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Probably more so than with any other administrative service providers, telecommunications vendors benefit from what can be extremely wordy and complex agreements, these benefits coming at the expense of the customer’s bottom line profitability. Even under the most deliberate scrutiny by experienced procurement professionals, easy to overlook or seemingly innocuous details can wreak havoc on indirect costs, and eat up any potential gains from preferable service rates. It can be surprising how even the little things can add up to material cost increases in the case of larger customers.

Because telecommunications expenses can represent a significant percentage of an organization’s indirect cost structure, it is especially important to limit exposure to unnecessary risks posed by vendor tactics. The keys to protecting an organization from these risks are relatively straightforward:

• Learn to recognize unfavorable terms and conditions

• Prepare more favorable terms, conditions and/or contract language

• Exercise the power to negotiate a more favorable agreement

As an example, a major telecommunications provider often uses the tactic of establishing an Effective Date as “the date on which the last party signs this attachment.” This allows the vendor complete control over when new pricing takes effect. More favorable language would indicate an effective date of within 6 days, but no more than 30 days, after execution of the agreement by the customer.

Another tactic is limiting the time period (commonly 90 days) in which a customer has to identify and submit for rebate any erroneous charges. More favorable language would indicate a time period of at least the equivalent of the contract term; any additional time will only be to the customer’s advantage.

With respect to Rates and Regulatory Surcharges, the language commonly used by providers gives them the power to raise rates with no restrictions in response to FCC rate changes. More favorable language would place a cap on increases of 2-5%, with an option of contract cancellation by the customer if tariffs exceed the indicated cap.

Minimum Annual Revenue Commitments (MARC) expose the customer to charge-back penalties of between 30%-100% if minimums are not met; the most favorable language will indicate the lowest possible penalty. When entering into a new or amended contract with a vendor, make sure that the previous minimums are appropriately adjusted, especially when being offered lower service rates.

When reviewing Discounts, confirm that all specific services are locked in at the preferential rate for the life of the overall agreement, as opposed to less favorable conditions limiting individual service terms.

New contract proposals often include an extensive analysis to support quoted savings. The fact is that these analyses are often inaccurate, and can significantly misrepresent actual savings; a case in point is a proposal by a major vendor which ultimately produced actual savings of a mere $4000, when projected savings were quoted at $2,000,000!

Other items with the potential for disadvantageous terms and conditions include:

• Service outage credits

• Monthly Recurring Charges (MRC)

• Vendor service change notification

• Revenue commitment eligibility

• Service/technology type minimums

• Billing cycle increments

• Custom billing charges

As a final recommendation, it would be advantageous to keep abreast of all new contract language introduced into amendments or other future agreements by your telecommunications vendor, as anything new might pose a threat to the effective management of administrative costs.

© 2007 Profit Recovery Partners, LLC All Rights Reserved

9 Responses to “Telecommunications Vendor Contracts: Identifying and Eliminating Threats to Controlling Costs”

  1. LesYeux8 says:

    The depth of the ocean was recorded in the days of the sailing ships. The first transatlantic cable was laid using this information so it was not laid in very deep water

    The ocean floor is well mapped now, both with sonar and from satellites.

    A very large coil of cable is stored in the hold of a cable-laying ship and fed out over the stern. The ship is equipped with devices to relieve the tension on the cable as the ship moves with the waves to avoid snapping the cable.

  2. Scarlet says:

    Not any more it isn't. New Technology has made it pretty quick and easy.

  3. FBNY85 says:

    The biggest problem with engineering is that your programs are so tightly focused and leave little room for cross training in other areas of engineering.

    However, that doesn't mean you can't switch or add additional training. But it's one of those fields where schooling is so concentrated on one type of engineering that it's very hard to have training outside of your major.

    I can major in Economics and have plenty of room for courses in marketing, finance, sociology. But with engineering, that's not the case. And it's because it's a very technical field!

    Now mechanical and telecommunications engineering go have some things in common. And adding the CISCO certification under your belt would definitely help. But you'll be possibly competiting with people in computer science and networking.

    The difference often lies in the design arena. That's an area that's highly stressed in engineering programs. So they often have a leg up here. In other words, engineers can design, build, and troubleshoot.

  4. Endre says:

    Communication is the theoretical/academic field dealing with the study of human communication. It discusses group dynamics, oratory, media and culture, etc… It includes a lot of areas that were once separate areas of study such as journalism, film studies, speech, and tech writing.

    Telecommunication is the technical field that addresses the mechanical aspects and is related more to engineering than to theory. It addresses much of the how such as how does fiber optic cable work.

    If he's interested in Broadcast Engineering then the technical degree is the field. If he's interested in Broadcast Journalism then he wants journalism or communication. If he's interested in Broadcast management then the subfield in communication is media communication management.

  5. the ^_^ t says:

    More than you will get working for a Vietnamese company, that's for sure. Write to all of the airlines, enclosing a copy of your CV, good luck.

  6. zayeem says:

    Pursue not persue.

  7. pin-pin says:

    In general they might not be the most technically competent, but enough to understand what is going on. Know how hard it might be for someone to do what is being asked of them. Recognize where help is needed. They need to be a good people person (not necessarily popular) be a good team builder, delegates and does not try to do everything themself. do not be afraid to ask, or tell people what to do. Needs to be able to communicate with customers and higher management, and in turn communicates with the crew. Realize everyone is HUMAN. I know there is a lot more.

  8. Renee says:

    Presume u r talking about impact of national policies on telecom industry growth?
    Check out the growth of china/india etc as compared to high penetration markets like UK/USA.
    The diff is that of national policies.

  9. liz says:

    http://www.du.ae
    http://www.etisalat.com

    there are the only 2 companies in UAE

    SAM!

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