Telecom Expense Management Coming of Age

Gone are the days of manageable telecommunications services for enterprises. Today, businesses employ an overwhelming array of communications services, from traditional voice to data to wireless services to VoIP. For most companies, these services are not the major focus of their business-they do not generate revenue and instead are a major cost center. Yet, they support the mission-critical operations that allow enterprises to conduct their business.

A new crop of companies has sprung up to manage the complexity of telecommunications. At first seen as a cottage industry, these companies have rapidly become a viable option for enterprises that are fed up with being overcharged by service providers.

According to estimates from Gartner, this segment of the IT market could grow to $1.2 billion by 2008.

Keeping Track of Telecom Expenses

An Aberdeen Group report by analyst Christa Degnan estimates that the average Fortune 500 company spends about $116 million on telecommunications services each year. The average mid-market company weighs in at $26 million per year. Aberdeen suggests that errors account for between 7 and 12 percent of what enterprises spend on telecommunications. For large enterprises, the leakage associated with telecommunications services can translate into a loss of $8 million a year.

Alan Gold, senior vice president for marketing and corporate strategy at Avotus, says carriers have little incentive to clean house on their end. "Basically, it's a don't ask, don't tell policy," he says. Providers are happy to credit a disputed charge, but they seemingly do little to try to decrease their mistakes.

So why does this leakage occur? On the provider side, billing errors can result for any number of reasons: billing system conversions, mergers and acquisitions, poorly written business rules that introduce errors. On the enterprise side, there are simply too many bills that are too large and too complex for businesses to track and understand. Add to that a continuous amount of moves, adds and changes, and following the maze of services is a horrendous task.

A Fortune 500 company might process more than 15,000 telecom related bills per year, Aberdeen asserts, or 3,000 for a mid-market business.

"Companies just cannot keep up with the volume, let alone perform detailed scrutiny for errors manually," Degnan states in the report.

Manually auditing telecom-related bills is crippling enterprise IT and accounting departments, which separately grapple with the nightmare inventory and invoice problems. Within most enterprises, about 85 percent of telecom bills are not audited, but instead are paid in full, according to Aberdeen. Those that are audited are only done so in part.

As services become more complex, grow dramatically in volume and increase in complexity with the mobile workforce and next-generation services, the risk of exposure only stands to increase.

An entire industry has grown out of making sense of these bills, in large part because enterprises simply do not understand how to deal with them and cannot afford to hire specialized staff to manage them.

TEM Market Takes Hold

For most enterprises, telecom is one of the top five line item expenses, says Gold.

"Everyone knows they're overpaying on their telecom bills," says Rick Valencia, founder and CEO of ProfitLine.

Two to three years ago, people didn't care about managing costs, Degnan said in an interview with Billing World and OSS Today. "All they cared about was bandwidth." Looking back to the heyday of reckless spending and today's tighter reins of the Sarbanes-Oxley Act, companies now want to make sure their books are accurate. Enterprises "want to have more controls in place as the market picks up," Degnan says.

Companies really need to define their telecommunications strategy around their business strategy, something that not every company is actually doing today, says Sean Erickson, CEO of MSS*Group. As of October, according to ProfitLine's Valencia, 41 Fortune 500 companies were undertaking RFPs for a telecom expense management solution.

Today, companies have moved beyond professional services to software modules for managing enterprise telecom expenses. The software tracks telecom service information, including billing, order management, provisioning and inventory. Enterprises are seeking more than just one-off audits of telecom bills. Instead, they want to develop a long-term plan to track services and close leakage loopholes.

"Contingency audits are going to be replaced with more managed solutions, or at least more automation," Gold says.

Degnan says ideally these software solutions are modular, because this design helps companies capture enterprise customers based on a single entry point and then grow that customer onto additional software applications. Degnan also suggests that in a perfect world these modular tools would use the same database. "The benefits come from entering the data once as opposed to multiple times," she notes. However, many of the companies that manage enterprise telecommunications expenses have formed from mergers and acquisitions and, as a result, may bring different databases to the table.

To address common business problems, companies can use online workflow tools and data collection to map their physical inventory and services. They can access this data through Web-based reporting and information sharing, explains Degnan. They can order services and equipment directly from a company's preferred provider within the correct corporate parameters. All this can be included in a system that maps out all the business rules and contract specifications for a particular company to help avoid errors.

The need for telecommunications expense management can be likened to many revenue assurance projects within telecommunications providers themselves: First, they begin with internal audits conducted by people to identify leakage in a specific area. But even if a company audits one division, it still may be leaking revenue in another.

Technology for Treating the Pain Points

Today's telecom expense management technology is specifically being geared to address pain points revolving around inventory, billing and order management. MSS*Group's Erickson says inventory management provides a clean benchmark against which to measure charges to determine accuracy.

Many enterprises struggle with tracking wireless expenses and inventory as well as reconciling what virtual and physical inventory is actually used versus what is billed.

To track an enterprise's physical and virtual inventory, telecom expense management vendors should be able to match it against a company's contracts, using an automated process to make sure that what the company is being charged matches the contracted rate for equipment and services. An automated process should also exist for moves, adds and changes.

Bills

Control Point CEO Greg Carr says billing optimization is one of the biggest challenges facing enterprises. Many telecom expense management firms have designed systems that scan customers' bills into an application so that relevant data is taken from each invoice. This information may be analyzed for errors and, once processed, is approved or not approved for payment.

Some telecom expanse management companies will even manage the payments process for enterprises with their various service provider suppliers, cutting checks or sending electronic payments to service providers for bills authorized by the enterprise to be paid.

Invoices are archived for enterprises, and companies can typically view these bills via the Web for some time. ProfitLine, for example, archives invoices for 13 months and then delivers the bill to customers in paper format after they are 14 months old. ProfitLine's Valencia says archiving bills is becoming more and more important to comply with the requirements of the Sarbanes-Oxley Act.

Disconnect Between Purchasing and Payment

Valencia points out that managing telecommunications costs straddles two different organizations-the telecom department and the accounts payables department-with constant back-and-forth between the two.

The problem, says Gold at Avotus, is that "most accounting departments pay on trend." That is, as long as a bill is within 5 to 15 percent of the previous month's costs, the accounting department will likely go ahead and pay the bill. If, for example, a company had a bill error two years ago but has been paying on trend ever since, it could be overpaying for years based on an error.

Spokeswoman Sandy McLaughlin explains that Avotus knew one company that was paying the phone bill for a karate studio down the street. Still another enterprise was paying the phone bill for a small town. "If it doesn't blip up or down, you don't notice the difference," she says.

In addition, many items on the bill are not delineated. Instead, they are rolled up under a single line item on the invoice. That one single line item might include 50 items that a business does not see. Software can help explain the details of individual line items in which errors may exist.

On the other hand, the telecom or information technology department is tasked with ordering services, but it may have no real idea of the inventory of services and equipment the company has or is actually paying each month to use. IT may have little to no communications with the accounting department regarding the bill.

Expense Management Models

There are several options for employing telecom expense management software. One is to license the application and employ an internal staff to manage it.

Another is for a company to subscribe to a hosted application and work with a vendor via the application service provider (ASP) model, wherein the enterprise still needs some level of telecommunications expertise on site. Lastly, an enterprise can outsource the entire process to the vendor.

Telecom expense management companies are finding that outsourcing is really catching on. Gold notes, "We're seeing almost a 3-to-1 ratio of outsourcing versus hosted."

However, to keep an eye on the process, large companies that choose to outsource want a real-time view of their expenses via the Web.

Gold says today enterprises often have only 45 days to find errors on their bill. After that, most carriers will not allow businesses to recoup overcharges.

Once a company has an idea of what it is spending, it can renegotiate its telecom contracts. The carriers are more aggressive and are willing to renegotiate contracts more frequently.

Degnan says there is also more strategic sourcing going on, where an enterprise identifies the services it requires and then a company helps identify the appropriate suppliers to fill this need. The company and the supplier then set up a preferred agreement and establish a contract to reflect those terms.

Stopping Leakage

If telecom is not an enterprise's core business, but managing it effectively can prevent revenue leakage and ultimately differentiate a company, then there is without a doubt a place for companies that help enterprises manage their telecommunications spend effectively and efficiently.

"The network infrastructure is what's so strategic to [enterprises]," says Valencia at ProfitLine, "not the administrative tasks." That is why companies are outsourcing the administrative tasks associated with telecom service management. Enterprises are putting out more and more sophisticated RFPs that are becoming broader in scope, he says. They have a mature understanding of what they need to track and manage, and they are "aggressively seeking" the company that can do this for them.