to these numbers, or divert calls (called "splashing") made to these numbers to their own operators, who may overcharge you for your calls. It’s nearly impossible for you to tell the difference between services, until you receive your bill.

3. Avoid using calling cards offered by the major carriers, including AT&T, MCI and Sprint. Each of these company's cards usually include surcharges of up to $.85 per call, on top of their high per-minute fees. Instead, use a no-surcharge card offered by a smaller long distance carrier. Their per-minute rates are generally lower and most can bill you in six-second increments for greater savings. By choosing the right calling card, you can save as much as 95% off of the rates charged by the "Big 3."

4. If you do use a service such as 1-800-CALL-ATT, or 1-800-COLLECT on a regular basis from payphones, memorize (or write down) the actual phone numbers that these services correspond to (i.e. 1-800-CALL-ATT = 1-800-225-5388). The reason? Many private payphone operators are removing the corresponding letters from the keypads of their payphones. These companies lose revenue every time you "dial around" their operators by using services such as 1-800-CALL-ATT, so they are removing the letters to confuse consumers about which numbers they should dial. If the customer can not remember the corresponding phone number for these services (even some calling cards use 800 access "numbers" such as this, as with AT&T) they are usually forced to dial "0" to make a collect or calling card call.

5. Avoid using calling cards issued by your local phone company. Though their per-call surcharges are usually lower (no surcharge is best), their per-minute rates can be a high. At the moment, most local phone companies are not allowed to carry calls made outside of their respective calling areas using their cards. Therefore, you could end-up paying whatever rate the payphone company owner wishes to charge you when making long distance calls. These rates are not set, nor agreed upon, by your local phone company, but the charges will appear on your local phone bill. These calls can also average a dollar or more per minute.

6. Use public payphones wherever possible. These payphones are operated by the local phone company, and not by private payphone owners. Not only are private payphones more apt to overcharge you for long distance calls, but they may also charge you more for local calls, as well. These phones can cut-off your conversations on local calls after 15 minutes, demanding additional money to continue with your conversation.

When using payphones to call long distance, be sure to give the operator your own carrier or pick one of the "Big 3." In some cases, if you answer "I don't know," "I don't care," "It doesn’t matter," or "Whoever," you might end up paying a few extra bucks when the telephone bill arrives. (A company in suburban Fort Worth, named KT&T, has trademarked these phrases as names of long-distance carriers whose rates for operator-assisted calls are about twice those of major companies.)

It is not uncommon to find private payphones that only accept quarters, when the state has set a maximum charge of only $.20 for these calls. These phones (often table-top models) are illegal in many states, but have grown in numbers because of their low cost and high profit potential as compared to more traditional payphones.

7. To sum up, avoid any calling card that slaps a surcharge on each call. Such fees, which are called bong charges, can add up fast. Today you can receive high quality, no-surcharge calling cards, some automatically billed to a credit card (AcculinQ and others), for 5 cents per minute or less and with six second billing. A 30-second call to check into your home or office can cost as little as 5 cents from anywhere in the country.

For security, look for a card that requires an 800-access number to gain access to the network. This will prevent your call from going through a hotel switchboard or a private operator (from payphones) which can tack on surcharges or higher access charges. The 800 number access also discourages fraud as it is harder for "shoulder surfer" thieves to copy.

1. You have to pre-pay before you use it.
2. If you lose it, it’s like losing money.
3. You do not get a record of your calls (for tax purposes).
4. The cost is usually over 20 cents per minute. Many prepaid cards bill in whole minutes, not six-second increments.
5. You could run out of time in the middle of a call.

Beware of cheap prepaid calling cards. These cards are often offered at convenience stores, via magazine ads, or through multi-level marketing. Some cards offered by "no name" companies can end-up being less of a bargain than it may appear. Though their per-minute rates may look low (too low, in fact) the company that produces the cards may not be in business long enough for you to use them, and you may end-up with a worthless wallet full of plastic. We have seen rates as low as 6.5 cents per minute on these cards (less than what it actually costs the long distance carrier to connect the call), but most of these "cheap" cards are not backed by reputable companies. Customers using the cards may end-up calling the 1-800 access number on the back of the card, only to find that the number is busy, or has been disconnected. Check each card for an expiration date before you buy. You may only have a few days to go before it’s expired.

As a general rule, it is best not to pay for long distance services in advance, since you will have no way of knowing whether the company will be around long enough to fulfill their commitments.

If you do buy prepaid cards (they are a convenience for people who do not have telephones or credit/calling cards) we recommend buying them only from actual long distance carriers (not likely to disappear), or from established phonecard providers.

Do you or your family members or employees use payphones to call home or back to the office frequently? If so, you may very well want to get your own 888 number. 888 numbers are equivalent to 800 numbers (the pool of available 800 numbers has nearly been depleted, so 888 numbers are being offered as a replacement). You can order you own 888 number to ring-in on your phone line back at your home or office, for a fraction of what it would cost to make a traditional calling card call. They can only be used to call your specific location and can’t be lost or used for fraudulent toll calls. Many small long distance companies offer their customers rates on personal and business 888 numbers as low as $.08 per minute, and bill in six second increments. With 888 numbers, there are no per-call surcharges and there are no PINs to memorize. You can also give the number to friends, family, and business associates whose calls you wish to receive, and pay for. This is generally the least expensive way to make calls to specific numbers from a payphone (30-40 cent payphone charge is added to the cost of the call).

5. Consider all your choices of service providers: aggregators, regional carriers, competitive access providers (CAPs), regional carriers, the major interexchange carriers (IXCs) and resellers.

The customers carriers’ covet most are those who do a lot of long-distance each month. You may be able to take advantage of special programs by alternative carriers who reward customers, who pay their bills on time and don’t switch often, with special rates which are not available to the general public.

Although the "Big 3" still control 82% of the $67 billion U.S. long distance business, there are much less expensive alternative carriers. Regional carriers, competitive access providers (CAP), aggregators and resellers and others provide excellent sound quality and 24 hour service. Be aware that some of the smaller resellers may not provide round-the-clock customer service and may be on shaky financial ground. Stick with companies that belong to the Telecommunications Resellers Association (TRA).

Pennies saved can add up to dollars for businesses or households that make lots of calls. For example, a business or family whose long-distance bill is only $30 a month on a basic rate can save $120 over a year with a plan that offers 35% off.

However, if a deal sounds "too good to be true," it probably is. A common scam is to offer extremely low rates to quickly build a customer base. The company then sells this customer base, for a quick profit, to another service provider who does not honor the original low rates, and you’re stuck with higher rates or no service. Check with your state’s Public Utilities Commission for complaints against the carrier.

7. Don't use long-distance information if you can avoid it. Many carriers charge 85 cents to over $1.00 for each of those calls. Call 1-800-555-1212 for free information to see if the company you’re calling has a toll-free number. If they do, even your call to them will be free!

8. Return long distance calls before or after hours. Many business calls are requesting information or answering requests for information. By leaving a voice mail, answering machine or fax response before or after business hours you can:

1. Reduce the time you spend on the call - just give the info and no chitchat. (Each call is shorter.)
2. Take advantage of off-peak billing by calling when your rates are less. (Each call is cheaper.)
3. If more info is needed, they will call you. (Let them pay the call.)
4. Faxing after hours may yield even greater savings when more detailed info is required.

Business consumers have a great deal more control over their telecommunications services today than ever before. New technologies provide businesses more information and more flexibility in how they use their telecommunications services. Unfortunately, the shift in control has led to an increase in toll fraud by making businesses and telephone companies more susceptible to toll fraud.

Businesses using PBX equipment may become victims of toll fraud through the remote access features of their equipment. Remote access features allow business employees who are away from the office to call the PBX. After entering an authorization code, the employee receives a new dial tone for placing an outgoing call. The call will be billed to the outgoing telephone line connected to the PBX. This feature creates the opportunity for unauthorized users to breach the security of your business phone system.

Unauthorized people may use computers to call a PBX and test random authorization codes until the correct one is found. Calls then can be made that will be billed to your PBX. If an incoming 800 line has been used, you may be billed for the 800 calls as well.

Some voice mail systems may have features that provide a link to a PBX remote access feature or that give a caller a dial tone after the main voice mail function has finished. These features can be used to make outgoing calls that will be billed to the voice mail user or PBX owner. Unauthorized people may attempt to use a voice mail system to arrange third number billing to the telephone number served by the system.

Businesses should take exceptional care at these times to avoid additional risks.

1. Contact your equipment vendor, your local telephone company, and your long distance telephone company. They may be able to provide information to help you determine what sorts of security systems are available to protect your equipment and telephone service from toll fraud. They can also provide information about monitoring services that are available to help you quickly detect unusual usage.

2. Disable or otherwise restrict the remote access, voice mail, and other features of your telecommunications system that could allow outgoing calls. This should be done throughout the year, especially on holidays, weekends and at other times when employees will not need them. Consider whether these features will be required at all for business purposes during the holiday season.

3. Change the passwords and authorization codes used for remote access, voice mail, administrative, and other purposes. Unauthorized people may have already discovered your current passwords and codes. They may be waiting until the holiday season, when staffing is at a low level, to use the passwords and codes for fraudulent calls.

4. Monitor calling through your telecommunications systems on a regular and frequent basis always, but especially during the holiday season. Frequent monitoring is one of the best ways, at any time of the year, to quickly detect unauthorized calling.

5. Route incoming calls to a live operator or receptionist rather than to an automated attendant during the holiday season. An operator or receptionist may be able to assist in detecting unauthorized calls during this time of increased fraud and risk.

6. Take steps to secure your authorization codes on a permanent basis. Regularly remind employees of the need to keep codes secure. Remove codes from voice mail bulletin boards; do not write codes on credit card receipts; do not provide codes to unknown callers; and delete all unneeded codes, including default codes installed by the equipment manufacturer.

You should first attempt to resolve the complaint by calling your local telephone company and the long distance company involved. If you are unsuccessful in your attempts to resolve the complaint, you can send a typed or hand-printed letter in your own words to the FCC. Your letter should include a copy of the telephone bill or bills listing the disputed charges and the following facts:

1. The name and address of the business, your name and telephone number where you can be reached during the business day;
2. The name and address of the business' local and long distance telephone companies;
3. The names and telephone numbers of the telephone company representatives that you and other employees of the business talked with to try to settle the complaint;
4. Any other information that you believe would be helpful in processing the complaint and a summary of the facts of your company's complaint.

The major telephone companies have established fraud prevention programs and are actively working with their customers to assist them in protecting their telecommunications systems and services from fraud. You should contact your telephone companies for information about specific programs.

By dealing directly with a single carrier, you may be deprived of certain services and options available that could substantially decrease your expense. For example - many business owners do not realize that they may benefit by, or that it is even possible, to use more than one carrier at the same time. A business or organization may be best served by using one carrier for inbound 800 service, another for local service, another for outbound long distance and perhaps another for international or calling card services.

By Seeking The Advice Of A Consultant, You Have An Opportunity To Learn About Multiple Service Providers, Products And Service Options And Are Able To Make Better Decisions.

Established consulting firms are often affiliated with a prestigious parent organization or a "user’s group" who has contractual relationships with many service providers - aggregators, regional carriers, the major interexchange carriers (AT&T, Worldcom, Sprint) or resellers - and are able to secure special rates that individual businesses, acting alone, couldn’t qualify for, even if they went directly through the specific carrier.

By keeping you happy with significant, tangible savings and responsive service, the consultant receives a monthly commission (from the users’ group) and has the incentive to develop a closer, strategic business partnership with you, helping you achieve a competitive financial advantage and growing you as a client.

In General, It Is Estimated that A Good Consultant Can Help Most Businesses, Practices And Organizations Reduce Their Communications Expenses by 10% To 60% Or More With The Same Or Better Levels Of Service And Support.

In Evaluating A Telecommunications Cost Management Consultant, Look For A Firm That:

Will provide you with a written analysis and rate comparison, so that you can see exactly how your current rates compare with competitive programs. Don’t be misled by the lowest cost per minute or "flat-rate" pricing. Make sure you see how your unique calling patterns are affected before you decide.

Can represent the major interexchange carriers (IXCs), regional carriers, aggregators, competitive access providers (CAPs), and resellers, not just the one for whom he/she is a reseller/agent.

Will also review your local bill for under-utilized services and billing errors.

Will review and manage your situation on an annual basis and upgrade your services if possible, with lower rates, when possible.

Is full service. A firm who can advise you on local service, domestic and international long distance, calling card, call-back and other services.

Has a good reputation and is "performance based." How long have they been in business? How many clients do they have?

To determine if a calling plan will be in your best interest, make sure that you have done some bill analysis. A reputable carrier will tell you their ACM (average cost per minute) if you ask for it. You can calculate it yourself by dividing your total bill (minus directory assistance, toll calls, international calls, 900 calls, discounts and taxes) by the total number of minutes.

A Professional Analysis of Your Calling Patterns Can Give You the Accurate Information You Need To Make Your Best Decision.

Important questions: Will your telephone bill be less each month with the new service? Your combined ACM should be less than what you are currently paying. Assuming a reputable carrier, great customer service and reliability, how much you will actually save annually, is what really matters. 

For More Information Contact:

Comtel Information Services
7 Elmbank Street SI, NY 10312-6141
Tel: 718-984-8254
FAX: 718-966-1756
Internet: info@comtelinfo.com