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.

Miscellaneous cost management strategies

Miscellaneous cost management strategies
Data networking is highly complex, but invoices from carriers are surprisingly simple. The next few sections offer a few miscellaneous practical strategies that nontechnical people can use to minimize the expenses of a data network.

Avoid billing errors with centralized control
Most of this book focuses on how a company can manage the external relationships it has with its telecom suppliers. Many large companies wind up overpaying because the internal relationships are mismanaged.

Most large organizations have an IT department that manages their companywide computer network. But the telephone bills associated with the network are managed by a separate department—the telecom department or the accounts payable department. The people who plan and order the services are different from the people who manage the costs. Even though the ones paying the bills might not understand what they are paying for, they can still successfully manage these costs.

The following is an example of a company whose internal processes ended up raising its telecommunications expenses. An aircraft maintenance company in Ft. Lauderdale, Florida, processed the telephone bills for all of the company’s locations. The company’s Austin, Texas, location ordered a new T-1 and informed the telecom department in Ft. Lauderdale. The Austin office handled all the negotiations and coordinated the installation with AT&T. Once the T-1 was installed, the Austin office was no longer concerned about pricing issues. The manager in the Austin office had an “if it ain’t broke, don’t fix it” attitude.

The Ft. Lauderdale office began receiving invoices for the new T-1, but it could not determine if the charges were correct. The Austin office misplaced the copies of AT&T’s proposals and contracts, so it was impossible to verify the pricing. The corporate telecom department felt the charges were too high, but the manager in Austin wanted to ignore the situation because he was losing face. In the end, internal politics prevented the telecom department from efficiently managing the T-1 billing, and the company ended up overpaying AT&T for the entire 3-year term. The company’s upper management should have established some strict guidelines for negotiating, ordering, and verifying all telecom services.

Free e-mail
Prior to the widespread use of fax machines and the Internet, businesses subscribed to e-mail service provided by carriers such as AT&T. The e-mail messages were transmitted across the carrier’s network. Pricing for the service consisted of a monthly fee and a usage charge based on the number of characters sent. The service was expensive, but it was quicker and less expensive than overnight mail. Most businesses have replaced this type of e-mail service with Internet-based e-mail. A small number of businesses still have active accounts with carriers and still pay the invoice each month, even though the service is not used. The customer should cancel the service with the carrier and try to negotiate a refund for the previous few months’ service.

Medium and large businesses pay their ISP for e-mail accounts in addition to the charge for monthly access to the Internet. Many ISPs will give their customers e-mail. This expense can also be eliminated by using one of the numerous free e-mail services available such as hotmail.com.

Avoid fraudulent charges
One of the latest telecom scams is “cramming” bogus Internet charges on a customer’s local telephone bill. Most businesses do not question these charges and the thieves make easy money each month. LECs allow other companies to add charges to the LEC bill because it earns a billing fee. The charges are listed with a legitimate sounding name such as “Web hosting” or “Internet,” and may be as high as $100 per month. In some cases, the thieves copy elements of the company’s true Web site and build a phony Web site. The bogus Web site should be canceled, and the fraudulent company should give a full refund of all past charges.

Use a contingency plan
One of the fundamental strategies for managing a mission-critical data network is to have a backup plan, normally called a contingency plan. If the primary carrier’s data network fails, then the data traffic can be redirected to a secondary carrier’s network. In addition to being a backup plan, a two-carrier contingency plan also has cost management benefits.

For example, a Boston brokerage firm has a dedicated T-1 connection to Wall Street provided by WorldCom. The brokerage firm also installed a 56-Kbps line with Sprint to be used in case of a WorldCom service outage. The data networks of the telephone carriers rarely fail, so the brokerage firm may never use the Sprint 56-Kbps line. Nonetheless, using two carriers can be a strong negotiating tool for the business. When the WorldCom contract expires, the brokerage house will be able to negotiate very aggressive pricing with WorldCom. WorldCom would rather trim its profits on the account rather than lose it entirely to Sprint. Most small- and medium-size businesses do not bother with contingency plans.

Save Money on Term agreements

Term agreements
Carriers normally offer 12-, 24-, and 36-month term agreements. The longer a customer will commit to a carrier, the greater discount the carrier will offer. The combination of the term agreement and volume commitment establish the discount amount.

On national accounts, carriers will normally push for an even longer term agreement, such as 48or 60-month agreements. Ironically, the longer your term agreement, the less attention you get from your carrier. The carrier knows that they have no risk of losing your business in the short term, so they focus their attention on their more volatile customers.

Save money with term agreements
Increasing your term commitment increases your discount amount. Carriers push the 36-month term agreement because they want to count on the customer’s revenue for as long a period as possible. The pricing difference between 24and 36-month agreements is often negligible, so the customer should choose the shorter-term commitment.

Many account executives offer a new 36-month term agreement as their standard offer. If the customer is a savvy negotiator, he can often secure the same pricing on a 12-month agreement. A rule that guides many consultants is to simply reject the long-distance carrier’s first proposal. Consultants know from experience that account executives rarely offer the best pricing with their first proposal. In this way, long-distance contract negotiation differs little from the negotiation done while buying a car.

In some cases, a customer’s current long-distance contract may be amended to increase the term. In other words, another year can be added to the agreement without requiring a new contract. In most cases, however, increasing the term agreement to secure lower discounts is normally done during the initial contract negotiation.

Some small areas of the country are not yet “equal access.” That means that customers in those areas can only choose AT&T as their long-distance carrier. For example, a Midwest aluminum siding company is located in a rural area surrounded by farm fields. Its facility uses more than $5,000 per month in long distance, but the company can only use AT&T. None of the other carriers have built a network out to this remote area. This business might as well sign the maximum term agreement available because it has no other choice of carrier. At least with a long-term agreement, it can secure the lowest rates available through AT&T.

A business that receives specialized services from one carrier that cannot be duplicated by another carrier should also sign a long-term agreement with its carrier. An oil prospecting business located in Texas spends more than $10,000 per month in long distance. Most of the billing is from calls made by field representatives who are in remote areas of the Middle East. The field representatives use calling cards for their calls. The telecommunications infrastructure is underdeveloped in the oilfields of the Middle East, and only AT&T can satisfactorily provide this service.

Other carriers would like to earn the company’s business, but the company cannot afford the risks associated with trying a new carrier. This business has no reason to not sign a long-term agreement with its current carrier.

Save money by avoiding shortfall penalties

If you are in a shortfall situation, you should contact your carrier immediately. Shortfall revenue is gladly accepted by carriers, but if the customer asks the carrier for relief, the carrier will normally negotiate an alternative. The key is to proactively address the situation before the shortfall charge is billed. The volume commitment can normally be reduced to the next lower level without having to sign a whole new agreement. Some of the discounts may be forfeited, however.

If the shortfall amount has already been billed, it is difficult for the carrier to simply waive the charges and reduce the volume commitment. Usually, the carrier will only waive the billed shortfall if the customer is willing to sign a new agreement with a new term commitment. I have seen customers in their last few months of a 3-year contract experience a shortfall and the only cost-effective way to avoid paying the shortfall is by signing a new 3-year contract. However, in this situation, the customer has little leverage and ends up paying high rates.

Contract value
Contract value is how carriers calculate how much money each customer is worth. Contract value is calculated by multiplying your monthly volume commitment by the number of months remaining on your term. For example, a customer at the beginning of a $1,000 per month, 12-month agreement has a contract value of $12,000. The same customer 10 months later is only worth $2,000 to the carrier. By studying the contract value of the entire customer base, long-distance company financial analysts can predict future revenues.

A customer in a shortfall situation should be aware that his carrier uses the contract value principle to guide him during negotiations. A wise customer considers this same principle when negotiating with her carrier. To clear up a shortfall, your carrier will always require you to increase your contract value. So a customer facing a $10,000 shortfall penalty must sign a new contract that promises the carrier at least $10,000 in future revenue.

Term agreements
Carriers normally offer 12-, 24-, and 36-month term agreements. The longer a customer will commit to a carrier, the greater discount the carrier will offer. The combination of the term agreement and volume commitment establish the discount amount. Table 13.1 illustrates how a typical long-distance carrier structures its discounts.

On national accounts, carriers will normally push for an even longer term agreement, such as 48or 60-month agreements. Ironically, the longer your term agreement, the less attention you get from your carrier. The carrier knows that they have no risk of losing your business in the short term, so they focus their attention on their more volatile customers.

Saving money on local calls by changing class of service

Reviewing the class of service for your local lines is an integral part of a telecom audit. Businesses can change from flat-rate service to measuredor message-rate service. Certain types of business are key candidates to change their service.

For example, a telemarketing company whose calls are all long distance should switch from flat-rate service to measured-rate service. Its line charges will be lower with measured-rate service and, because the telemarketing company makes minimal local calls, the charge for usage will be lower. Flat-rate service is better for a business with a lot of local calling.

Table below shows the cost comparison of a telemarketing company that switched from flat-rate to measured-rate local service. The telemarketing company has 50 lines, and each line averages only 60 minutes of local calling each month. In this example, the customer can save more than $5,000 per year by making this change.



This strategy does have a caveat. The phone bill for flat-rate local service does not give a summary of the local calls. Therefore, the customer does not know exactly how much local calling it has done. I have seen one business switch from flat-rate to measured-rate service only to find its costs increase by $800 per month. The company was unaware that its local calling was so high. Unless you are sure your local call volume is low, you should first find out exactly how much local calling you have. This can be accomplished by having your local carrier perform a traffic study. Your telephone equipment may also be capable of tracking the volume.

When considering changing the class of service for your local lines to reduce the cost of your local calls, the following items must be included in your cost comparison: number of local calls, duration of local calls, and the difference in the cost of the lines.

Off-peak calling
A low-tech way to cut the cost of your local calling is to use lower off-peak calling rates. This works especially well if you have a great deal of computer modem traffic. If you do not use dedicated data lines, then your computer modem calls are billed as regular voice calls. If you have a significant amount of modem traffic, consider changing the time that you transmit the data to be evening off-peak calling. Phone companies offer reduced rates at night to encourage callers not to flood the network during peak hours.

Local calling packages
As in the case with Bell Atlantic’s ValuePak calling plans, some local carriers offer discount local calling plans. A good rule to follow when auditing local bills is that anytime you see calls billed according to measured usage, there may be a less expensive way to have the calls billed. A quick phone call to the carrier is all you need to find out what options you have. If the carrier has no discount plans for local calls, consider eliminating the calls altogether by switching to flat-rate service.

Some local calling plans offer a discount each month, such as 10% off, while other plans simply offer lower per-minute calling rates. The impact of the plan is usually fairly simple, but the plan’s design may be puzzling. Consider Bell Atlantic’s ValuePak plan that has been offered for years in Pennsylvania. The plan allows you to purchase “Paks” of local calling at a reduced rate each month. For $13.80, you get a calling allowance of $18. If you use more than your allowance, the rest is billed without a discount. If you use less than your allowance, you are still billed $13.80 per month. Higher volume users usually add multiple ValuePaks but are limited to one Pak per line on the account. Table 6.3 compares a customer’s $100 cost with and without ValuePaks.



As illustrated on top, the customer can save $21 per month by adding five ValuePaks. I have also encountered numerous customers that pay for ValuePaks but have no local calling. Either their calling habits changed or they moved their local calling traffic to another carrier. If they do not cancel the ValuePaks, they will continue to make a donation to Bell Atlantic every month.

Using local call volume to secure discounts
Some discount plans offered by LECs do not offer lower rates for local calls, but they do allow the local calling volume to contribute to the overall volume. As with most telecommunications pricing, the greater your volume, the greater your discounts.

For example, a customer who signs up for Ameritech’s Complete Link plan with a 12-month term and a $500 monthly volume commitment receives lower rates for intralata calling and a discount of 4% to 5%. The discount is applied to monthly service, local calls, and intralata calls. While the local calls do not directly receive a reduced rate, the local calling volume may be significant enough to allow the customer to qualify for the next discount tier. Table below shows an example of the Complete Link plan.