Navigating the New Telecom Landscape

By Courtney Macavinta

In 2005, the telecom landscape was shaken up by mega-mergers and significant regulatory decisions. For starters, Cingular Wireless and AT&T Wireless came together. Sprint made a bid for wireless operator Nextel Communications. Then the Federal Communications Commission rubber-stamped the mergers of SBC Communications and AT&T, as well as Verizon and MCI. The U.S. Supreme Court also upheld the FCC's ruling that cable companies offering broadband Internet access don't have to share their high-speed pipelines with competitors. Meanwhile, the market for wireless and Voice over Internet protocol (VoIP) continued to gain ground.

Navigating the new telecom terrain can seem daunting to CIOs, but it is imperative in the current business climate. There are new technologies to choose from, new companies to negotiate with, and new requirements from senior managers about what types of telecom services they need to best meet business goals. Given the mission critical role that communications services play in most enterprises, CIOs need to consider all telecom options in order to control costs, improve service and get the best return on their investment when it comes to emerging technologies.

The average Fortune 500 firm spent about $116 million a year on telecommunications services in 2005, according to the Aberdeen Group. The financial stakes are too high for CIOs to forego re-evaluating their approach to procuring and deploying local and long-distance phone, broadband, and wireless services. Recent mergers alone could lock companies into price hikes over time if they sign long-term contracts. And consolidation in the market also means that companies could become more vulnerable to downtime if they put all their services in one provider's basket.

"When you see swings of 20 to 40% in your telecom costs, all that money goes straight to the bottom line," says Carl Pitasi, a senior consultant with Compass America, Inc.

For the enterprise customer, the shrinking number of providers means that now more than ever CIOs have to come up with new rules to get a handle on their communications strategy.

Rule No. 1: Foster competition
Mega-mergers threaten to make the telecom space anything but competitive. But analysts say CIOs need to insist that their telecom providers -- especially their incumbent vendor -- compete for their business.

"[Leading providers] want to drag large corporations from the competitive zone into the monopoly zone," Pitasi says. "CIOs have a trade-off to consider."

On the one hand, going with a single provider can simplify the process for enterprises and could offer some initial savings. But Pitasi says this approach doesn't pay off in the long run. "Don't let vendors make technical decisions for you -- you lose control and you pay more."

Instead, CIOs should:

• Sign short-term contracts. When you assign short-term contracts and open up the bidding, you can get better rates each year. "The incumbent has to know that the business is his to lose," Pitasi says.
• Negotiate. To get the best deal, negotiate service contracts on an annual basis with all vendors.
• Set benchmarks. In addition to open, competitive procurement, you have to set unit price and performance benchmarks to make sure you're getting the ROI you want.

Rule No. 2: Set up a service management model
Whereas CIOs need to keep costs down, business unit managers often demand high-volume and high-quality IT and telecom resources.

Pitasi recommends establishing a service management model that divides the responsibility: The CIO takes charge of providing high service quality at the lowest possible unit cost, and business managers control demand and figure out how to cover the cost of those telecommunication services that will help their division meet business goals.

The key to this model is setting up a catalog of service definitions, prices, and service levels for both data (cost per seat) and voice (cost per seat and cost per distance for long-distance services).

Rule No. 3: Wrangle wireless
In the past, companies have often let employees pick their own wireless phone providers and expense the charges each month. "The problem becomes corralling it," Pitasi says.

With the major wireless firms merging, CIOs should lead the way to cutting costs in this area while improving security and coverage for increasingly mobile employees. One of the main challenges is to get both solid coverage for global mobile users at the best price. The solution might be to utilize two vendors in order to get the best of both worlds.

"I think CIOs will be going toward proactive management of their wireless infrastructure," says Lisa Pierce, a vice president with Forrester Research. "That will mean consolidation of contracts, a wireless policy, and going more with corporate-liable contracts where the company becomes the contract holder."

Rule No. 4: Explore VoIP
Though VoIP is still catching on, last year companies procured more Internet phone lines than traditional copper lines. This cost-effective protocol enables CIOs to manage voice and data using the same infrastructure. Ideally, they will have more scalability and limit downtime.

So far, VoIP has remained largely unregulated because the FCC ruled in 2004 that states had no jurisdiction over Internet telephony. That said, Sen. Jim DeMint (R-South Carolina) introduced the Digital Age Communications Act in late 2005 to regulate all telecommunications services the same way -- if passed, the bill would require VoIP providers to, for example, contribute to the Universal Service Fund.

Even though VoIP's regulatory status is uncertain, it's still an option on the radar for most CIOs.

"The real reason to go to VoIP is for the added functionality," Pierce says. "CIOs need to get out in front of what a site, division, or user may be doing and have a plan and policy on record to implement VoIP now, [test it for a trial basis],  or implement it in the future."

Analysts say VoIP migration is inevitable for most companies. Yet Pitasi suggests considering the switch when opening a new branch or launching a new mission-critical application.

"It's the terrestrial communications protocol," he says. "The only question is: How do I get there in an orderly fashion without spending a lot of money?"

Courtney Macavinta is a Silicon Valley-based business and technology writer. Her articles have appeared in CNET News, Business 2.0, Red Herring, Wired News, and The Washington Post.