How To Uncover Cost Savings In Your Telecom Contracts
By Jonathan Heacox, Director of Business Analytics, One Source
Navigating telecom procurement contracts is overwhelming. There are hundreds of vendors to choose from, the rate structures are complex, the terminology is confusing, and there are additional fees you did not see coming. Let’s face it, carriers don’t always have your best interests in mind. However, if telecom contracts are managed correctly it could be one of the quickest areas to uncover cost savings that can be reallocated to extend your IT budget.
Below are 3 areas you can look at when procuring, negotiating, and managing telecom contracts that can uncover cost savings that can be reallocated to fund IT upgrades:
- Pricing and Quotes – When it comes to pricing and quotes, how do you know if your organization has got a good deal? You can double check your pricing by doing some comparison shopping. Obtain pricing from 2-3 reputable providers and evaluate. However, be careful in selecting carriers. Stick to local telecom providers, local cable providers and competitive telecom providers that can meet your business needs. Pricing typically depends on service type and the location you are trying to cover. Below are pricing examples to get you started on what you could be expecting, but getting comparison pricing is the best way to ensure you are getting the greatest deal for your business needs:
- Traditional Phone Service – Typically starts at $30-$60 per line.
- UCaaS Per Seat – Starts at $15-$25 per seat.
- Best-Effort Broadband Internet – Starts at $60-$120, varies based on the location of your organization.
- Dedicated Fiber Internet – Starts at $350-$1000, varies based on the location of your organization.
- Agreement Negotiations – Negotiations can be very time consuming, therefore it is important to determine if it is best for your organization to negotiate with a single provider that can service all locations or use multiple providers across locations. If your locations are in major markets, there is a good chance that you will find a single provider that can service all locations. However, if your locations are not in major markets, you may struggle to find a single provider that can service all locations. Additionally, you need to look at your service needs. If you need unified communications when deploying VoIP services, a single provider would be most efficient. In other cases, such as negotiating internet services, you will often find better bandwidth and pricing by negotiating with local service providers. Many national providers will purchase that service at wholesale at a price close to local provider’s retail pricing. The national provider will mark up the price to earn their revenue, and you can be left paying more for the service. The best practice is to shop around multiple providers to confirm that you receive the best price.
Furthermore, when negotiating a telecom contract, what are specific terms to look for in the agreement? With any negotiations, you will need to prioritize your needs to ensure you obtain the best terms possible. Below are a few terms to watch out for to optimize your contract:
- Auto-Renewal Clause – Providers include language in the agreement renewing services automatically at the end of the original term. Most providers renew for 1-year periods, however there are some providers that will renew for the same term length as the original agreement. If you miss it for example, you could potentially turn your 3-year agreement into a 6-year term. Moreover, full early termination fees apply during a renewal term. A contract renewal can be canceled with 30-60 days’ notice to the provider and can be removed from most agreements. It’s typically recommended to remove this clause when you negotiate upfront, when possible, to ensure you are getting the best price each term. However, you should consider leaving the auto-renewal clause in place if you are concerned that you will not have enough time to re-negotiate services or switch to a new provider in order to avoid a lapse in service or a significant price hike.
- Master Service Agreement (MSA) – When available, request an MSA that allows you to simplify negotiations by covering future service orders. By having an MSA, you can order services in the future using the same terms and conditions that you already agreed to.
- Rate Review – Request a rate review at the mid-point of the agreement with an option to adjust based on market-rates. It is best to request this on large multi-site agreements with internet or data circuits. This allows you to review your contracted rates compared to industry rates halfway through your agreement. You are required to do the heavy lifting to obtain quotes from alternative providers at the mid-way point, but if you find a lower rate, your provider will adjust the pricing.
- Contract Renewals – How soon can you negotiate a contract renewal? Most providers will consider a renewal when there are 6 months or less remaining in the original contract. This timeframe can be less with some providers. The time needed to review a contract with a provider can vary based on size, scope, and goals that you have set for the renewal. If you are considering switching providers, you need to allow time to migrate services if you choose to do so. In most cases, requesting quotes 90 days before a contract expires is enough time to ensure there is no lapse in service if you decide to switch. You can often sign a renewal before your original contract expires allowing you to shave time off the original term and take advantage of any new pricing discounts.
All in all, it is important to be strategic when negotiating telecom contracts to ensure you are not overpaying for your organization’s services. One Source is a results-driven partner that works to ensure you pay for only what you need. On your behalf, we proactively handle all carrier negotiations and right-size services. Through our specialized procurement science, our customers recognize a 30-40% cost savings. You can go more in depth on effective contract negotiation and management with One Source’s Director of Business Analysis, Jonathan Heacox, in a the FREE on-demand webinar, “Telecom Contract Negotiations: Secrets To Stop Leaving Money On The Table”.
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