If you think your company’s telecom bill should bear the warning, “Read it and weep,” try this number on for size: The average large corporate customer is probably paying as much as $8 million a year more than they should on telecommunications through a combination of faulty billings and missed savings opportunities. Now, there’s an expense that would certainly make any finance executive choke up. Yet, according to Boston-based consultants The Aberdeen Group, this kind of bottom-line hemorrhaging is a reality when it comes to telecom spending, which amounts to about 3.6% of most companies’ revenues.
The reasons behind this waste are complicated. The biggest, Aberdeen says, is the error rates in billing, generally in favor of the vendors, that run from 7% to 12% of total spending. That is coupled with the fact that, despite the high volume of mistakes, 85% of bills simply get paid, unaudited.
There are other explanations as well. “Lack of visibility into telecom service contracts, legacy billing systems rife with errors, and complexity caused by a period of telecom industry bankruptcies, M&A and new service offerings have made telecom costs hard to control,” says Aberdeen analyst Rick Saia.
The problematic expense category has given rise to its own technology segment called total telecom cost management (TTCM). Leading vendors like Avotus, Invoice Insight, Rivermind Software, Control Point Solutions and Profitline offer corporate clients everything from Web-based procurement of telecom vendors through reverse auctions to solutions that automatically vet and correct bills. But Saia notes that most companies have not yet implemented any TTCM solutions, even though Saia claims that most will produce return on investment in the first year.
How bad does the waste get? Alan Gold, chief marketing officer of Ontario, Canada-based Avotus Corp., offers the case of one client who literally couldn’t locate 4,000 cell phones, but was still paying for all of them. “It turned out they were broken, sitting in desk drawers unused, at home–all over,” says Gold. “Telecom is usually one of the top five spends in a company’s budget. Yet, at the typical company, nobody knows where communication costs are most of the time.”
With a TTCM service contract, a company can tie together what it’s buying with what it actually needs and in turn keep track of what it has. Larry Lindenbaum, telecom manager for $23 billion Amerada Hess Corp., used Avotus to run a reverse auction when it was time for the New York-based oil company to sign a new telecom contract. Instead of going to several major vendors and negotiating the best deal he could get, Lindenbaum says Avotus gave him a list of more than 500 questions (he added another 20), which then went out to potential auction participants. The whole process was Web-based, with Amerada Hess and 17 vendors participating in the bidding process by logging onto Avotus’ Web site. At the end, Amerada Hess had a multi-year deal that is expected to save the company several million dollars over the life of the contract. “We saved significantly more than we anticipated,” he says, “and about 50% over what we were spending before–and that’s for a network that is much more robust than our current one, and with service management added in.”