Negotiating in a Time of Rapidly Evolving Rates and Equipment
Since the breakup of AT&T in 1982, the U.S. telecom carrier landscape has evolved rapidly, sometimes in dramatic fashion. Familiar names have come and gone – MCI, WorldCom, Qwest, Cingular and Nextel, to name a few. Today, with CenturyLink acquiring Level 3, AT&T completing its acquisition of Time Warner and Sprint looking to combine with T-Mobile, we see no signs of these changes slowing down.
Meanwhile, telecom carriers have developed a new corporate mindset and are changing the ways they do business in order to maximize profits. Enterprise customers that have large or multiple contracts with these carriers need to be aware of three emerging trends that are impacting the contract negotiation process: 1) technology changes; 2) changing mobile plan structures and equipment purchasing options; and 3) a drive for efficiency in contracts and billing platforms.
What’s driving the trends?
Changes in technology are impacting customers’ sourcing and technology procurement decisions more than any other time in the last decade. Legacy technologies such as copper lines and Time Division Multiplexing-based (TDM) services on the fixed side and 3G on the mobile side are being sunsetted. In their place, Ethernet and broadband are becoming the standard fixed access methods and 5G will soon become the latest evolution in the wireless space.
These fundamental, structural network changes are fueling the rapid expansion of the use of cloud services. In addition, Software Defined Wide Area Networking (SD-WAN) is emerging as the future of networking, offering central management of secure, dynamic, transport-agnostic networking. These transitions will continue to accelerate and put pressure on the negotiation process as both carrier and customer try to keep pace with their vision of where technology is going.
On the mobile side, plan structures that, in the past, had focused on pooled minutes of use and unlimited data have moved to unlimited voice and text with data pooling. With T-Mobile, unlimited data options have moved back into the mix. Most U.S. mobile carriers have made international travel easier with options for international plans or daily pay-as-you-go rates that no longer break the bank. On the equipment front, T-Mobile has also moved the needle, helping to get carriers out of the device subsidization model and allowing the plan charges to reflect the unsubsidized structure. Each of these changes needs to be accounted for in the mobile contract negotiation process.
The major carriers that grew through acquisition and inherited diverse billing systems and contract models have become more insistent on driving efficiencies by consolidating billing platforms, contracting and ordering systems. Smaller carrier support staffs shift more of the burden of ordering onto the customer. Understanding what a change in a contracting platform means – whether it is moving to the AT&T Business Networks (ABN) with AT&T or Verizon Rapid Delivery (VRD) with Verizon – and how that can drive savings or impact current services is an important part of the negotiation process as well.
Understanding Motivations in Negotiations
When it comes to carrier negotiations, the process can be lengthy and frustrating. Part of it is due to the process the carriers have implemented around contracts and renewals. The customer’s day-to-day contact, the carrier account team, has little authority when it comes to the pricing provided. That authority comes from the contracts and pricing organization. While your account team works with pricing, each team and each member may have a very different perspective on the negotiation process.
For the carrier account team, it means keeping the customer generally happy in order to keep revenues as high as possible – a difficult task in a market where competition and technology drive down pricing. The pricing and contracts groups have somewhat different motivations. They are primarily focused on margins and price points – ensuring that the deal is generally good for the carrier, ensuring that the approved pricing is as high as possible and doesn’t go below levels previously established. Keep this in mind as you negotiate and, where possible, bring the contracts and pricing group into the process.
Key Leverage Points – Timing and Knowledge
There are several important factors in any telecom carrier negotiation. Foremost is establishing the right leverage. This involves timing, knowledge and choices. Timing is a key component of leverage. You don’t want to enter into a negotiation too early or too late. If you still have a lot of time or commitment left on your current contract, the carrier isn’t likely to be interested in opening up the agreement and writing down the rates unless: 1) you are offering them something they want, like new business, or 2) they are contractually obligated to conduct a negotiation mid-contract. At the same time, you don’t want to wait until you are up against the contract end date before starting your negotiations. Negotiations take time and every month that goes by means lost savings. Waiting too long also can mean that the leverage shifts back to the carrier, with the possibility of the contract auto-renewing for a new term at your old rates or going to month-to-month with outrageously high rates.
Knowledge is also a key component of maintaining the right leverage. This means understanding exactly what you use with the vendor, what it is costing you today and what it should be costing you in your new agreement. As a general rule, telecom pricing is declining across a broad spectrum of services, and the gap between leading-edge pricing and average pricing in the market remains wide (see chart below). Additionally, a strong rate in one category doesn’t mean you have good rates across the board. You must understand the gap to market in each and every area of your spending.
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The Percentage Gap Between Market Leading Rates and Average Rates
(by year for various telecom products)
While you may think that the 10-percent pricing reduction your provider is offering you today sounds great, unless you get a benchmarking firm to provide you with current market benchmark data, or go through the time and expense of an RFP, you could be missing out on much more savings. (There are many reasons that an RFP doesn’t guarantee you market pricing.)
Choices are a key part of the leverage equation. If you are locked in with your current provider without an alternative provider or a solid secondary provider that you can turn to, your carrier will often feel safe and comfortable in making it more difficult to offer you the best rates. What is needed is a viable alternative provider along with contract flexibility to provide you with the options you need.
Contract flexibility is determined by your commitment level, contract term, rate review language and business change provisions included within your agreement to name just a few of the key contract elements. Not all of the carrier offerings are equal, so establishing benchmarks for contract terms is also important to getting the best possible deal.
Summarizing: With the continuing decline in TDM-based voice and data services, the increasing use of cloud, interest in SD-WAN as a networking alternative and 5G on the horizon for mobility services, keeping your options open and maintaining flexible, leading-edge contracts will be increasingly essential. Long-term agreements with the wrong provider could leave you locked in services or technology that doesn’t work for you. Understanding the carrier’s perspective and motivations, seeking benchmark or negotiation guidance and leveraging your position to negotiate the right deal can make a big difference.