Chapter 21: Controlling Telecommunications Costs

Overview

Cost control is a critical mission of telecommunications managers.  Telecommunications bills are generally viewed as not "user-friendly."  Miscellaneous costs on telecommunications invoices amount to a third or more of the bill. The practice of larding telephone bills with miscellaneous charges started in 1898 when the federal government levied an excise tax on the luxury telephone service to fund the Spanish-American War.  Besides being confusing, telecommunications bills have another factor in common: a lot of them are wrong, and rarely in the customer's favor.  Unfortunately, telecommunications bills are not typically examined by people who understand them.

Telecommunications Bill Processing

Every organization that receives telecommunications bills needs a systematic method of processing bills.  A major part of the job of any manager with telecommunications responsibilities should be to establish routines for controlling costs and to set action points for investigating when costs exceed reasonable levels.

Control Service Orders

The company should have standards against which all service orders are checked.  Standards cover such matters as whether trunks should be T-1 or analog, whether modem lines are connected through the PBX or to business lines, under what conditions employees are authorized to use cell phones, pagers, home business lines and DSL Internet service, and so on. Service order control is particularly important with branch offices.  When orders are placed with the carrier, it is important to obtain quotations for the monthly amount and installation charges.

Consolidate Bills

ILECs usually have 20 billing periods.  Each number prefix fits into one of the 20 periods, so if you have several business lines that are used for faxes, modems, and so on, you will receive separate bills for each of them.  PBX trunks are billed together if they are in the same trunk-hunting group regardless of telephone number.  Special service bills for frame relay, DSL, private lines, and the like are usually billed separately.  As a value-added service to customers most ILECs offer bill consolidation.  Multiple bills are groups under a master account and billed once per month.

Establish Billing Benchmarks

After bills have been validated, the secret to keeping them valid to is to establish benchmarks that let you know what to expect.  Service orders must be processed against the benchmarking file.  It's important to check the first bill after every service order.  Make sure non-recurring charges conform to the rates your representative quoted.  As orders are placed, find out from the carrier what the new charges will be and verify the initial bill.

The local service amount should not vary until a service order occurs, but other variable charges such as long distance and measured local service will vary each month.  Consider setting up thresholds for these variable amounts.  If the billing amount is within the threshold, the bill can be approved without further review.  If the amount deviates, the bill is sent to someone to investigate.

In addition, LECs' bills contain a line called "Other Charges and Credits" (OCC) to account for such things:
·        Rate increases and decreases that occurred during the billing period
·        Fractional month charges and credits for service added or removed
·        Corrections of past billing errors
·        Installation and service connection charges for services added in the past month

Review Bills with a Technical Eye

Someone with technical knowledge should review telecommunications invoices.  A person who understands telecommunications technologies can usually spot billing problems immediately.  Carriers charge exorbitant rates for casual toll.

Some billing items can be generated by "slamming," which is the name the industry has applied to the practice of changing a customer's PIC code without their knowledge or permission.  Whatever the cause of slamming, whether it is done deliberately or by accident, it is illegal and is a pervasive problem that mandates careful scrutiny of telephone bills.

Another common source or price gouging is alternate operator services (AOS).  These calls, placed by unknowing users over a calling card, collect, or third-number billing are to be avoided except in case of emergency.

A fundamental principle in dealing with any kind of problematic bills is to refuse to pay anything you do not understand.  You have a right to a clear explanation for every item on a bill.

Audit bills Annually

All telecommunications bills should be reviewed in detail at least annually.  Things change in every company.  People leave the company or move to another job, leaving behind a modem line that no one remembers.  Services that were ordered for a special project are abandoned after the project is completed, but the billing often continues.  New tariffs and service offerings come on the market, offering the opportunity to reduce costs.  Every bill should be examined in detail to ask questions such as these:
·        What is this service?  Is it worth the price we are paying for it?
·        Who uses it?  Do they still need it?
·        Is this still the best way to provide the service?
·        Is the amount being billed consistent with other equivalent services?

Auditing Telecommunications Bills

Telecommunications providers have a reputation, not entirely undeserved, for inaccurate billing.

A telephone bill audit begins, therefore, with a request to the LEC for a copy of the customer service record (CSR).  The best way to identify all of the services for a single address is to record the numbers that are written on the lid of the RJ-21X.  The RJ-21X is split into two sides, each with two columns of quick-clip terminals.  The two columns of terminals on the left connect to the LEC's protected terminal.  The two columns on the right connect to your equipment.  Metal bridge clips between the two columns connect the equipment to the line.

To obtain a copy of the CSR, write down all of the numbers on the lid of the RJ-21X.  The ILEC normally disconnects services in the central office and does not dispatch anyone to the field to erase the phone number from the terminal and remove bridge clips and jumpers, so many lines on the RJ-21X will be disconnected or belong to another customer.  Services delivered over T-1 will not be listed on a RJ-21X, but the T-1 number should be listed on the demarcation block.  With the list of numbers from the RJ-21X and the telephone bills, request CSRs from the LEC.

CSRs should, at least include these elements:
·        A service order code showing the item billed for
·        The quantity associated with each code
·        The cost per month of each code
·        An English-language translation of the code

Bell operating companies use a standard code, called a uniform service order code (USOC).

CSRs are notoriously inaccurate and confusing.  For each service under your jurisdiction, you should request, at least annually, a copy of he CSR and compare it with your own records.  Where the service or equipment is not actually provided, a refund should be requested back to the start of the billing period.

Exchange Lines

A good place to start an audit is with the local exchange lines.  After you receive the CSR, determine whether you have the equipment you are being billing for.  Pay particular attention to lines that are listed on the RJ-21X but don't have bridge clips.  Check to see if they have dial tone - if not, you are likely being billed in error.

Many LECs charge extra for providing a particular level of transmission service.  If you are paying such a charge on some trunks but not on others, find out why.  You may find one of the following conditions:
·        The service is being billed but has not been installed.
·        The service is installed on all trunks but is being billed on only selected trunks.
·        The service has been omitted on some trunks, which may explain periodic complaints of poor transmission.
·        The service is not needed and can be deleted.

After you have determined that you actually have the service shown on the CSR, the next question is whether it is needed or whether a more effective substitute can be found.  To answer whether the proper numbers of trunks are installed, for example, a traffic study is needed.  Also, to determine whether you need transmission enhancement, you must measure transmission loss on the trunks.  A productive question to ask is whether you have chosen the appropriate service from the LEC.

Many ILECs offer bulk pricing on local trunks provided over T-1.

If you have multiple locations service by the same LEC, compare the bills closely and investigate any differences.

Review charges for individual business lines to see if they may be reduced by using modem pooling or by switching the service through the PBX.

Local bills contain charges with or without detail for many miscellaneous services such as line transfer circuits, tie lines, directory advertising, and special calling cards.  If the LEC does not automatically provide period details of local billing, you should request it.

Long-Distance Review

The typical LEC bill includes three types of long distance.  The ILEC carries intraLATA long distance by default.  Here, the rates are generally the highest of any class of long-distance service.  Check the rates the IXC charges for intraLATA toll and compare them with the LEC's rates.

The second class of long distance on the bill is that carried by your primary interchange carrier (PIC).  Most IXCs have arranged with the LECs to bill their long-distance charges for casual toll.  For their proprietary, or bulk-rated, services, the IXCs normally render their own bills.

Many times a third type of long distance shows up on the bill--so called casual toll from a carrier other than the PIC.  Casual toll may indicate that the PIC identified for one of your trunks is incorrect. Rates from some alternate operator services are excessive and are to be avoided.

Calling Card Calls

When users carry LEC calling cards, the call details are shown on the LEC bill.  Review calling card charges to see if the calls can be carried less expensively.

Taxes

Telephone bills are subject to federal excise tax, and in some jurisdictions, state and local taxes too.  Many cities levy taxes on telephone service, but it is easy for the LEC to charge tax in error to companies outside the jurisdiction's boundaries.

Auditing Interexchange Carrier Bills

IXC bills for switched services are less complex than LEC bills.  The trend in long-distance costs should be monitored, and an investigation triggered when the cost exceeds a threshold.  If you route intraLATA long distance to the IXC, there should be no long distance on the LEC bill.

At least annually, you should obtain a printout of the call routing table from the PBX, translate it into English, and check if for reasonableness.

Long-Distance bill Review

A long-distance bill review determines three things:
·        Is the appropriate long-distance being used?
·        Is carrier billing all long-distance services under terms and conditions of existing contract?
·        Is there concentration of long-distance calls that can be carried over an alternate medium such as interoffice tie lines?

One of the first questions to ask in auditing IXC long distance is whether the location is using dedicated access, and if not, whether it is large enough to justify it.  As a rule of thumb, a dedicated access line saves at least 2 cents per minute.  Divide the cost of a T-1 line by 2 cents.  If the result equals or exceeds the amount of the long-distance bill, the T-1 line should be investigated.  A more accurate method is to ask the IXC for a quote with/without T-1 access.

Most IXCs offer discounts for term and volume commitments.  Bills should be checked to be sure that the appropriate discount percentage is applied.

Three type of dedicated access available from most IXCs:
·        Total access, in which the IXC accepts complete responsibility for installing and maintaining the access
line.  The cost of the access line is included on the IXC's bill.
·        Coordinated access, which is identical to total access except that the LEC bills separately for the access circuit.
·        Baseline access, in which you accept responsibility for the access line.  If trouble occurs, you report to either the IXC or the ILEC, depending on which has clearing responsibility.

Toll-Free Bills

The principles of checking toll-free service bills are essentially the same as checking outgoing long distance.  Determine whether the usage is high enough to justify a T-1 line.

Interexchange Carrier Calling Card Billing

IXC bills should be examined to look for patterns of calls that could be replaced by a toll-free number.  The calling card bill should be checked against the IXC's tariff offerings to see if a less-expensive service is available.

Private Line and Special Service Bills

The first step in auditing private line bills is to find the terminating points.  If the IXC's bill does not identify the termination points, ask for a CSR.  Next, determine the purpose of the private lines.

Budgeting

The telecommunications budget is a combination of fixed and variable costs.  Fixed costs are unaffected or are affected to only a small degree by the amount of activity.  Variable costs are principally affected by force size, but they are also affected by other predictable activities.  A variable-cost budget can usually be based on some ratio such as long-distance dollars per employee.

Project work, such as a conversion to a new network, requires both capital and expense budgeting.  Fixed-cost items can be budgeted from historical and predictable indicators.

Variable Costs

To do a good job of budgeting variable costs you need a historical foundation.  The major variable cost for most companies is long-distance and toll-free service.  To budget these you must consider two major factors: the amount of usage and the expected price-level changes.  If you have a good history of minutes of use and a record of the staff level, you can easily predict long-distance costs, adjusted for changes in volume and price levels.

The major variable cost items are:
·        Outgoing long distance
·        Toll-free service
·        Add, move, and change costs
·        Repairs not covered by warranty or maintenance contract
·        Contract work and consulting
·        Installation charges for new trunks and long-distance services

Controlling Maintenance Costs

Maintenance costs for telecommunications equipment constitute significant parts of many budgets.  The first question managers must ask is whether to use a maintenance contract or to purchase repairs on a time and materials basis.

A maintenance contract has these advantages:
·        The cost of maintenance is predictable, top-limited, and easy to budget
·        You are protected from expensive repairs such as replacement of a CPU or power supplies
·        Most vendors give priority to maintenance customers when scheduling conflicts occur
·        The maintenance agreement often includes remote surveillance.  If the equipment experiences alarm conditions, dials maintenance center, which can clear trouble remotely.

Controlling Rearrangement Costs

Both voice and data network managers can take several steps to minimize rearrangement costs.  One way to minimize costs is to accumulate changes and bring the contractor in on specified days.  Most contractors have a trip and/or minimum charge, so doing changes in bulk is less costly than having the contractor make separate trips.

Most manufacturers offer schools for training people on making software changes.  If no wiring work is involved, it should be unnecessary to call a technician.  The major PBXs offer automatic telephone set relocation software that makes relocating a telephone about as easy as relocating a LAN station.  If the port at the new location is cross-connected to the PBX, you can plug telephone into outlet, dial a code, and instruct PBX to change software from old to new port.

Buying From the Secondary Market

One way to save money on equipment is to purchase through a secondary market vendor, a huge market.  Used-equipment dealers are found in every major city for almost any kind of PBX or key system equipment, and several manufacturers have their own resale organizations.

Obsolescence is problem in voice and data equipment.  A bargain PBX may not be when you find that manufacturer has suspended software development or requires re-license at list price. With current equipment you often save only 10 to 20 percent compared to new prices, which may not be enough to make it worthwhile to forgo the benefits of a new system.

Be certain your secondary market dealer follows definitions that are equivalent to those used by the NATDA.  The following are their definitions of equipment conditions:
·        As is, As is tested/As is working, Factory refurbished, Like new, New, Out of service/Used, Repaired/Refurbished/Recycled, Repair only and Unused.

Call Accounting Systems

A call accounting system is a computer program attached to station message detail recorder (SMDR) channel of telephone system.  Call accounting systems can be attached to current PBX and many key systems.  The traditional purposes still persist: toll statements can be produced for each user to discourage abuse, and costs can be distributed to organizational units.  Here are a few examples of the value you get from a call accounting system:
·        Compare routes taken to expected route, validate automatic route selection programming
·        Companies who sell or resell telephone service can use the detail to bill customers
·        Calls to selected locations are captured.  If PBX capable of capturing internal calls, traffic to /  from off-premise extensions are analyzed to determine if volume of calls justifies the cost
·        Professional firms can use account codes to distribute long-distance costs to clients
·        The detail may be used to evaluate how employees spend time.  Sales managers can correlate employees' effectiveness with time on the telephone and call destinations
·        Telecommunications managers can verify the accuracy of IXC bills.  For example, if the IXC has invalid numbers assigned to your virtual network, calls ill appear on the carrier bill but not on the call accounting summary.

Controlling Unauthorized Use of Telephone Services

Studies have shown that 25% or more of long-distance usage in companies is for personal calls.  The cost of the telephone service is only part of the problem; the wasted time often costs more than the service.  It is therefore, advantageous for management to use a call accounting system as one way of controlling unauthorized use.

Telephone Cost Charge Back

Most organizations find that telephone costs are best controlled by distributing them to organizational units that are responsible for budgeting.  The call accounting system provides an effective way of distributing costs.

Reselling Telephone Services

Another similar use of the call accounting system is found in residential units such as apartment houses, hotels and motels, and shared tenant services.  Specialized call accounting systems for these kinds of applications can provide toll statements on demand for clients who are checking out or moving.

Billing Clients for Telephone Costs

Client code dialing is another call accounting feature that is useful to professional organizations that bill telephone charges to clients.  If a client code is dialed, details are registered at the time a call is placed, which is a more effective way of allocating cots than alternative of identifying calls when the long-distance statement is received.

Evaluating How Employees Spend Their Time

A call accounting system is useful for determining how some employees spend their time.  This is particularly appropriate for customer contact groups.

Call Accounting Selection Considerations

Vendor Support

Virtually all PBX vendors handle some form of call accounting system.  There are more than 100 such systems on the market, and many of them share the same drawback, lack of local support.

Report-Generating Capability

An important factor in selecting a call accounting system is the type and structure of the reports that it generates.  Effective call accounting systems can process calls to look for patterns of abuse or to charge telephone costs to users departments.

Typical report requirements are:
·        Call details by area code or state
·        Call details by cost center or department
·        Call details by extension number
·        Call details by long-distance carrier or service class
·        Repetitive calls to the same telephone number
·        Unusually short calls, "Watchdog" reports
·        Calls outside normal business hours, possibly indicating unauthorized use of telephone
·        Calls to locations not normally called in the course of business
·        Usage statistics by trunk number
·        Analysis reports by trunk for incoming/outgoing calls and percent usage by hour of the day
·        Exception reports for high-cost, long-duration, or short-duration calls

The most effective call accounting systems allow you to design your own reports, store the report-generating details, and retrieve them from a menu.

Call Timing and Rating

Call accounting systems employ several methods of rating calls.  The most accurate is full table of vertical and horizontal (V&H) coordinates.  A V&H table lists every area code and prefix in the United States and Canada and enables the system to calculate the airline mileage of the call.

Centralized Versus Decentralized Systems

System Management Capabilities

Many call accounting software packages include system management capability.  With this feature, a computer assigned to call accounting can also support system management functions such as these:
·        Wire and station assignments, Equipment inventory, Work order process, Telephone directory and Trouble tracking.

PBX Features For Controlling Costs

Most PBXs have several features that are designed to assist the manager in controlling costs.

Automatic Route Selection

The ARS feature, applied to the entire switching system, chooses the lowest-cost available route to complete a call.  Some ARS systems are capable of changing their routing based on time of day.  This allows you to take advantage of off-peak prices offered by some common carriers.

Station Restrictions

The station restriction feature prevents callers from calling any number that is not permitted by their restriction class. Several restriction classes are assigned with most systems:
·        Unrestricted, PSTN, Toll, Outgoing, Code and Incoming restriction.

Administering Station Restrictions

Note that every telephone should be allowed to place emergency calls to 911 or 999.

Variable Restriction

Centralized Attendant Service

Centralized attendant service (CAS) is a PBX feature that enables one attendant or a group of attendants to handle calls for more than one PBX.

Automatic Circuit Assurance

Automatic circuit assurance provides some of the features available from a call accounting system for detecting long and short holding times.

Summary

Without management attention, telecommunications costs are invariably higher than they need to be.  Billing errors by service providers, the provision of too many or too few circuits, selection of the wrong kinds of services and improper or abusive actions by users are some of the ways in which costs get out of hand.  Every company should have a systematic method of reviewing telecommunications costs and bringing them back in line.  If the company is large enough, it will pay to invest in cost-controlling systems (of which the call accounting system is the most effective).  It is not uncommon for companies to reduce their telecommunications cost by 25 percent or even more by judicious application of the techniques discussed in this chapter.