Upfront: Dialing Down Telecom Costs

Most companies poorly manage their telecom expenses, so advisory firms and software providers are popping up to help them cope.

Telecommunications expenses are a large and poorly controlled cost category for many businesses. Between 7 percent and 12 percent of telecom service charges are in error -- and those mistakes can cost large organizations more than $8 million per year, according to a new Aberdeen Group white paper. Up to 85 percent of a typical company's telecom bills are not audited and are simply paid in full, the report notes.

"Most enterprises don't know how much they spend on telecom services, never mind how they can best manage those budgets," says Christa Degnan, Aberdeen's Boston-based research director for supply chain research and author of the report. Businesses aren't even aware of the time and cost of processing telecom invoices. "Companies are so mired in paper they have no idea how much [invoice processing] costs," she reports. "Sometimes it's taking them upwards of 90 days to pay an invoice that was due in 30 days and didn't even get out of the telco company mailroom for two weeks after it was printed." One of the surveyed companies "was paying $2,000 to $4,000 a month in late fees alone before they undertook an improvement initiative," Degnan reports. "They just couldn't keep up with the invoice volume."

Why are these expenses so poorly understood? Degnan lists the factors: decentralized procurement and management procedures, poor asset and usage tracking, limited sourcing category expertise, and insufficient automation and controls.

Lately, an entire industry has sprung up consisting of software providers and advisory firms that help companies meet those challenges. Eric F. Goodness, research vice president for network and storage services with Gartner Inc. in Lowell, Mass., has seen an explosion of interest in telecommunications expense management (TEM) offerings. "In the past 18 months TEM has gone from being an obscure little space to the number one focus of my customer inquiries," he says. "In 2003 I had 15 TEM inquiries; in 2004 I had 400." He expects the market for TEM products and services, which hit about $500 million in 2004, to balloon to $1.45 billion by 2009.

Companies that implement what Aberdeen calls a total telecommunications cost management (TTCM) initiative often realize rapid returns. "Routinely we see an ROI in the first year," says Degnan. Businesses that invest in a technology component for their TTCM campaign see the biggest gains -- about a 26 percent average reduction in their overall telecom budget, compared with 18.6 percent for organizations that rely on personnel and consulting investments alone.

Technology-enabled initiatives also offer a range of additional gains, according to Al Subbloie, president and CEO of TEM software and services provider Tangoe Inc. in Orange, Conn. "One major benefit is more accurate and timely financial reporting, which is one reason why TEM is an initiative that directly supports the SOX goals of most companies," he notes. With a TEM tool in place, "the corporate books can reflect accurate and timely voice, data and wireless expense postings directly from the source bills provided by suppliers." The enhanced visibility into supplier data that TEM tools deliver also gives the organization greater flexibility in migrating to a different carrier, enabling it to "react to change very quickly, whether that involves an acquisition or divestiture or simply expanding or contracting for business reasons," says Subbloie.