Published In:
CFO Date Published:
15th April 2002 Author:
Simon Segal
The collapse of One.Tel and acquisition of Optus by Singapore Telecom has resulted in a reduction in the level of competition in Australia's telecommunication industry. A report by NUS Consulting refers to the local market as "a virtual cosy duopoly" between the two main carriers Telstra and Optus. "Given current trends, Australia cannot viably sustain a large number of service providers and users will suffer from a lack of real choice. Under such a climate, prices are bound to increase unchecked by free market forces."
At the same time, indications are that telecommunication costs offer firms the greatest potential for savings. In the year to October 30, 2001, Expense Reduction Analysts (ERA) - specialists in helping companies reduce their costs - investigated costs totalling $180.3 million for 442 clients in Australia. Of the $32.8 million it found in savings (18 per cent of total costs), the largest single item was from telecommunications (nearly 20 per cent of the total savings), followed by travel and insurance.
Harry Perry, the production manager at NUS, advises financial managers to "remember that telco service providers are not in the business of rate comparison, they provide telecommunications services."
Graeme Cox, a telecommunications specialist at ERA, believes the reference point of financial officers should be to treat telecommunications as a commodity rather than a service. "If businesses can put aside the technology and the jargon and concentrate on the fact that they are simply buying calls each month at a cost, it will help them better understand how they can reduce the costs of those calls."
For his part John Malone, director of Yourphonebill, a specialised telecommunications auditing company, says that overcharging is a chronic problem for companies in Australia. He notes that even the most reputable telephone companies experience problems with their billing platforms leading to consistent overcharging of their corporate clients. "While this is a common problem, telephone companies often get away with overcharging because bills are complicated and difficult to understand. The person responsible for corporate telephone expenses often lacks the knowledge to know if they are being correctly charged."
According to Malone, identifying the overcharging is only the first step to recovering the money - "the telephone companies will generally do anything they can to ignore the overcharging and many companies have simply abandoned the process of trying to get money back because of the difficulties involved."
Other problems Malone identifies with billing include telephone companies not reducing rates for their current customers, even though market rates may have fallen substantially. "New customers often receive better rates than current customers." Then he points to the charging of companies for service and equipment they don't currently use.
Malone points to two areas where companies can improve their bottom line. The first is to recover money in respect of past overcharging. The second is to save money going forward through improving the telecommunications cost structure. "This can be achieved through improving the current network set-up or achieving better rates from the telephone companies by negotiating better rates with the current supplier or switching to alternative lower cost providers."
While Malone focuses on the actual bill, Cox highlights numerous ways that an organisation can reduce its average call price without necessarily changing supplier. Cox breaks telephone costs into the fixed costs of a global connection (this comprises phone lines and equipment such as handsets and PABXs) and variable costs of the calls.
"It is the variable costs of the calls that are the crux of the problem due to whether the call is made from a land line or mobile and whether the recipient is using a land line or mobile," Cox says. "Then there are different rates for local, national and international calls, to say nothing of other types of calls such as community calls, neighborhood calls or calls to 13 numbers. In addition to the call charges, there are access charges for using a mobile or line rental charges for the landline. And so the list goes on and so does the confusion.
"It comes down to understanding current market pricing for the sorts of calls your business makes most and where your current pricing sits in relation to the market. You are then in a stronger position to negotiate charge costs with your supplier. Only when this does not work is it necessary to look at alternate suppliers."
From his experience, Perry finds that "the only way to compare pricing proposals is to apply them to the customer's traffic profile. This can only be done by electronically scanning current bills. Assuming a particular type of business will have a particular traffic profile (modelling) is a recipe for disaster and is what the majority of service providers do when comparing rates."
Perry offers practical examples:
Are flag-falls being charged? "This is the easiest of the "fine print" charges to overlook and can have a significant effect on the average call cost."
Often when "provisioning" occurs - the process of transferring lines from one telco to another - not all lines get provisioned. The customer thus receives invoices from both the former and the new service provider.
Businesses that utilise ISDN lines for data traffic are in danger of being charged the flat ISDN access fee as well as the call charges because the called number has been changed at some point and the service provider has not been notified. "This is not unusual and results in paying virtually double for the service."
Cox points out that while understanding your current billing is important, it is equally crucial to monitor whether your ongoing telecommunication costs are going up or down or remaining constant. "To do this you need to take account of call volumes to arrive at the average call cost for the business. The simple way to do this is to divide the total of your monthly bill by the number of calls made during that month. "You now have a benchmark average call cost which you can use each month to measure whether your charges are remaining constant or are going up and down. You also have a benchmark for negotiating what you continue to pay for your telecommunications."
He cautions that it may be far from simple to establish the average call cost for a business.
"You probably have several different accounts, possibly with different suppliers, and you need to be able to decipher the information in those accounts to get to what you need to establish the average call cost."
Cox believes that the telephone bill, properly interpreted, can be the source
of vital management information for businesses. "Think about it.
Every business these days exists through communications. The majority
of that communication is recorded in one way or another in the phone
bill. The pay-off for a detailed understanding of the phone bill
is not just a smaller phone bill. It is also the chance to gain
indirect savings through a better understanding of just how and
with whom your business is communicating."
