Negotiating for networked telecomms services is now largely the responsibility of CIOs. Fortunately, help is on the way.

Reader ROI

• Why the telecomms industry is in flux
• How you can negotiate fair contracts with carriers
• What CIOs need to know about the future of networked services

Mike Benson wasn't looking forward to negotiating his new telecomms contract. The CIO of DirecTV had invited his existing provider, AT&T, along with rivals Sprint and Verizon, to bid on DirecTV's new contracts for 2006. Benson wasn't just negotiating for the satellite TV company's local and long-distance communication needs but for all of its voice, data and networking services.

Not only would he have to untangle the telecomms carriers' incredibly complicated pricing on current services, but he would have to figure out which could offer the best deal on new networking technologies such as VoIP telephony and multiprotocol label switching, or MPLS. And he knew that if he switched from AT&T to a different company, it could take up to two years to complete the transition.

"[The carriers] will assure you the migration will be fine," Benson says. "But in reality something will always go wrong."

Making the right decision is a big load on Benson's mind. And he is not alone. Now that telecomms and IT have converged of late into networked IT services, the responsibility for negotiating and managing telecomms contracts in an increasing number of companies has fallen to the CIO. And many are not prepared for the challenge. According to a survey of IT execs enrolled in The Ohio State University's CIO Solutions Gallery program, telecomms contracts are the source of most CIOs' greatest long-term strategic confusion and biggest all-around tactical, day-to-day administrative frustration. And they openly acknowledge it is their sector of greatest ignorance.

To make matters worse, the telecomms arena has never been so chaotic. Deregulation has created a thicket of carriers offering long-distance, local, wireless and networking services at unpredictable rates. These carriers use dozens of different billing formats, and CIOs regularly complain about errors and overcharges.

While the past year has seen unprecedented mega mergers in the US, most notably the marriage of SBC and AT&T, these M&As have done little to clear up the confusion. The costs to organizations couldn't be higher, in large part because the networking services offered under the telecomms umbrella are more sophisticated - and more crucial to enterprises' day-to-day operations - than ever before. "Many people think of telecomms as a cost, and it is, but it provides a function we can't live without," says Lisa Pierce, vice president of telecomms and networks at Forrester Research.

According to Aberdeen Group, the average Fortune 500 company spends $US116 million each year on telecomms services (for mid-market enterprises, it's $US26 million). According to several telecomms sources, telecomms costs have jumped into the top three line items for most companies. In addition, up to 12 percent of telecomms service expenses are erroneous. Such errors result in an estimated $US8 million a year in lost profits per company, according to Aberdeen Group.

"It's not hyperbole to state that networks and telecomms are the worst managed function in IT," says Eric Goodness, a research VP for managed and professional network services at Gartner. "There's anarchy and a total lack of governance."

But a few CIOs have found a path through the telecomms jungle. Some have turned to third-party telecomms expense management vendors, or TEMs, that know the lie of the land and can help CIOs through contract negotiations and billing problems. Others are saving on long-distance telecomms costs by rolling out small-scale VoIP deployments. CIOs and analysts interviewed for this article offer valuable insights and examples of how they're contending with the spiralling costs of today's telecomms.

If CIOs don't grab control over their telecomms spend now, "they will be behind the eight ball," says John Nallin, the vice president at UPS in charge of worldwide telecommunications. "The best defence is a good offence."

The New Telecomms Landscape

For nearly 100 years, there wasn't much to managing telecomms. In the US, AT&T's Bell System had a monopoly on everything, and its prices were, for the most part, nonnegotiable. It was much the same in Australia except the monopoly was of the public not private ilk. Customers in the US saw the break-up of AT&T in 1984 and deregulation of telecommunications in 1996, while locally the federal government decided it no longer wanted to own the entire Australian telecommunications industry in 1992. It was the beginning of a new era: Copper changed to fibre. Network capabilities expanded. And IP became the de facto networking standard in the Internet age.

Along with new choices came new complexities: dozens of telecomms suppliers offering local, long-distance, wireless and networking services at various prices in a bewildering array of billing formats. For the most part, though, the brand-new competition led to consistent reductions in telecomms spending every year.