How to Fight Back

Despite all the heartburn, CIOs do have some alternatives for restoring sanity to their telecomms situation. Now is the time, for instance, to lean on the carrier relationships you've developed over the years. "The merged companies don't want to sit by the wayside and see their customers being taken away from them," says UPS's Nallin.

Other IT execs and telecomms analysts concur that now is a perfect time to play vendors against each other in negotiations. The global network manager of the retail goods manufacturer, who asked not to be identified, recently de-installed some carrier services in his US operations and had Time Warner Telecom fulfil them. And that got his previous carriers' attention.

CIOs have to use "the threat of moving away as a tool for leverage", agrees Jan Dawson, a research director with Ovum. He suggests that CIOs demand an annual review of pricing with each carrier and how those prices benchmark against the carrier's competitors.

It's incumbent on CIOs to spread their services to various players to get the best deal. "One vendor doesn't provide all of the services," says UPS's Nallin. "They just can't handle all of the coverage."

To help him navigate through the telecomms minefield, DirecTV's Benson retained one of a growing legion of telecomms expense management vendors. Benson's reasoning is simple: "I don't know what everyone else is paying," he says. According to a report from Forrester's Pierce, most TEMs offer provider selection and contract negotiation; onetime and ongoing bill audits and bill verification; inventory cleanup; bill dispute and credit resolution; bill payment; orders, changes and disconnects; and more.

Like all outsourcing arrangements in a nascent industry, there are danger zones.

Forrester's Pierce calls the growing use of TEM companies a "pit of vipers" because engagements can quickly lead to massive scope creep once the TEM gets inside an enterprise. So first, CIOs need to ask themselves what is the specific telecomms problem they are trying to solve. Then craft an RFP around those deliverables and make sure the TEM can realistically fulfil their wants and needs.

Though it seems obvious, CIOs need to check client references from the TEM company, and if a TEM company's bid is 50 percent less than everybody else's, CIOs should look to another TEM provider, Gartner's Goodness says. "A lot of [companies] have had bad experiences with [TEM providers]," he adds. Most bad experiences involve TEMs that over promised on their capabilities and couldn't deliver the trumpeted savings.

UPS's Nallin has met with more than 20 telecomms expense management vendors but ultimately declined their services. Instead he belongs to an ad hoc consortium of similarly sized companies that share information and benchmark rates for services "so we know we're in the ballpark", he says.

Your Telecomms Strategy for Tomorrow

Once CIOs figure out how to negotiate telecomms contracts, they should still expect a steep learning curve with all the new network technologies coming down the pike. It is now up to the CIO and his network managers to figure out how to make VoIP and other cutting-edge technologies work - from a bandwidth, security and financial perspective - and achieve all the hyped savings. As they struggle to do that, CIOs have quickly learned that bandwidth constraint is a major problem. "We're always battling for bandwidth at different periods of time during each day," says Nallin. "To manage that is a pain in the butt."

With all of that network complexity, changing service providers isn't like switching your long-distance service. (If CIOs decide to part ways early, expect to pay a substantial price to get out of the deal.) "As you move to more IT-based technologies, and you do VoIP and have a lot of applications dependent on the network, it's more difficult to switch out," says DirecTV's Benson, who at press time hadn't decided which carriers he would go with.

CIOs can turn to a carrier or outsourcer such as EDS or IBM to host the VoIP service. "Hosted telephony puts the responsibility back on the carrier or outsourcer," Goodness says. He notes that there's more risk in operating your own network. "If you run the best network in the world, you're not going to get that much of an attaboy," he says. "If the network goes down, you're out of a job."

For better or worse, carriers are going to play a big role in all CIOs' futures. It is, therefore, up to each executive to figure out a telecomms strategy that maximizes his IT infrastructure's capabilities, keeps end users happy and doesn't break the bank. Which is no easy task in 2006. As UPS's Nallin notes, the CIO's success with the carriers will depend on whether "the vendor is managing you, or are you managing the vendor?"

SIDEBAR: How to Get the Best Value from Telecomms Carriers

Five steps for success in 2006

• Prepare for the worst. Plan for the potential negative effects of the recent industry consolidation. Possible impacts include stabilizing prices with the potential for increases, degradation in account support and network hiccups due to network consolidations.

• Inspect contracts. Conduct a thorough review of your telecomms contracts to identify any deficiencies in pricing, service-level agreements, risk mitigation provisions and contract structure flexibility.

• Benchmark deals. Do not neglect the negotiation and procurement process for telecomms services. Most companies obtain suboptimal contracts compared with the current market.

• Control wireless. Proactively gain control and visibility over your wireless assets. Wireless will continue to be the fastest-growing telecomms segment for the foreseeable future, and along with that comes increased expense and increased security risk.

• Be flexible. Design your contracts with sufficient flexibility to manoeuvre and adjust to changes.

In addition, you should be sure to include clear commitment adjustment provisions in your contract, whereby you will not be penalized due to unforeseen events (business downturn, changes in technology and so on). Let's say, for instance, that a CIO is able to migrate some of their phone calls to a private network VoIP solution, which saves some money. But the commitment piece of the previous contract may still be in effect. "What looks like a big IT win, a year or two later, is a big shortfall," says Charlotte Yates, CEO of Telwares. To eliminate that possibility, Yates advises CIOs to add a "technology change" clause to the contract so that if a CIO does migrate to a new technology he won't be penalized for the savings.