Buying telecoms services – could your business do better?

November 1997

Contents

Introduction

Sources of information

Medium Sized Insurance Company (‘Insurance Company’)

Domestic Appliances Services Company (‘Appliance Services’)

Major Retail Chain (‘Retail Chain’)

Large Manufacturing Company (‘Large Manufacturing’)

European Pharmaceuticals Company (‘European Pharmaceuticals’)

Regional Services Company (‘Regional Services’)

Changes in the UK telecoms market mean opportunities for customers...

Big opportunities exist for UK businesses to get a better deal from telecoms – particularly, in the shorter term, for medium and large sized businesses. The rapidly increasing number of telecoms suppliers in the UK market in the past few years is significantly widening the opportunities to get best value from competition. But businesses need to be pro-active and demanding as telecoms customers if they are to get the best out of the increasingly dynamic UK telecoms market – get more by demanding more.

...in terms of price, quality and choice...

Research commissioned by Oftel, the UK telecoms regulator, together with feedback from customers and other players in the telecoms market to Oftel, shows the opportunities for some businesses are:

• to reduce the cost of key business applications, that rely on telecoms, by up to a third through:

using a higher proportion of more effective advanced telecoms services in meeting application requirements; and

seeking the most competitively priced supplier for services;

• to be more demanding in terms of the quality of account management received from their telecoms supplier and in getting the quality of service they require by using available comparable information between companies;
• to make best use of the scope for number portability – for geographic, non-geographic (specially tariffed) and, soon, mobile numbers – when seeking the best telecoms supplier to meet the needs of the business;
• to participate in or support joint telecoms user and telecoms supplier groups to develop common, open industry sector and cross sector standards – both technical, eg automated data exchange protocols and in vital, but less high profile areas, such as telecoms billing;
• to give documented evidence to Oftel if a telecoms company with market power is using it in an anti competitive manner, or claims Oftel is preventing it from offering lower prices or better terms;
• to take advantage of increases in mobile network coverage, forthcoming developments in mobile quality of service reporting and advances in converging fixed/mobile technology to get a better deal in this area.

...and relate to the experience of real businesses

To help business customers explore and take advantage of the opportunities outlined above, the case studies set out in this publication – based on the experience of real medium to large sized businesses – illustrate some of the opportunities to get a better deal from telecoms... and some of the obstacles that need to be overcome. While business names used in the case studies are fictitious and any similarity to actual business names is coincidental, the issues illustrated are real. For details of the savings calculations given in the case studies see Sources listed below. Oftel will be looking at issues facing small businesses in telecoms separately in 1998.

Sources of information

General

• TMA 1996/1997 survey Communications Market Insight 97.
• Spectrum study for DTI Information Society Initiative 1997, Moving into the Information Society – an International Benchmarking Study.
• Oftel contacts with large and medium sized businesses.
• Oftel statistical paper 1997 International price comparisons – briefing document held in Oftel’s library.

For specific case studies

• Ovum study for Oftel 1997 Comparisons of telecommunications prices for businesses was carried out earlier in 1997.

the Ovum study is the source of savings calculations in the Insurance, Appliance Services, European Pharmaceuticals and Regional Services case studies and in the front page figure of ‘one third savings’ derived from the Ovum report methodology. Report to be available via Ovum’s Internet site (http://www.ovum.com/telecoms) or telephone 0171 255 2670 or fax 0171 255 1995 (contact: Barry Eliades).

• TMA Billing initiative (referred to in Retail Chain case study) is part of the TMA Billing portfolio.
• Article Numbering Association (referred to in Large Manufacturing case study) is based in London (tel 0171 836 3398).
• Oftel Competition Bulletin – published quarterly (see Regional Services case study) .

Medium Sized Insurance Company (‘Insurance Company’)

Currently...

has an internal voice communications system linking employees at its different sites. The system utilizes a range of telecoms services and suppliers – for PSTN, ISDN, VPN, leased circuits and mobile telecoms – and carries 250,000 calls a year and results in a telecoms spend on internal voice communications of œ57,000 a year.

And is facing changes in its own business market...

• Pressure to cut costs such as employees’ time spent travelling to meetings, travel expenses and telecoms costs;
• and at the same time pressure to carry out more business activity over the telecoms network – less internally generated paper, more conference calls.

But opportunities in telecoms exist to ‘win/win'

• Win – by using more effective, higher functionality advanced services more extensively eg Virtual Private Networks (VPN) – and;
• Win – by reducing costs through using more of these services to achieve savings of up to œ11,000 (20%) for Insurance Company in the cost of its internal voice business application.

So what’s stopping Insurance Company?

• Telcos failing to package VPN and other advanced services for medium sized businesses on a sufficiently attractive basis that they maximise use of them;
• Lack of customer awareness of the potential for savings – and customer inertia seeing telecoms as a cost to control rather than a means of improving the efficiency and effectiveness of the business.

How problems can be overcome

• Telcos need to market more advanced services to a wider range of businesses;
• Business telecoms user organisations (TMA, TUA and others) need to raise awareness of customers of scope for ‘win/win’ opportunities;
• Insurance Company needs to maximise what ‘information communication technology’ services can do to make its own operations faster and more effective – and actively seek out and buy from the telecoms suppliers and others that can deliver them.

Domestic Appliances Services Company (‘Appliance Services’)

Current position

Uses freephone, local rate and national rate numbers as well as ordinary numbers to give customers easy access to its sales and service departments – dealing with 2.5 million calls a year with all of the specially tariffed and most of the other telecoms services provided by one telecoms company.

Opportunities

Potential to save up to œ25,000 on a freephone spend of nearly œ300,000 (a saving of just over 8%) by shopping around to get lowest cost suppliers for these calls

and

for Appliance Services to keep its number where it changes telecoms supplier to get these savings.

What’s stopping opportunities being realised?

• Appliance Services is concerned at the increased costs it would incur if it had to manage more than one main telecoms supplier (extra sets of: bills; account managers; installers; repair teams);
• ...and is worried that bringing in a new telecoms supplier will mean disputes between the new telco and the existing supplier over whose responsibility it is to repair faults... causing delays and poorer services;
• ...and has no information to compare the quality of service provided by the new supplier with its current supplier, and is concerned that existing and new telcos have a poor understanding of their customers’ businesses.

How problems can be overcome

• Appliance Services should put any additional management costs, from having several suppliers, in perspective against potential savings;
• ...and in helping businesses to assess savings, business telecoms user groups should look at the likely medium term impact on prices from purchasers creating a more competitive market by buying from a range of telecoms companies;
• If Appliance Services suspects its existing telecoms supplier is abusing its market power in terms of repair obligations or in delaying connections, when it engages a new telecoms supplier, it should document the case and provide evidence to Oftel’s Fair Trading team (0171 634 8812) who could investigate;
• to compare quality of service of different suppliers Appliance Services should:

obtain the fixed link telcos latest comparable performance indicators booklet for business customers published by PE International on behalf of the industry (tel 01784 434411, fax 01784 471405); and

use these reported performance levels as a basis for a ‘service level agreement’ with the telecoms company – and tell their telecoms supplier to get their data published if they do not already do so;

• ...and Appliance Services should demand more from telecoms suppliers in terms of the quality of account management ...over a third of customers in 1996/97 TMA survey were unhappy with this critical aspect of service.

Major Retail Chain (‘Retail Chain’)

Current position

Major Retail Chain has over 500 stores selling household goods to the residential market – using a mix of telecoms suppliers to provide a range of telecoms services.

Opportunities...

for better billing relationships with its telecoms suppliers:

• through use of CD-ROMs for easier handling of large volumes of billing details and for telecoms bill formats being more informative and easier to check;
• ...leading to less effort for Retail Chain in processing telecoms bills and more timely payments for its telecoms suppliers – Retail Chain spends more time checking telecoms bills than bills for heat, light and water as, unlike those other services, it has no telecoms meter on the premises.

What is stopping opportunities being realised?

• Uncertainty – its current telecoms bills are unclear as to what they include and whether accurate due to bundled miscellaneous charges and misleading terminology – from TMA research only around a fifth of business users can reconcile their telecoms bill to their inventory first time;
• ...and this uncertainty means Retail Chain does not have a reliable basis for inviting tenders from other telecoms companies – it could greatly under or over estimate the volume of new telecoms infrastructure involved.

How problems can be overcome

Retail Chain should:

• carry out, with its existing telecoms suppliers, a check on its current telecoms inventory and reconcile it to the bill;
• ensure all new items of telecoms infrastructure and services are properly logged in the billing inventory;
• participate or support TMA initiative to establish good practice in billing ...and compare telecoms companies’ proposed billing services against these standards and performance against Comparable Performance Indicators

Large Manufacturing Company (‘Large Manufacturing’)

Current position

Large Manufacturing assembles high value customer goods sourcing parts from a large number of component suppliers. It obtains the majority of its telecoms services from one telecoms supplier.

Opportunities exist...

for better relationships with its suppliers – especially with its component suppliers by exchanging electronic data on line, such as via EDI, for ‘just in time’ stock management, streamlined ordering, delivery and invoicing, and sharing of design information.

What is stopping opportunities being realised?

• Uncertainty – small businesses which make up the main component suppliers sector for Large Manufacturing are unwilling to invest in appropriate data exchange hardware or software if there is uncertainty over whether it will work with more than one manufacturer – and they can't afford to install separate data exchange software for each of their large customers;
• Difficulties in automated data transfer systems usage – many of Large Manufacturing’s small suppliers see systems such as EDI as complex and inflexible to operate.

How problems can be overcome?

Large Manufacturing should:

• work with fellow manufacturers, its component suppliers and current and prospective telecoms suppliers to implement common on line data exchange standards across the supply chain for its industrial sector – for example working with or participating in standards setting groups of the Article Numbering Association, and the EAN (international article numbering) system;
• encourage its own industry’s trade associations to raise awareness of best practice amongst small businesses in the supply chain;
• encourage development of simple, inexpensive and secure use of on line data exchange over the Internet through working with the Article Numbering Association and others to make such facilities more accessible to smaller firms.

European Pharmaceuticals Company (‘European Pharmaceuticals’)

Current position

European Pharmaceuticals has sales reps visiting local doctors practices to introduce new drugs – high use of mobile telecoms for reps to keep in touch with rest of sales team, production and distribution departments. Some 500,000 calls a year are made by employees: on mobile phones; calls to the mobile sales force from company offices which are charged at higher rates than fixed to fixed phone calls; ISDN; and freephone.

Opportunities

To reduce the cost of ‘keeping in touch’ with, and by, its out-of-the-office staff by getting lower priced services but still maintaining high levels of ‘contactability.'

What is stopping European Pharmaceuticals?

• a perception they are ‘locked into’ their main mobile network supplier because of:

perceived coverage limitations of newer PCN networks;

lack of mobile number portability;

• and for calls into the centre, the costs of fixed network freephone services are not seen as sufficiently lower to compensate for its inconvenience relative to mobile.

How to overcome?

European Pharmaceuticals should:

• review latest coverage claims by both PCN and GSM mobile operators – all the mobile networks are improving coverage so European Pharmaceuticals should check where and how the gap between coverage of newer entrant and longer established networks is diminishing;
• estimate the potential savings from shopping around for the most competitive prices on both mobile and PSTN – a large national company rival of European Pharmaceuticals has achieved an 18% reduction in its equivalent ‘virtual organisation’ telecoms application cost (some œ36,000 on a spend of nearly œ200,000);
• ensure it factors into its evaluation of options the scope for mobile number portability (available from all mobile network operators – and mobile service providers – by 1 January 1999);
• put customer pressure – directly and through support for user groups and Oftel – on the four mobile network operators in the UK and the mobile telecoms trade association, Federation of Communication Services, to agree and produce comparable quality of service statistics for blocked and dropped calls – by, at latest, summer 1998;
• put pressure on fixed link (and mobile) operators for lower cost of freephone numbers – international comparisons show prices for freephone services are closer to, or even below PSTN in some other countries (USA and Sweden);
• check for the development of dual GSM/PCN and fixed cordless/mobile handsets to take advantage of lowest prices in UK while ensuring adequate coverage internationally.

Regional Services Company (‘Regional Services’)

Current position

Regional Services has over 20 sites spread over several adjoining regions in the UK. Office applications and intranets are supported by leased lines, frame relay, PSDN and ISDN that interconnect the company’s local area networks. The cost of these LAN interconnections makes up about 35% of its total telecoms expenditure. It carries some 75,000 calls a year with a total call volume of around 19 million k/bytes a year.

Opportunities...

to connect up its sites more cheaply and more effectively by substituting higher functionality services such as Frame Relay for slower services (leased lines) and for dearer PSDN services. The opportunity is for significant savings coupled with higher functionality – could be over œ20,000 on a spend of œ60,000.

What’s stopping opportunities being realised?

• Regional Services is in a long term contract with BT for leased circuits and doubts its ability to extract itself from its contractual commitments;
• Regional Services, IT manager finds the marketing and pricing of Frame Relay services by telecoms companies difficult to make sense of in relation to his company’s needs.

How can problems be overcome?

Regional Services should:

• check that the contract with BT conforms to its licence conditions – and also see Oftel’s Competition Bulletin (on Oftel’s Internet site) or Oftel’s Fair Trading team (0171 634 8812);
• encourage BT to use more of its scope for pricing flexibility by:

encouraging competitors to BT to form alliances to bid for national contracts; and

encouraging these other telecoms companies to ‘partner’ IT companies when bidding for bundled telecoms and IT contracts – over 70% of businesses in TMA 1996/7 survey wanted telcos to do this;

• recognise BT is unlikely to use much of its scope for pricing flexibility or amend its contract terms unless it is put under competitive pressure – through customers’ as well as competitors’ actions;
• apply pressure directly, and through business user groups, to encourage telecoms companies to package and price Frame Relay services more attractively and clearly for ‘Regional Services’ type and size of business.