Preliminary Information Gathering

After developing a vision or goal for telecom expense management, the next step is to gather organization-specific information. With this order-of-magnitude data, decisions can be made about project development, outsourcing, auditing, and other possible actions.

The first, although not easiest, step is to develop an approximate annual spend for telecommunications in major categories. If only 1 percent of the spend is in long-distance charges and 35 percent is in cellular, the conclusion is obvious: use project time to reduce cellular expenses.

Exhibit 1 shows the expenditures of a small, California-based energy firm.



Exhibit 2: Annual Telecom Spend for a Small Energy Firm

Note that the expenditures for this firm are unusual because local expenses are larger than long-distance expenses. In addition, cellular usage is high, suggesting that a judicious renegotiation/rationalization would likely pay big dividends.

Before plunging into the numbers, it is useful to gather as much strategic material as possible. By recording the following information, even if it is done at a cursory level, subsequent cost management projects will be more focused and efficient.

Organization

Contact information: key employees, contractors and suppliers; e-mail IDs, Web sites, etc.

Structure (voice, data, centralized, decentralized, etc.), organization chart

Functional responsibility for project management. How is it structured?

Staffing

Security awareness (who is responsible; organizational perspective)

Strategy

Technology strategy

Customer strategy versus employee/internal requirements

Growth/trends

Buildout plans

Geographic issues

Business alignment (network and infrastructure with business needs)

Outsourcing plans or opportunities

Specific (already developed) business plans and requirements

CRM (Customer Relationship Management)

Characterize the customer (profile)

What architecture supports CRM now (call centers, hardware, software, network)

Volumes of usage (now versus historical)

The general process (customer calls or e-mails; asks for x, then y happens, etc.). How disputes/complaints are resolved (e.g., trouble management system)

Describe elasticity of demand (will customer buy more product or services if service is outstanding?)

What are the trends for CRM (volumes, changes in entry point such as Web versus phone, changing nature of customers, etc.)

Process

Ordering and provisioning (external and internal includes moves, adds, changes)

Bill payment

Maintenance of equipment and software

Project management for large communications projects

Policies and procedures

Escalation process

Asset management

Vendor management

Risk management

Cost management

Budget

Contracts and terms (carriers, equipment vendors, telecom software vendors)

General ledger (G/L) and accounts payable (A/P) information

Capital and expense management

Circuit/equipment inventory

Carrier reports

Analysis of billing (tariff compliance, exception reports)

Traffic/call accounting

Chargeback

Performance and optimization

Network management tools

Traffic analysis/measurement tools

PBX/VM configurations

Network topology and diagrams

Voice and data services, including IVR/CTI

The topics are relatively high level and may or may not be directly pertinent or quantifiable as to cost-saving opportunities. However, many qualitative improvements have financially positive results, which can be measured later. Organizations with existing documentation on the above topics are often at a significant advantage and can move toward greater efficiency more quickly than many others.

Develop a Cost Management Vision

Why develop a cost management vision? Controlling costs within the telecommunications network is hard work. Some projects are easy with a high payoff; others require constant review. Without a clear vision of the outcome, good intentions may falter. Similar to affirmations in self-help books, a cost management vision might read as follows:

The architecture of the network (data, voice, hardware, leased lines, etc.) will, by its structure, minimize costs.

Monitoring systems will alert management of financial exceptions.

Configurations and clusters of technology will be flexible and scalable to reflect declining unit costs resulting from technology improvements.

Network investments will match the business culture — no long-term investments for an organization that demands a very quick payback from all its other capital expenditures.

Financial commitments for telecom services are flexible and can accommodate acquisitions, divestitures, major application changes, and rapid growth.

Telecom should be perceived as an asset — not just a commodity.

All alternatives that best support the core business, including outsourcing, will be periodically reviewed for applicability.
After the telecom cost management vision is developed and tailored to the culture of the organization (risk tolerance, scope and level of desired savings), the next step is to consider how to start.

How Do Organizations "Make It Happen"?

Telecom cost management is both a project and a process. A project is needed to gather information and make the right decisions. The process ensures that any gains will be maintained. When considering how to start the process, management should start with the following questions:

Does staff exist within the organization to perform the analysis required to manage costs? For large organizations, a telecom cost management project may require months of work by skilled analysts.

Does the firm have the appetite to consider telecommunications changes (either technical or procedural)?

Is there a bias for or against outsourcing? One note of caution: even if the business culture is strongly pro-outsourcing, it is important to have at least a high-level, in-house understanding of the telecom environment to ensure that agreements with the vendor of choice are equitable for both parties. Another approach is to use the services of a third-party outsource consultant.

Do the individuals assigned to perform the initial analysis have the right background for the project? Do they know telecom billing, tariffs, telecom taxation, and industry trends (business and technical)?

What outside resources are contemplated — consultants, telecom auditing firms, outsourcing firms, or others?

When considering how to move forward with the project, risks should be explicitly considered. For example:

What would be the effect of changing carriers? Telecom managers generally dread carrier changes, even if they are dissatisfied with the carrier. Changing circuits and other infrastructure often causes some disruption that users notice.

Are users willing to accept technical changes if they cannot directly see the benefits? For example, consider the change from remote dial-up (using a remote access server) to using a VPN (virtual private network) for connecting to the network. Until all the ISPs across the country get their account numbers correctly loaded, remote users might occasionally fail to get on the network. In the long run, it is certainly the most economical practice for large numbers of remote workers, but there is some short-term pain in the transition.

Are negotiators for contract changes experienced in telecommunications? Strong negotiators can push telecom vendors for rates so low that the result is not a win-win situation. The telco may be tempted to devote attention to other customers. Also, negotiating for the right prices and services is critical. Why negotiate a 5-cent-per-minute rate to the United Kingdom when the firm makes only a small number of calls there each month?

Looking for the Quick Fix

Organizations have many agendas and priorities. Sometimes, telecom decisions are not made for the long run because there are more pressing issues. Like the Russians in World War II who, in desperation, sometimes sent unpainted tanks to the front in winter, business managers have to survive the present and not worry about the rust of the future. Accordingly, there may be times when a quick fix is necessary. Save some money now and go after the deeper savings later.

Following are some considerations and approaches for telecom short-term relief:

Use contingency-based auditing firms. Relying on splitting the proceeds of finding errors and overbillings, contingency firms become speedy and efficient. Their goal is to send in highly trained, "drill-down" staff; find the gold nuggets; and move on. The downside to this approach is that changes in processes that would prevent the errors from occurring in the first place are sometimes not addressed. In addition, this style of telecom auditing emphasizes reviews of bills, agreements, etc., rather than technology alternatives. The question "Was there an erroneous bill for a T1 after office X closed?" might be asked. The question "Should frame over DSL be used in place of a T1?" will likely not be asked.

Renegotiate the contract for immediate relief. Many carriers, anxious to lock in a customer for several years, will lower unit costs in return for longer contracts.

Throw telecom "over the fence" to an outsource firm. In fairness, this may be a perfectly acceptable long-term solution as well. However, if the deal is done quickly and without adequate knowledge on the part of both parties, it might not be optimal for the long term. But certainly if telecom is "out of control" and expense management has not been a priority, outsourcing can likely assuage the financial worries of management (at least for telecom).

It is important to recognize that the above comments are generalizations. For example, Houston-based Teligistics performs both contingency work and some process work, such as long-term "pre-audits" of bills. In other words, for a monthly fee, Teligistics will take the client's bill from the carrier, run it through an automated error detection system, and then send it to the client for payment (or the bill may be paid on behalf of the client). A sample variance report provided to the client is shown in Exhibit 1.

Exhibit 1: Automated Variance Analysis: Billed Rates versus Contracted Rates Special Needs and Groups within the Organization
Like Orwell's pigs, some groups are clearly more equal than others in terms of their telecom needs. When developing a comprehensive vision of telecommunications — how costs are to be minimized while maintaining service levels — all special groups need to be considered. The classic example is the call center. With hundreds or even thousands of agents, call centers (also called contact centers) are massive bandwidth and service users. Uptime is essential and in some cases, such as Dell Computer Corporation, telecommunications provides the sole "face" of the company to the end customer. If the phone lines and Internet cables are down, how can computers be ordered?
Tailoring of requirements helps in negotiations and architectural design. If electricity traders make 50 percent of their profits in just 5 percent of the available trading day, the phone lines really need to be up 99.999 percent of the time. Hence, additional circuits, rerouting features, and other contingency services need to be included in any negotiations with the local or long-distance carrier. If the contract negotiator fails to appreciate specialty group requirements, long-term telecom costs could be inadvertently increased.

Some other considerations that affect the cost management vision include:

Is telecom decision making centralized or decentralized? The preference for centralized-decentralized operations swings along its arc every decade or so. However, for telecommunications cost management, centralization has always been best. Carriers reward volumes and a balkanized approach to telecom always means higher cost. "Boudreau" in Beau Bridge, Louisiana, may get a good Frame Relay price from his brother-in-law; it may, in fact, be better than the corporate office in Houston was able negotiate with the carrier of choice. But considering the sum of all telecom costs, the corporate agreement is most likely less expensive.

Is change constant? If so, long-term contracts are even more risky.

Do the voice and data people talk with each other? IT, data communications, and voice communications should be integrated. Otherwise, sub-optimization will result.

Incidental Revenue

The best way to reduce telecom costs is to find ways to make them go below zero — in other words, collect revenue from telecom-related functions. For example, one Midwestern department store chain operates a 900 number service that charges firms that call to verify prior employee work history. Telephone services for students have long been a revenue source for universities. Businesses have become increasingly clever in using telecommunications for profit, or at least offloading some of the costs to customers.

The request for proposal process

What is a request for proposal?
A request for proposal (RFP) is a document sent to telecom carriers from businesses seeking proposals from those carriers. Each RFP is unique, because each customer’s telecom environment is unique. The RFP document spells out specific details about the information the business wants the carrier to provide, especially the technical data. Sending out an RFP is usually the first step in procuring high-level telecom services, such as datanetwork installations. The RFP is sent out to multiple carriers and is essentially an invitation to a bidding war.

What is the purpose of an RFP?
The main purpose of an RFP is to solicit proposals from phone companies. The average business signs 2-year telecom contracts, and at the end of that time, the business may have lost touch with telecom market trends, products, services, and, most importantly, pricing. It has no idea what a good deal in today’s market is until it reads carriers’ responses to the RFP.

After evaluating two or three RFP responses, the business will have a clear understanding of the carrier service offerings and what pricing is available. Gathering market data is, therefore, one of the key advantages of using an RFP.

Some customers require the telecom supplier to include the RFP as part of the final agreement. Without the RFP, the carrier’s contract is the agreement. Carrier contracts are written by telephone company attorneys; they protect the interests of the carrier, not the customer. A well-written RFP, however, protects the interests of the customer, and, at the same time, sends strong signals to the carrier that the customer is in control of the relationship.

The main disadvantage of using an RFP is that the customer invests considerable time writing the RFP, evaluating RFP responses, and meeting with prospective carriers. This can be a time-consuming process. On the other hand, businesses can avoid the RFP process altogether if they are satisfied with their current carrier and are willing to allow the current carrier to provide the needed services.

What is the RFP process?
The RFP process consists of five phases:

The RFP is released to phone companies.

Phone companies question and clarify the RFP.

Phone companies submit proposals.

Customer evaluates proposals.

Customer selects the winning proposal.

What is specified in the RFP?
The core data in an RFP are descriptions of telecom services that the business has up for bid. These may be current services or future services that the business plans to add. RFPs can be used to procure local, long-distance, data and wireless services, network design, network installation, or any other imaginable telecom project.

An RFP explains the customer’s expectations for customer service, service ordering, trouble reporting, billing, resolution of service outages, and SLAs. Numerous other issues can be included in the RFP. The whole idea behind an RFP is that the customer manages the procurement process, not the carrier.

A key feature of the RFP is its scalability. The scope of services covered by the RFP can be increased or decreased. A business may use an RFP to procure 25 cell phones, while another business may use an RFP to procure all of its telecom services, including local, long distance, data, and wireless.

For high-tech services, such as frame relay and ATM, the RFP should give the customer’s specific technical requirements for these services. The RFP can be customized to include a large or small amount of technical data.

Who should use an RFP?
RFPs are normally only used by very large companies with complex, expensive telecom services. Smaller companies tend to solicit proposals informally, and they often do not have the time or manpower to devote to the RFP process. Larger companies have telecom departments, so they have the manpower to facilitate the RFP process. Bigger companies have more internal accountability and organizational layers, so the RFP also tends to appease these people inside the company. Many government agencies, for example, are required to secure multiple bids before entering into a new contract for services. Organizations that use RFPs tend to protect their interests more than businesses that shop informally for telecom services.

How does a phone company respond to an RFP?
After a phone company receives an RFP, a team of salespeople begins writing the response. The sales team consists of pricing experts, technology experts and possibly, on large accounts, regulatory experts. Their written response will follow the general outline of the RFP.

Carriers may try to gain a competitive edge by asking the customer questions to clarify vague parts of the RFP. Customers usually level the playing field by requiring that all questions be put in writing. Then, the customer sends each carrier a copy of the question and the customer’s answer.

The RFP process is designed to be an objective avenue for buying telecom services. None of the carriers should gain an advantage over another bidder. No carrier knows which way the customer is leaning. The objectivity of the RFP process should keep carriers honest. Because carriers know they only have one chance to win the business, they will be more likely to give their best and final offer in the very beginning.

Basic contract negotiation strategy

Contract negotiation normally begins with the customer handing over his telephone bills to a telephone company sales representative who later returns with a proposal that compares the customer’s current costs to the telephone company’s latest offering. The new proposal shows monthly and annual savings. The customer and sales representative then enter into a period of negotiation, when the telephone company’s offer will be fine-tuned to meet the customer’s requirements. Once the two parties agree on the offer, the sales representative will present a contract to the customer. The customer signs the contract, the phone company provides the services, the customer receives a bill each month, and everybody is happy. In the real world, however, telecom contract negotiation is never this smooth.

At best, contract negotiation is an annoying distraction from the core business; at worst, it is a nightmare. Account executives just want to close the sale, cash the commission check, and move on to the next target. Both parties have their own agendas, and they often wind up confused and frustrated by the process. There are some practical steps a customer can take to ensure that the negotiations are efficient and produce a favorable outcome.

Know what you want
First, the customer should know his own telecom environment. He should understand what telecom services his company uses and the monthly bill volume of those services. He should also know of any pending changes to the overall telecom environment.

Before talking with the carrier, customers should decide exactly what they want in their next telecom contract. What term commitment is the business comfortable with? Is the company’s volume expected to increase, decrease, or remain level over this time period? What volume commitment should be made to the carrier? Will new services be added? After the customer figures out what he would like to see in the new contract, he can make a specific request of the carrier. A customer who is not specific is at the mercy of the carrier and will rarely receive the most favorable offer.

Know your carrier
Telephone companies handle their contracts two ways. Most contracts are standard templates, but some can be customized for a specific customer. Carriers employ two types of representatives: customer service represen-tatives and account executives. Customers should know which type of representative they will be working with. Most importantly, the customer should know what elements of the contract are negotiable and nonnegotiable.

Customer service representatives are typically low-level employees, working in a call center. They normally can only offer standard contracts. Their hands are tied, and they have little room to negotiate. Account executives are usually highly paid outside sales representatives that are empowered to customize what is offered to the customer.

When negotiating with either type of representative, the customer’s objective is always to get the needed telecom services at the lowest possible price. Carriers have the opposite objective; they want the customer to pay high rates, which increases their revenues and, ultimately, keeps shareholders happy.

Analyze the proposal
The highlight of any proposal is always the bottom line that shows monthly savings and annual savings. It is a good idea to double-check the calculations. “Accidental” spreadsheet errors may skew the numbers. Besides the savings, the other important aspects of the proposal are volume commitments, term commitments, pricing, and special clauses. If the offer is unacceptable, the carrier should write a new proposal documenting each change.

Pricing is often the most difficult issue for the customer and carrier to agree on, partly because customers do not know if they are being offered the carrier’s best pricing. The most effective way to know if the pricing is fair is to compare the proposal to similar offers. Other carriers will be happy to present proposals, even if they know their chances of winning the business are slim. The customer will then know if the original carrier’s offer is competitive. If the original carrier gets word that competitive carriers are submitting proposals, they usually sweeten their first offer.

A consultant can also be a valuable source of pricing information. If a consultant is hired to negotiate your contract, he will expect to be paid a percentage of the savings. You can save money by hiring the consultant on an hourly basis.

The contract
Once the final proposal is accepted, the carrier will offer a contract. Telecom sales representatives are trained to hand deliver the contract, verbally walk you through it, and ask for a signature. “This is the same info that we already discussed in the proposal. All the fine print is just a bunch of legal mumbo-jumbo. Go ahead and sign right here”

Before signing, the customer should read the contract carefully. The contract must list everything the customer has negotiated, especially promotions, credits, and special clauses. This exercise may be a real eye-opener for the customer, because carriers may have thrown in additional conditions that were not previously discussed. Special clauses that are harmful to the customer often show up out of the blue, such as escalating MACs, traffic requirements, exclusivity, and discount caps.

Whether it is done intentionally or not, telecom carriers are notorious for performing “accidental” bait-and-switch maneuvers. Too many customers have negotiated promotions and aggressive pricing during the initial proposal phase only to find out later that these conditions were left out of the actual agreement. When the customer feels the sting and realizes what has happened, the original parties in the negotiations may be long gone. The original account executive has spent his commission check and probably moved into another profession. The new account team will have little sympathy for the customer, and the letter of the contract will rule.

The first phone bill
The final quality check in the process is to make sure that what was negotiated is actually showing up in the phone bills. If possible, schedule a meeting with your account executive to review the first month’s bill. The bill might be easy to read, but this is a great opportunity to make the carrier prove that it has delivered exactly what it promised.

The first few bills of a new contract term are often inaccurate. Look for erroneous installation charges, missing discounts, and excessive fees. The first bill usually covers a partial month, so make sure charges are prorated accurately. With long-distance service, double-check the cost per minute. If the contract is with a new carrier, make your carrier aware of lines that are still billing with the other carrier. A savvy customer will require the carrier to issue invoice credits to make up for these costly glitches.

Local service
LECs only have three types of contracts: line charge, usage, and data services. LECs use contracts for line charges associated with non-POTS services such as Centrex, trunks, direct inward dialing (DID) lines, and intralata data circuits. LEC contracts for usage will cover local calling, intralata toll calling, or both. LEC data contracts will be included later with other data contracts.

Long distance
Long-distance carriers usually divide their customers into three categories: small and medium-sized businesses, large businesses, and national accounts. AT&T calls these three classes middle markets, commercial markets, and national accounts. AT&T has most often offered these markets Customnet, Uniplan, and One Net. The smaller market customers normally have simple oneor two-page contracts, while contracts used with larger businesses are 10 pages or longer. Other carriers categorize their customer base in a similar manner to AT&T. In general, however, the larger the carrier, the less flexible it will be with its contracts. Long-distance carriers providing other services, such as data circuits, will lump all of these commitments into a single contract.

Data
The data-network marketplace has been far less competitive than the longdistance marketplace. Consequently, contracts have remained simple and straightforward. Although the services are often higher dollar and are certainly higher tech, data-service contracts remain rather simple.

Wireless
Local, long-distance, and data services are all offered by large national carriers such as WorldCom, AT&T, and SBC Communications. The wireless industry has fewer giants and is comprised of smaller regional companies. Consequently, there is little consistency with wireless contracts. Each carrier has its own contracts, and the terms and conditions of the contract vary greatly from market to market and between individual service providers. The good news is that wireless-service pricing and contracts are simple and straightforward and contain few hidden surprises.

Contract : Termination and penalties

A customer can terminate a telecom contract in one of two ways: without liability or with liability. Most contracts are terminated without liability.

Termination without liability

There are three ways to terminate a contract without liability.

Fulfilling the volume commitment early
At times, customers can switch carriers before their term commitment is up if they have fulfilled their volume commitment. Some customers in this situation have left a token phone line with the old carrier so they can still fulfill the term commitment. A customer who signs a 12-month, $120,000 contract with AT&T may be able to switch to Sprint in the eighth month if it has already paid more than $120,000 to AT&T.

The carrier’s failure
Sometimes carriers fail to provide the contracted services. For example, a business whose dedicated private lines experience repeated down time may be able to cancel a carrier contract, especially if the contract contains a quality assurance clause. Customers who experience repeated billing errors may also be able to get out of a contract. Contracts never specify that the carrier is required to provide an accurate phone bill, but if a customer experiences many months of fouled-up phone bills, the carrier might let the customer out of the contract.

Out with the old
The simplest way to get out of a telecom contract is to replace it with a new contract. Of course, this can only be done with the same carrier and is normally only done toward the end of the existing term. But telecom contracts can be renegotiated at any time as long as the customer has leverage. A customer who is ordering additional services and is therefore increasing his volume is a prime candidate for renegotiating his contract. The following contract excerpt illustrates how an old contract can be replaced by a newer one:

Customers may discontinue their Simply Better Pricing Option Term Plan prior to the expiration of its term without liability if they concurrently replace service under the plan with a newly subscribed AT&T plan that has a specified revenue commitment equal to or greater than the remaining revenue commitment under the plan being discontinued (AT&T Business Service Simply Better Pricing Option Term Plan Agreement).

AT&T is essentially telling the customer, “We’ll give you a new contract, as long as we get more money or time out of you.” If the customer gets better rates, it is a win-win situation. Before renegotiating, the carrier will consider the contract value of the customer. Contract value is a way carriers look at a customer’s current contract and determine the financial value of that customer.

Termination with liability

The AT&T Simply Better Pricing Option Term Plan contract explains how a termination with liability is handled:

Customers who terminate their Simply Better Pricing Option Term Plan prior to the expiration of the selected term period will be billed a termination charge equal to the monthly revenue commitment multiplied by the number of months remaining in the term period (AT&T Business Service Simply Better Pricing Option Term Plan Agreement).

Here, AT&T tells customers they can cancel the contract, but it’s going to cost them. The customer must pay AT&T the remaining amount of the volume commitment, which happens to be the same amount of money AT&T would have earned from this customer anyway. If, however, the volume commitment is expressed in gross dollars, the customer pays more in a shortfall situation, because the shortfall amount is usually not discounted

Paging bills

Paging bills are the simplest telecom bills to understand. The bill shows each pager number with an itemized list of additional charges. These four charges are usually listed for each pager: equipment rental, service, maintenance, and usage.

Some paging carriers do not itemize their charges. They just give one line item for each pager, in which case the charge is normally for equipment rental and service. Some Mom-and-Pop carriers simply show the total charge on one line, such as “pager service for 26 units … $260.” The customer should always request an itemized bill in order to verify all of the charges.

The sample bill in Figure 1 shows that the customer is paying $5 per month for paging service and another $5 per month for equipment rental. This customer could save $10 per month by purchasing the pagers instead of renting them. One of the pagers has an 800 number that is being billed indirectly by the paging company. The bill also notes “001 Pager Contract,” indicating a volume or term contract has been signed. The bill gives no detail, but the carrier’s customer service representatives should be able to explain the terms of the contract quickly.


Figure 1: Typical pager bill.

Equipment rental

Some customers purchase pagers (usually from their carrier), but most customers rent them from their carrier. Businesses watching their cash flow may want to avoid the up-front cost of purchasing new pagers, but paging companies steer most of their businesses toward renting. Equipment rental for a local digital pager costs between $3 and $10 per month.

Rent or buy
One easy way to reduce monthly paging costs is to purchase pagers instead of renting them. The only real advantage of renting pagers is that carriers will repair damaged pagers at little or no cost to the user. If repairs are needed to customer-owned pagers, the customer has to foot the bill. But pagers are fairly low-tech and do not require much maintenance.

For example, a West Coast architectural firm rented 15 digital pagers from its carrier. Each month, the company paid $5 for rental and $6 for service. After performing a miniaudit of its telecom expenses, the company was surprised to learn it had spent more than $1,800 in rental fees over a 2-year period. When it first began using pagers, the company could have purchased all 15 pagers for no more than $750. It presented its findings to its carrier, which ended up giving the firm the pagers for free. Other paging companies may not have been as generous, but they would at least be willing to sell the pagers at a greatly discounted price.

Service

Paging providers bill for service in advance. This is the basic charge for paging; it covers the cost for the tower to transmit messages to the pager. The monthly service for a digital pager with local coverage is usually only $3 to $5.

PRP—Insurance for your pager
Pager maintenance programs, also known as pager replacement programs (PRP), and pager protection, function like an insurance policy. If the pager is lost, damaged, or stolen, the paging company will replace the unit for free. PRP for a digital pager usually costs $1 to $3 per month.

Save money on pager replacement programs
Consider this example: A northern California hospital used more than 100 pagers for its nursing staff. The hospital’s large volume allowed it to negotiate a low rate of $5 per month for each digital pager, which included service and rental. The pager salesman persuaded the hospital telecom manager to purchase PRP for each unit at a cost of $1 per unit and a $25 deductible to replace a pager.

The manager later realized that the nurses were very gentle with the pagers. Only one pager was lost or damaged each month. To replace the one lost pager, the hospital had to pay the $25 deductible. After adding this $25 to the $100 already spent for PRP, the hospital was spending $125 each month to replace one pager it could have bought for only $50. The manager quickly canceled PRP and ended up saving the hospital more than $1,000 in the first year. Five nurses would have to lose their pagers each month before PRP was cost effective (see Table 1).


Table 1: Pager Replacement Programs: Calculating the Break-Even Point

To determine whether or not your organization should keep or cancel pager protection, calculate your own break-even point. Then, find out how many pagers are lost or damaged each month; if you do not know, the paging company should be able to tell you.

Companies that are rough on their pagers should keep PRP. A company of rugged construction workers who destroy half a dozen pagers each month may actually save money by using PRP.

Usage
Paging companies originally charged customers a flat rate each month, but over the past few years, this has changed. Today, some providers also charge as much as $0.25 per message, but they generally give the user the first 100 messages at no charge.

Paging coverage areas

Paging service is offered in specific geographic areas. Unlike other telecom services, these areas are not dictated by government regulations. Paging service areas are only limited by the number of towers the paging company is willing to build. Paging providers usually divide their coverage offerings into three categories: local, regional, and nationwide. Table 1 shows typical monthly pager rates for a digital pager.


Table 1:Typical Monthly Rates for Digital Pagers

In metropolitan areas, customers can choose between numerous carriers, but in remote areas customers may have only one choice. In this case, there is little leverage to negotiate pricing. The paging company is the only game in town, and it can set its rates without being influenced by external factors, such as competition.

Local coverage
The most basic, and therefore most economical, paging area is called the local coverage area. Local coverage is usually the size of a small state or metropolitan area. Figure 1 shows Central Link’s local coverage area in the Waco, Texas, market. The paging towers broadcast in all directions, which results in a circular pattern around the edges of the coverage area.


Figure 1: Local coverage area for paging in Waco, Texas.

Statewide coverage
In large states, paging companies divide the coverage into two or three local areas. California is split into a northern and southern area. For the pager to work in both areas, the customer must pay for statewide coverage that costs a few dollars more than local coverage. Depending on the carrier, Texas has about seven local coverage areas. Paying for statewide coverage ensures that the pager will work in all seven areas. Figure 23.2 shows Page One’s statewide coverage in Texas. Note that the pager will not work in some rural areas that are not reached by Page One’s towers.


Figure 2: Statewide paging coverage map in Texas.

Regional paging
Most nationwide paging companies divide the country into four regions. Each region contains a dozen separate local coverage areas. This scenario is called regional coverage, and, of course, costs a few dollars more than local coverage. Figure 3 shows Arch Paging’s different regions.


Figure 23.3: Regional coverage area for Arch Paging.

Nationwide paging
No paging supplier offers true nationwide paging. Nationwide means the pager will work in the nation’s largest cities and usually along major interstates, but the service is choppy in remote areas. In 1983, SkyTel first offered nationwide paging, but today, many other carriers offer this service

Pager Level of service

The level of service provided by the paging carrier depends on the type of pager. The three types of pagers offered today are digital pagers, alphanumeric pagers, and two-way pagers. Some old-tone pagers are also still in use. Table 1 shows typical monthly pager rates:

Tone pagers

Tone pagers, or beepers, were initially used by people whose professions required them to be available at all hours, such as doctors. Tone pagers give off a tone only; they cannot send numeric messages. Tone pagers are definitely a telecom antiquity; it has been my experience that out of a hundred businesses, five or six still have tone pagers.

Save money on tone pagers
Ironically, tone pagers often cost more than digital pagers. During the past few years, competition has driven the cost of digital pagers down, but tone pagers are a small noncompetitive sector of the overall paging industry. Carriers and customers alike tend to ignore their tone pagers, and no one ever tries to negotiate lower pricing.

Replace tone pagers with digital pagers
Consider the following example: A West Texas oil drilling company used 20 tone pagers. When an employee out in the oilfield was paged, he knew it was time to return to the office. The system worked fine, and the company never felt the need to upgrade to numeric pagers. Since the 1970s, the company had been paying $15 per month for each pager. Eventually the company replaced the tone pagers with digital pagers for only $7 per unit. This change saved the company $160 per month.

Digital pagers

Digital pagers, also called numeric pagers, relay numeric digits to the user—normally, a phone number. Most pagers in service today are digital pagers. Digital pagers normally sell for $25 to $100, but carriers will often give the pager to a customer who signs a contract. Monthly service for a digital pager costs between $5 and $10.

Alphanumeric pagers

Alphanumeric pagers display numeric and text messages across a small LCD screen with up to nine lines. Many carriers broadcast news, weather, and stock quotes to the pager throughout the day. Alphanumeric pagers also come loaded with such features as distinct rings and vibrations, an alarm, message memory, calendar functions, and phone-number storage. They cost between $100 and $300 each. The expense for service is normally $10 to $20 per month.

Two-way pagers

Two-way pagers, such as Motorola’s Page Writer, provide traditional alphanumeric paging capability, but also give the user the ability to check e-mail, surf the internet, and read voice-mail messages that have been converted to text messages. Two-way pagers look like miniature laptop computers and even include a small keyboard. These pagers cost around $400, and service costs between $25 and $35 per month.

Prepaid wireless & cloning

Prepaid wireless
The four rate plans described (emergency, individual, group, and corporate) all require customers to pay for access one month in advance. The calls are charged at the end of each billing month, so each phone bill contains charges for the previous month’s usage and the next month’s access. Prepaid wireless users never pay a fee for access. To begin service, a new prepaid wireless customer simply buys the phone and pays for a block of airtime, such as 500 minutes. Some carriers charge an activation fee, but most do not; they make up for this lost revenue by requiring users to buy the phone directly from them. Some advantages of prepaid wireless are that the carrier requires no term contract and does not perform a credit check on a new customer. In Asia, prepaid wireless service is the only offering.

When additional minutes are needed, the user must buy a card and input the data into the phone. Most prepaid wireless systems have time limits. For example, at the end of six months, the phone is deactivated unless the user buys additional airtime. Once the additional airtime is purchased, any minutes that remained on the old card will again be available to the user. The Tracfone prepaid cellular program in the United States requires users to buy new cards every 2 months. If the customer fails to buy a new card, the phone is deactivated and the phone number may be reassigned.

Save money with prepaid wireless
Prepaid wireless is best for people who only sporadically use the phone. If a user regularly has months with almost no calling, he should consider prepaid wireless to avoid paying an access fee in a month when he will not be using the phone.

Association discounts
Like other telecom services, such as long distance, some wireless carriers offer association discounts. Being a member of a specific organization such as a chamber of commerce, civic organization, or trade organization may qualify your business for an association discount. Regional wireless carriers are more likely to offer association discounts than nationwide carriers. A cellular company operating near the automobile factories in Detroit gives a 5% discount off the total cellular bill to businesses that belong to a certain manufacturing trade organization. To find out about association discounts, ask customer service or one of the carrier’s outside sales representatives.

Save money on features
The original cellular phones were cumbersome and came with no bells or whistles. Today, a host of advanced features are available. The most common features include the following:

Call forwarding;

Call waiting;

Caller ID;

Basic 911;

Voice mail;

Phone insurance.

Sometimes, these features are given to the customer at no charge, but other times carriers charge for the features. Telecom companies are notorious for nickel-and-dime charges that can double a monthly telephone bill. Sales representatives are given bonuses based on the number of advanced features they can sell.

The features are provided by the carrier’s network technology. Once the features are available in the system, they cost the carrier almost nothing. Consequently, every dollar spent on features is sheer profit for carriers. Ask the carrier to waive the charges for all features. If the company says its billing system will not allow it, ask for a one-time credit equal to the cost of the features for a year. If the carrier will not waive the charges, consider canceling any unnecessary features.

One of the most unnecessary features is mobile phone insurance. This covers repair or replacement of your phone if it is broken, lost, or stolen. This feature costs $3 to $5 per month. With the exception of construction workers, most mobile phone users are not too hard on their phones. Today’s phones are hardier than the original phones, and the new smaller sizes make them less susceptible to damage.

Cloning
Cloning is making fraudulent calls on someone else’s wireless phone account. The thieves use radio scanners at major roads to intercept a cell phone’s electronic serial number (ESN) and mobile identification number (MIN). Sometimes, industry insiders sell ESNs and MINs to the thieves. This information is then reprogrammed into another cell phone. The thieves then make calls that are billed on the other person’s account. They usually use the clone phone for up to a month. Once the billing cycle ends, the carrier, or the customer, notices the dramatic increase in calling volume and disconnects the phone.

Customers are not liable for fraudulent charges; carriers must write these charges off. Cloning and other cellular fraud costs carriers half a billion dollars each year. If your phone has been cloned, notify your carrier at once. You should dispute the charges, and the carrier will remove the charges from your account. To remedy the problem, you will probably be issued a new telephone number.

Corporate rate plans

Corporate rate plans
Most accounts only have one cell phone listed on the account. Customers typically activate only one phone at a time, and the phone is handled individually. Because of this, wireless carriers are not exactly sure what percentage of their customer base is commercial and what percentage is consumer. If, however, a business has multiple phones with the same carrier, it may qualify to be treated as a corporate account. Each carrier has a minimum number of phones to qualify for a corporate account. It may be as few as 5 or as many as 50.

If a business does not meet the minimum number of required phones, the carrier may make an exception and allow it to start a corporate account anyway. If a business is only one or two phones short of the minimum, it might cut its overall expenses by adding extra phones to qualify for the corporate account.

What is the advantage of a corporate account?
The main advantage of corporate accounts is that the monthly access charge is significantly reduced. Instead of paying hundreds of dollars a month in access charges, corporate accounts typically only charge $15 per phone. The corporate account for AT&T employees has a phenomenally low $10 monthly access fee and airtime only costs $0.10 per minute.

With individual rate plans, it is a gamble each month whether or not the user will use too many, or too few, minutes. In either case, money is wasted. Corporate accounts do not experience this waste. With a corporate account, high users pay a low rate for each minute, and low users only pay the minimal access fee. There are no surprises.

Pooled or not pooled?
Like small group accounts, some corporate accounts use a pool system for the airtime. A typical pooled corporate account may charge $100 for the first phone and $15 for each additional phone. A pool of 1,000 airtime minutes for all the phones to share is included in the plan. The customer must pay for any additional minutes above the first 1,000.

Nonpooled corporate accounts charge the customer a low access fee per phone and bill the customer for each minute of airtime. You probably will not be given a choice between pooled or not pooled, as most carriers only offer one or the other.

Using someone else’s corporate account
Some carriers allow two businesses to combine their mobile phones to qualify for a corporate account. As long as the carrier separately bills the two companies, this is a great situation. I have seen large companies combine with their subsidiaries, customers, suppliers, and even employees to qualify for a larger corporate account. A large business can use its leverage to help a smaller sister company qualify for corporate pricing.

Avoid fraud and waste on corporate accounts
Some businesses allow their employees to put their personal phones on the corporate pricing. As long as the company does not pay for personal phones or a sister company’s phones, this system works great. Larger businesses that do not routinely track their cellular phones and regularly audit their bills may end up paying for an employee’s personal phone. It is not uncommon for an ex-employee to continue using the company-issued cell phone for months after employment has been terminated.

If you are auditing your bills for the first time, find out the name of the user for each cell phone listed on the bill. Some carriers print the user’s name right on the bill. After reviewing your list of phone numbers and employee names, company department managers should be able to tell you which employees should be using company wireless phones. If you still cannot determine who the user is, call the number and see who answers. If all else fails, temporarily disconnecting the service should flush out the user. Be careful, because you may be surprised to learn whose phone you have canceled. I have canceled the phones of ex-employees, ghost employees, high-level executives, the college-aged children of executives, and even a high-level executive’s mistress.

Before disconnecting anyone’s phone, be sure your company’s executive staff are well aware of the pending cancellation. On an account with 25 or more phones, this type of common-sense audit typically turns up one or two illegitimate cell phones.

Remove high-end users from the corporate account
Customers that use corporate accounts will have one or more phones that stand out because they use more airtime than the other phones. A typical corporate account has 20 phones that each use about 100 minutes of airtime each month and one or two phones that use more than 500 minutes of airtime. In this scenario, the larger users could be pulled out of the corporate account and handled as individual accounts.

Mobile Rate plans - Promotions

Promotions
Wireless carriers regularly set aside funds to offer promotional deals to their customers. Promotions are designed to drum up new business for the carrier and are only for new customers, not existing customers. (Loyalty is rarely rewarded in the telecommunications industry.) If a new customer activates a phone with the carrier, she qualifies for the promotion. Promotions may include the following offers:

Free night and weekend calling for a year;

A free phone;

A free battery;

Free merchandise or gift certificates;

Extra airtime minutes each month.

Promotions are usually advertised on the Internet, on radio, and in newspapers, but you can normally find the latest promotions by calling customer service. If you are an existing customer, you can still request the promotion. Corporate accounts rarely qualify for consumer promotions, but the corporate account executive may be able to pull some strings because the purpose is to retain the corporate account and develop more business from it. Many account executives are skilled in securing preferential treatment for their corporate customers.

Upgrading from analog to digital
In the early days of wireless phones, everyone used analog phones. In the late 1990s, customers began migrating to digital wireless service. Around 2000, the number of digital users equaled the number of analog users, with about 45 million of each type. The two main reasons for this trend are that digital service is higher quality and is more affordable. When digital service was first made available to the public, carriers offered very attractive pricing. The carriers had invested in building their digital networks and were eager to build their customer base.

The downside of switching from analog to digital is that you must buy a new digital phone, your coverage area may be different, and you may have to get a new phone number.

For some wireless users, digital service is not the best option. Carriers offering analog service are still hungry for business and still offer competitive pricing. Of course, the rate plans vary from market to market, but especially in smaller, nonurban areas, analog service rate plans are usually the best. In these smaller markets, digital wireless service only has limited coverage, so a customer’s analog phone might be more useful.

Mobile Rate plans - Individual rate plans

Individual rate plans make up about 75% of all wireless telephone rate plans. These plans are tiered according to the number of airtime minutes included in the plan. Carriers normally require a term agreement with these rate plans, but during the term, they allow the user to upgrade or downgrade their plan to the next higher or lower plan.

Downgrading Rate Plans
For example, a traveling businesswoman chose a high-level rate plan and signed a 12-month term agreement with PCS PrimeCo. After 5 months, she decided to drop down to the next lower-level plan because she was not using all of the free airtime minutes. The carrier agreed to downgrade the calling plan, but required a new 12-month term agreement to start immediately. An additional 12 months were not added to her original 12-month term. Her total time commitment ended up being 17 months, not 24 months. Table 1 shows the impact of downgrading a rate plan. The calculations are based on the sample phone bill in Figure 1.


Table 1: Downgrading a Rate Plan Can Save Money

Upgrading rate plans
In the previous example, the customer chose a rate plan that was inappropriate for her call volume. She selected too large a plan and ended up wasting money. The opposite scenario is just as common. Many wireless customers select a rate plan that is too small. They use all the free airtime minutes early in the billing cycle and then rack up airtime charges for the additional minutes. Upgrading to a higher plan will inevitably cut their cost.

One of the most common scenarios I have seen deals with office workers who go out as field representatives for their company. One such office worker never used more than his allotted 150 minutes each month. But once he became a field sales manager, his usage increased to 600 minutes each month. After his first month in the field, he upgraded to a higher rate plan. Table 2 illustrates the change.


Table 2: Upgrading Wireless Rate Plans

Select a carrier that automatically changes your rate plans
The above examples represent the majority of wireless phone users who never seem to get their phones on the most cost-effective rate plans. One month their usage is up, the next month it is down. To avoid overpaying, they must vigilantly audit their bills each month. Today, some carriers automatically adjust a customer’s rate plan to the most costeffective rate plan each month. Their billing system selects the most cost-effective rate plan before printing the bill each month.

Last-minute rate-plan changes
Some carriers allow “last-minute” rate-plan changes. Here’s an example of how this works.

A small construction company has 10 mobile phones. The billing cycle ends on the 20th of each month. The office manager calls the carrier on the 18th or 19th and finds out how many minutes of airtime each phone had used. If a particular phone has used too much or too little airtime, she has the carrier change the rate plan. When the bill cuts the next day, the 20th, the new rate plan is in force, even though the calls were already made. This is possible because the billing system and the system that tracks airtime are independent of each other.

The prorated wireless telephone bill
When a rate plan is changed in the middle of the bill cycle, the next phone bill is a confusing mess. The bill reflects two minibilling cycles that are each half a month long. The first half of the bill shows a refund of unused access. The second part of the bill shows charges for half a month’s access, and then another full month’s access at the new rate.

Some carriers still do manual data entry, and they may neglect to give you the refund for the partial month. After a brief explanation, you should be able to negotiate this credit.

Mobile Rate plans - Emergency plan

Mobile Rate plans
In order to balance their customers’ needs with their own need to be profitable, wireless carriers have designed numerous rate plans for light users, heavy users, and corporate users. Neglecting to fine-tune their rate plans may make the difference between a slim profit margin and no profit at all. For these reasons, wireless phone rate plans change many times each year.

For consumer and corporate users alike, it is difficult to keep up with the plans and ensure each phone is on the most cost-effective rate plan. A business that diligently manages its wireless billing each month will regularly pay 20% less than a similar company that rarely examines its cellular billing.

Although wireless telephone rate plans regularly change, the plans’ designs remain consistent. The following section explains the most common rate plans. Table 1 shows the four basic types: emergency plans, individual plans, small group plans, and corporate plans. These plans are billed monthly, but many of them are available as prepaid wireless plans.


Table 1: Typical Rate Plans Offered in the Chicago Market

Emergency plan
A typical emergency plan costs $15 to $20 per month for access, includes only 10 minutes of free calling, and has a high per-minute rate for additional minutes. Additional minutes may cost as much as $0.95 each. This plan is designed for people who will only use the phone in the event of an emergency. It is ideal for workers who will only use the phone for one or two calls a month, such as security guards.

Many emergency-rate-plan customers put the phone in the trunk of their cars to be used only in case of a flat tire or other emergency. They can save money by canceling the monthly service, but keeping the phone. Any mobile phone will dial 911, even if the phone is not activated with a carrier.

If a caller uses the phone more than 10 to 30 minutes each month, he should change to an individual rate plan to avoid the high per-minute rates of the emergency plans. It is not unusual for an employee to grab a back-up cellular phone without changing the rate plan. In auditing the bills of large companies, I have seen employees grab a back-up phone and use it without changing the rate plan. All the minutes are then billed at very high rates. The company could have saved more than $100 per month by upgrading to a better rate plan.

Mobile phone rate plans : Free wireless phones

Mobile phone rate plans
Wireless telephone service expenses include monthly recurring charges and the initial start-up costs. Start-up costs may include the cost of a new phone, the first month’s access, and a one-time enrollment fee. Access is charged one month in advance, so this is always paid at the time of activation. Enrollment fees are designed to cover the carrier’s initial administrative expenses. But in today’s competitive marketplace, customers should insist that carriers waive this expense.

In the best-case scenario, the customer gets a free phone, pays no enrollment fee, and only pays for the first month’s access. Prepaid cellular, on the other hand, normally has a high initial cost and the user must purchase a phone. Prepaid cellular does not include a monthly bill, however.

Free wireless phones
Carriers will normally give the phone for free if the user signs a term agreement. New customers should always ask the carrier for a free phone. The carrier will require at least a 12-month term agreement, which is negligible because most people will use the phone for at least 12 months. This is a win-win situation because the user gets a free phone, and the carrier can count on 12 months of revenue from the customer.

Besides term agreements, new users can cut their start-up costs by purchasing a phone apart from their carrier. Phones can be purchased over the Internet or at electronics shops, and, in many cases, a second-hand phone may be sufficient. In a corporate setting, employees regularly relocate or resign but company-owned cell phones are rarely recycled. A company can save $250 by recycling a phone instead of purchasing a new one for each new employee. Prior to purchasing the phone, be sure your carrier will program your phone and allow it to be used on its network.

Monthly billing for wireless telephone service
The typical cellular phone bill contains three charges:

Access: A monthly recurring fee the user pays to use, or “access,” the carrier’s wireless network. Access is charged one month in advance.

Airtime: Charges for the calls made over the past month. Airtime is billed after the calls are made.

Taxes and Fees: Fees charged in advance for extra features, such as caller ID and voice mail.

A user who receives the bill on May 1 might be billed $35 for access in the month of May and $50 airtime for calls made in April. To use the carrier’s network, you must pay for access in advance. Once you have made the calls, you are billed for the usage.

When users cancel wireless service, they are issued a small refund. Since they have paid for future access, but will not use it, the carrier refunds the money.

Sample mobile telephone bill

Sample mobile telephone bill
Figure 1 is an example of a typical wireless telephone bill. The fictional user has a Telephone Company D phone in the St. Louis market. Mobile phone bills have three sections: cover page with payment coupon, account summary, and the call detail. In this particular bill, the customer pays $50 per month for access and gets 500 minutes of free airtime. Additional airtime costs $0.10 per minute. The plan also includes “first incoming minutes free.” This customer is paying $3.25 for “handset replacement insurance.” If the customer damages the phone, Telephone Company D will replace it. The replacement plan may carry a deductible.


Figure 1(a): Sample mobile telephone bill: page 1.


Figure 1(b): Sample mobile telephone bill: page 2, account summary.


Figure 1(c): Sample mobile telephone bill: page 3, phone charges.

This customer has a couple of options to reduce this monthly bill. First, the customer is paying for the 500-minute plan but only used 291 minutes. If Telephone Company D has a 250-minute plan for $25, the bill could be reduced by about $20. Another way to reduce the bill is to cancel the $3.25 monthly fee for “insurance.” Mobile phones rarely need repairs; so as long as the customer is not tough on the phone, this plan is a waste of money. The customer also had 60 minutes of calling to an 800 number. This airtime could be eliminated altogether if the user would use a landline phone, such as a payphone. If the calls were made while driving, this option is not feasible.

Cellular service : Number portability, 3G, WAP

Number portability
In the 1990s, the FCC mandated that the wireless phone industry must implement a number portability system. Historically speaking, cellular phone numbers have not been portable. If a user changes from Bell Atlantic Mobile to Sprint PCS, she has to get a new phone number. The old number is recycled by Bell Atlantic Mobile and Sprint PCS assigns the user a new number.

This process is so frustrating that most customers simply stay with the current carrier, rather than experience the “pain of change” to a new carrier. Getting a new phone number may require a business user to print new business cards and new letterhead, and the user must inform his clients of the new number. Few people are willing to go through this headache just to save a few dollars each month.

Third-generation technology
Telecom suppliers worry about the capacity of their networks. If the network is maxed out, they cannot enroll new customers, and existing customers switch to different carriers. New technologies are implemented to increase network capacity and allow carriers to offer more sophisticated services to their customers. The next significant wireless telecommunications technology is referred to as “the third generation.”

Three 3G technologies have been developed, but none has yet been deployed. The three technologies are WCDMA, CDMA2000, and TD-SCDMA, developed by Americans, Europeans, and Chinese, respectively. Governments, telecom manufacturers, carriers, and other power brokers are still deciding which technology to deploy. 3G is often in the news because of the high-level negotiations deciding the future of the wireless industry, but until it is deployed, 3G is not very relevant for the end user.

WAP
WAP allows mobile telephone users to send and receive electronic data. WAP has been heavily marketed by carriers, but the service has had a rocky start. The service had many technical glitches, and the technology’s early adopters lost their enthusiasm. WAP’s biggest drawback is that it is not user friendly. Data input is inconvenient, and most customers cannot tolerate the tiny display screen.

Digital cellular service : PCS & Low Earth-Orbiting Satellites

Digital cellular service
In the late 1990s, carriers began migrating their customers from analog service to digital cellular service. Digital cellular allows carriers to increase privacy, reduce cloning fraud, and increase capacity by 3 to 10 times. Digital cellular signals are multiplexed and scrambled, making it more difficult for eavesdroppers to listen in to a conversation. Digital service also includes more features such as caller ID, call waiting, repeat dialing, and call return. A carrier that upgrades from analog to digital technology can offer better service to more customers.

PCS
In the early 1990s, the FCC auctioned off six more bands of the airwaves to be used for personal communications service (PCS). The auction was controversial and the stakes were high. Many people complained that the government had no right to collect money by “selling” the airwaves. The bids at the auction were much higher than predicted and the government was surprised at how much money it raised. The auction of the A, B, and C blocks netted the U.S. Treasury $17.9 billion. In the Washington/Baltimore market alone, AT&T Wireless paid $211,771,000 just for the right to broadcast phone calls. Some of the entrepreneurs who got the bids eventually defaulted on the payments. Consequently, PCS service was not rolled out as quickly as planned.

PCS service uses digital technology and is rich with features. PCS also uses less complex pricing and billing schemes than traditional cellular service. Because of these advantages, wireless carriers and customers alike are making the shift from analog wireless services to PCS.

Low Earth-Orbiting Satellites
Low earth-orbiting satellites (LEOS) provide wireless telephone service for users across the globe. The handheld phone transmits and receives signals to and from geosynchronous satellites. Once enough satellites are launched into space, a caller should be able to make and receive calls anywhere across the globe. This revolutionary technology will allow people everywhere to make voice calls, transmit data, or connect to the Internet from anywhere. The concept is especially attractive in isolated places such as the Andes Mountains, where the telecommunications infrastructure is significantly underdeveloped.

LEOS technology has many glitches, however. During the recent war in Kosovo, telephone lines were severely damaged. News correspondents brought in satellite phones to call the outside world. In spite of the hefty $2,000 to $3,000 price tag, these phones rarely worked properly, especially when used indoors.

Probably the biggest problem facing rapid LEOS deployment is the high cost of building the network. In 1998, the Iridium Company, daughter company of Motorola, first offered global wireless telephone service. Iridium spent more than $5 billion building its 66-satellite constellation that would provide coverage throughout the world. But in its first 2 years, the company enrolled only 10,000 customers. A small customer base means small revenue, and in 2000, Iriduim filed for bankruptcy. What began as a dynamic cutting-edge high-tech company quickly died as the result of financial problems. Even its major supporter, Motorola, refused to bail the company out. Iridium is now back in business, but it mainly targets commercial users in remote parts of the world, such as off-shore locations.

Mobile radio and mobile telephones

Mobile radio and mobile telephones
Two-way mobile radio communication was first used around the time of World War I. Mobile radio is still used today across the globe by taxicab companies, police departments, fire departments, trucking companies, and marine operations. Mobile radio users only communicate with each other; they cannot connect to the public-switched telephone network. Users take turns speaking because the system only allows for one-way communication. But the price of wireless telephone service is dropping and, in most cases, it is now cost effective for a company to replace its mobile radios with cellular phones.

Mobile telephones were developed because people wanted to call from their cars to normal landline phones. The first mobile phones were very expensive, and each city could only handle a small number of simultaneous phone calls. One of the first mobile phone systems, in St. Louis, could not even accommodate 100 simultaneous calls. Mobile telephones were given their own frequency band by the FCC, and this small portion of the airwaves would only accommodate a small number of users. Cellular telephone service changed all of this.

Voice and data convergence

Voice and data convergence
One of the recent data networking trends is called convergence. Convergence means that different signals such as voice, video, and data are transmitted over a single medium. On the consumer level, Web TV is an example of convergence; cable TV and the Internet are provided across a single cable. At the business level, many companies are migrating their voice long-distance traffic across their data networks.

Businesses have traditionally carried their voice and data traffic over separate networks. The phone companies assigned separate account managers to handle a business’ voice and data needs. The services had separate contracts and were billed separately. As part of the recent streamlining effort of the phone companies, voice and data services now share the same account manager, the same contract, and the same invoice. But the greater change is that voice and data now ride the same phone line.

Voice over frame relay
The main benefit of voice over frame relay (VoFR) is that long-distance calls are free. VoFR is normally only used to carry intracompany long-distance traffic or international long-distance traffic. The latency of packetswitching technology affects the call quality (i.e., conversations may be choppy).

Latency is a term that describes the transmission delay due to the speed of the media and the processing time of the network equipment, such as routers. Each stage in the network may only add milliseconds of delay, but the combined latency may be enough to distort the sound of the phone call. VoFR is, therefore, rarely used for “front office” applications. However, businesses with lots of intracompany long-distance calling can significantly reduce their long-distance billing. By moving their long distance across their frame relay network, they will eliminate the long-distance cost altogether. If they do not mind slightly compromising call quality, thousands of dollars can be saved.

Voice over Internet
Voice over Internet (VoIP) is the same concept as VoFR, except the voice calls are converted to data packets and sent along a network that uses Internet Protocol (IP). The Internet, or a private WAN using IP, are both examples of IP networks. The same latency problems previously described with VoFR apply with VoIP.

On a much smaller scale, cost savings can be achieved by using one of the Internet’s free long-distance Web sites such as http:// www.net2phone.com or http://www.dialpad.com. These services allow a person to make free long-distance calls over the Internet. Most of them limit the destination of the call to the United States, but a few of these services have roots in the Far East and may include Korea or Taiwan as approved calling destinations. Internet phone calls often experience a lot of noise, similar to a shortwave radio conversation, or international calls 5 or 10 years ago. The call quality is poor, but you cannot beat the price.

ATM
ATM is a high-speed packet-switching telecommunications service. ATM is typically used only by very large businesses such as Fortune 100 companies, major universities, and telephone companies. Telephone companies use ATM technology in the “backbone” of their networks. A voice phone call from New York to Tokyo will probably be converted to ATM packets as the data travels along an undersea phone line lying at the bottom of the ocean.

ATM is a high-cost service, designed for high-volume users, and will therefore not be used by most businesses. According to the Vertical Systems Group, only slightly more than 35,000 enterprises worldwide are currently using ATM services, while frame relay has more than 1.2 million subscribers.

Why is ATM so fast?
ATM carries voice, video, and data at speeds up to 622 Mbps. Such a high speed is due to three factors: asynchronous switching, cell length, and the use of hardware in switching. “Asynchronous” means the service transfers different data at different times and can process multiple jobs simultaneously.

ATM’s fixed-length packets, called cells, make ATM more efficient than other technologies, such as frame relay. The size of each frame relay packet must be processed, while ATM networks waste no time figuring out how large or small a packet is. ATM networks expect each packet to be 53-bytes long, and they rapidly move these packets up and down the network.

Another advantage of ATM over frame relay is that the switching is controlled in the network hardware, instead of the software. These three advantages make ATM a very fast data networking technology.

Although ATM may be a fast technology, it is also a costly one. Installing an ATM network is very expensive, and the monthly charges not only include fixed charges for the network, but also usage on an ATM network. ATM is only a cost-effective technology for extremely large businesses.

Frame relay : Replacing dedicated lines with frame relay

Frame relay
The original WANs consisted of multiple remote locations connected together. Each site may have a single computer or an entire LAN. The LANs connect to each other with dedicated lines provided by a telephone company. But the dedicated lines are expensive for customers, and they eat up too much of the carrier’s network capacity. Frame relay service is a solution to both of these problems.

Frame relay service uses variable-sized packets of data called frames. Unlike X.25, an earlier packet-switching service, frame relay service is a fast-packet technology. It discards erroneous packets, instead of correcting them. Error correction is performed at the end-points only, and not along the way, which results in a speedier transmission. If the receiving computer detects errors, it asks the sending computer to retransmit the data. Because errors are few with digital communication, this feature makes frame relay very quick. Unlike dedicated lines, frame relay is not a full-time connection. This is not a problem, because most businesses transmit data intermittently.

The PVC
Frame relay service providers set up a PVC between two customer sites that acts like a dedicated line. The customer chooses each PVC’s bandwidth. For example, a Louisville furniture manufacturer uses a 56-Kbps PVC to a remote facility in rural Kentucky but has a 256-Kbps PVC to the sales office in Atlanta, Georgia. More bandwidth is needed to the sales office, because more data is shared with this site. If the company used dedicated lines instead of frame relay, the cost would be almost double. Frame relay gives the best of both worlds: lots of bandwidth and low cost.

The CIR
The frame relay customer chooses the bandwidth of each PVC. As with other data services, the higher the bandwidth, the higher the cost. The 256-Kbps PVC costs more than the 56-Kbps PVC. The bandwidth is called the committed information rate (CIR), which is simply the rate of information that the phone company commits to always have available for you. The frame relay CIR is, therefore, the minimum speed limit. On the other hand, a 56-Kbps dedicated private line can transmit data no faster than 56 Kbps. The bandwidth of a dedicated line is, therefore, the maximum speed.

Frame relay is a “bursty” service. The furniture company could potentially transmit data at T-1 speeds across a 56-Kbps PVC if the phone company network has some spare bandwidth. Qwest boasts that its network has so much capacity that customers can save money by specifying “zero CIR” and still transmit data at T-1 speeds.

If frame relay service is used all within one LATA, then the service will be provided by the LEC in the area. For example, a Seattle hospital with numerous clinics in the same metropolitan area would purchase frame relay services from either its local carrier U S West or a competitive LEC that operates in the area. If the data network crosses LATA boundaries, a long-distance carrier, such as AT&T, will provide the service. However, the customer will still pay a local loop charge. The local loop is a dedicated private line from its facility to the long-distance carriers nearest frame relay-equipped central office. The local loop is provided by the LEC but will be billed on the frame relay carrier’s bill.

To install frame relay service, the customer must buy routers to be used at each location. Each carrier charges an installation fee, and the network technicians who program the router may charge additional fees. A business’ monthly frame relay pricing is based on PVCs, CIR, local loop charges, and any contractual discounts. Frame relay is a measured service—carriers show the usage on each invoice but most do not charge for it.

Replacing dedicated lines with frame relay
Consider the following example: A chain of tire stores in Ohio has four locations. Each location connects to the other three with dedicated T-1 lines. This “fully meshed” network requires a total of six T-1s. The charge for each T-1 includes the local loop at the starting point, the interexchange carrier mileage, and the local loop on the terminating end of the circuit. The network is illustrated in Figure 2.


Figure 2: Meshed network.

The company decided to replace its network of T-1 lines with frame relay service. Using frame relay, each location only requires one local loop connection to the frame relay provider’s central office. The data is then transmitted across the carrier’s network, which is usually called a cloud. To convert from dedicated lines to frame relay, the company had to purchase routing equipment and pay installation fees. The monthly charges are based on the local loop charges, the PVCs, and the CIR chosen by the customer. Figure 3 shows the change from dedicated lines to frame relay. The customer’s monthly cost dropped from $6,000 to $3,000.


Figure 3: Frame relay network.