26 November 2001

The telecommunications market is highly complex, and buyers should expect to strike contracts with more than one provider, says Sam Tulip

Telecommunications services form arguably the most complex marketplace that most purchasing managers are ever likely to meet. The combination of state-regulated and unregulated activities, multiple needs (voice, data, Internet and so on), and fierce but uneven competition among the various service providers can baffle purchasers.

Add to that the rapid technological development into wireless application protocol and third-generation mobile phones, and difficulties comparing providers' costs, services and tariffs, and it becomes clear that a structured approach to telecoms procurement is essential, but also very difficult. This may be a buyer's market, but the buyers need to keep their wits about them.

Most of a company's telecoms needs are likely to come through fixed-line services from a licensed provider, so this is likely to be the purchaser's initial focus.

However, there are two principal limitations on purchasers' negotiations with regard to fixed-line networks. The first is that although Oftel, the telecoms regulator, licenses dozens of service providers in the UK, only a handful of companies actually own their networks. These include Energis, which uses the National Grid, BT, cable operators NTL and Telewest, and a handful of others.

Second, apart from BT, and to a lesser extent Energis, these fixed-line networks tend to be concentrated on centres of population and business activity. Unless the operator's cable runs past your front door, connection at reasonable cost involves using BT's "local loop", the term for the last mile connection between your premises and the nearest exchange. The same applies to independent access providers that buy capacity wholesale from a network operator and sell it on with a variety of what are marketed as added-value features.

Further competition has also been hampered by the slow progress towards "unbundling" the local loop. This would have allowed other service providers to set up equipment in BT exchanges and, in effect, take over the local loop to their customers. The intention was to stimulate demand for broadband services and reduce charges. However, all of BT's large competitors, including Energis, have pulled out of the unbundling process, leaving just a handful of small companies.

The concentration of fixed-line provision on a few companies has other implications. The most important service attribute for many users is resilience. They want the certainty that, for example, a fire in the local exchange will not cut their company off from the world. Most firms of any size therefore use several fixed-line service providers, but obviously this will offer no security if all of the providers are using the same network infrastructure. Resilience aside, all but the smallest firms are still likely to use multiple service providers and this has benefits.

In the first place, it is not possible to combine all voice, data and mobile requirements on one contract, even with BT, which is currently spinning off its mobile operations.

Splitting requirements between providers also makes commercial sense. Voice traffic does not benefit from more expensive high bandwidth links; nobody talks any quicker as a result. Data, however, does benefit and it is worth considering moving other functions, such as fax, on to a data link.

Some firms have found that their overall cost can be reduced by separating domestic and international calls, or even separating incoming and outgoing. Cable & Wireless currently offers good value on outgoing calls, while BT is more competitive on incoming.

There is no substitute for drawing up a comprehensive invitation to tender (ITT), in conjunction with the user groups, for each contract area. This needs to reflect both historical usage patterns and likely future growth. Many firms hire specialist consultancies to help analyse traffic, but you may well find that your existing service already offers quite sophisticated call logging and analysis features that you have not previously used.

Also remember to build in plenty of redundancy to allow for future growth and change. One handy tip is to allow 10 per cent more lines than you appear to need, to accommodate call queuing at peak times.

Oftel indicators

At the same time, you should draft a service-level agreement, which is likely to be the most important part of the contract. Oftel maintains a comprehensive series of comparative performance indicators that can help in choosing firms.

Getting an adequate response to the ITT may not be straightforward. Many telecoms companies have cut back on active sales and reps in the field are now rare, while desk-bound account managers can seem to simply take orders and offer standard tariffs. Larger users will presumably always find someone to negotiate with. Smaller ones (only a few tens of thousands of pounds a year) may have more difficulty.

Nonetheless, you should still negotiate. Smaller firms may find providers fairly inflexible on tariffs, but it is often possible to negotiate other benefits, such as free mobile handsets, reduced or zero-line rental charges and additional services at reduced cost.

Finding the best combination of tariffs and other charges can be a nightmare. First, providers break down their charges in different ways, and often leave some off their initial offer. Second, you are almost certainly not being offered all the possible tariff schemes, nor are they being put forward with enough knowledge of your needs.

You can test this on the Internet. Pick a provider and try to get a tariff. Typically you will be offered one or two schemes in answer to a single input, such as number of employees. Obviously, a single parameter cannot capture your needs. There are many more tariffs out there - mobile operators will have a sizeable range of standard tariffs.

Some independent firms offer benchmarking and comparative tariff information, but treat this with caution. Oftel is looking into an accreditation scheme to assure users of the reliability of such information, which suggests that some of it is not.

One final point; it is imperative that a robust system is set up for checking the accuracy of metering and billing. The industry is developing quite a reputation for late billing, for applying the wrong tariff, "forgetting" negotiated discounts and so on.

So, while is a buyer's market, purchasers need meticulous planning and research, high levels of professional skills, considerable caution and eternal vigilance.

Sam Tulip is a freelance journalist specialising in purchasing issues

Checklist Top telecom tips

1. Research thoroughly your current and likely future usage.

2. Work out your objectives and differentiate various service requirements.

3. Ensure you are comparing bids on a like-for-like basis, with all costs included.

4. Setting up a spreadsheet can be a big help.

5. Beware of the costs of change, especially if the equipment in your switchroom is owned by the previous supplier.

6. Never take a standard tariff as the final offer, there is room for negotiation.

7. Try to assure yourself that the provider will be in business in a few months' time, as the industry is likely to consolidate.

8. Use the call logging and analysis systems provided, and always check your bills.

Soundbites What the experts say

"Divide up your needs: domestic v international, America v Far East, and so on. By segmenting your needs, you can discover some nice deals."

Ray Cobbett, director, PSL

"It's a very volatile market - one of my suppliers has changed ownership four times in the life of the contract."

Malcolm Nicholson, purchasing manager, John Parker & Son, engineering company

"When you pull the telecoms budget together, for goodness sake include an insurance premium for when it cocks up!"

Greg Smith, technical director, Institute for Communications Arbitration and Forensics

"Most operations need inbound and outbound voice and data at various speeds, Internet access and firewall security, mobile communications, low-cost or free consumer services and call-centre hardware. Each of these has its own marketplace and pricing regime."

Ian Taylor, head of group procurement, HBOS

• How to Buy Telecommunications Services is published by CIPS and is available from its bookshop on 01780 761468 or online at www.cips.org, price £10.95. The Oftel website, www.oftel.gov.uk, is a mine of information. The Large Business Users Group homepage is useful. Smaller firms may benefit from www.telecomsadvice.org.uk.

SMnov2001