Taking Charges

"There's no magic bullet with software," claims MSS's Erickson, who says that it was the recognition of the limitations of a technology-only solution that led the company to acquire Telwares, whose prime expertise lies in negotiating contracts with carriers. Once a company centralizes invoice receipt and payment, takes inventory of its telecom assets, and begins the process of evaluating carrier compliance with contracts and tariffs, Erickson says, the focus should turn to negotiating new contracts in order to lock in future savings.

Companies such as MBG Inc. offer TEM in a managed-services model in which they handle the data feeds from telecom carriers, but their clients have the option of managing the software themselves or having the provider do it. Despite the flexibility of that model, some analysts believe the market will eventually split between licensed software and fully outsourced services. Expect vendors to adjust as the market matures.

Pete Wilson, founder and CEO of Telwares, says that two important negotiable features in new contracts are annual price reviews (even three-year contracts offer wiggle room at the one- and two-year marks, thanks to declining costs and fierce competition) and protective escape clauses based on "degradation of services" or the discontinuation of specific carrier offerings.

Better Negotiators
One customer who found value in Telwares's services is Bob Zumwalt, director of technology at Norcross, Georgia-based Rock-Tenn Co., a manufacturer of packaging products, merchandising displays, and recycled paperboard. Rock-Tenn, says Zumwalt, has an annual telecom budget of roughly $3.5 million, and engaged Telwares because its telecom contracts for long-distance, data, and wireless services were all expiring at the same time. "We didn't feel comfortable that we had the expertise necessary to get maximum results from the RFP process and contract negotiations," he explains.

To prepare for effective negotiations, Rock-Tenn validated its inventory of telecom assets and services broken down by individual locations. As a result, says Zumwalt, the company could approach carriers with a clear message: "This is what we have. This is where we're starting." He adds, "The purpose was to provide the carriers with a specific package of services for which they could bid."

With Telwares's help, Rock-Tenn then announced to carriers that its business was up for bids and organized "bidders' conferences" in which Telwares met with 10 carriers interested in Rock-Tenn's long-distance and wireline business, along with another 7 interested in its wireless contract. After the company presented carrier hopefuls with RFPs, they submitted bids. Rock-Tenn chose MCI for long-distance and data, saving 40 percent to 50 percent over its old contract with AT&T, says Zumwalt. For wireless, Rock-Tenn stayed with AT&T Wireless, but lowered its spend by "30 to 40 percent."

The process resulted in not only better contractual terms but also other benefits. Rock-Tenn was able to negotiate a national flat rate for local access on its wide-area network. Previously, the firm was charged widely varying local access rates depending on the geography (and local service provider) each time it hooked a local site to its WAN. The flat rate lowered overall access charges and provided simplification, says Zumwalt. Another concession won on the new contracts: penalties for failure to deliver new services in a timely manner. Rock-Tenn had often experienced delays in getting new services up and running. The new contracts require carriers to meet specific deadlines or pay financial penalties.

If TEM vendors can produce the sorts of savings some customers report, they may eventually attract competition from the Goliaths of IT outsourcing. Analysts expect such major outsourcers as IBM, EDS, and CSC to become more active in the market, perhaps through acquisition. For its part, HP was so pleased with the Tangoe software that it has taken out a separate license that will enable it to offer TEM services to its own customers. Who would have guessed that, amid all the hoopla about camera phones and ring tones, that the next big thing in telecom would be how to pay for it?

Norm Alster has worked for Forbes and BusinessWeek and is a contributor to The New York Times.

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Blurring Boundaries

Businesses that want to implement technology to support telecom-expense management have generally had three options: license software and run it themselves, subscribe to externally hosted software, or sign on for some level of business-process outsourcing that can encompass everything from software to a range of consulting services.

But as TEM companies grow, the distinctions among these options have begun to blur. Some software vendors, for example, are beefing up to provide full outsourced solutions. Tangoe Inc., whose software licenses typically run from $150,000 to $500,000 (depending on the customer's telecom budget), hopes to eventually derive substantial revenue from outsourcing. Acquisitions and strategic partnerships are certain to increase, and companies that make other forms of expense-management software may see telecom as a logical extension of what they offer.

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