How to buy Telecommunication Services - CIPS

Knowledge How To

How to buy Telecommunication Services An essential guide to purchasing telecoms

This booklet does not aim to recommend 'best buys’ or individual suppliers, but to outline the more significant trends and developments, to alert buyers to the risks and benefits of technology innovation and the volatile marketplace, and to explain some of the jargon which exists in the industry. (Note that a comprehensive Glossary is provided towards the end

of the booklet).

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Leading global excellence in procurement and supply

Guide to Buying Telecommunications - Knowledge How To

© CIPS 2005 - ISBN 978 1-86124-139-9 1

Contents

1. INTRODUCTION 2

2. GLOBAL TELECOMS MARKET 2

3. BUYING TELECOMS - PREPARATION 4

3.1 PROCESS 5 3.2 TRAFFIC, USAGE AND INVENTORY 5 3.3 EQUIPMENT 6 3.4 MARKET ANALYSIS 7 3.5 CHANGING SUPPLIERS 7 3.6 GEOGRAPHY 8

4. BUYING TELECOMS - CONSIDERATIONS 9

4.1 DIRECT AND INDIRECT CONNECTIONS 9 4.2 CONVERGENCE OF VOICE AND DATA 11 4.3 WIMAX 11 4.4 VOICE OVER INTERNET PROTOCOL (VOIP) 13 4.5 EMERGENT TECHNOLOGIES – THE CONVERGENCE OF WIRELESS AND FIXED-LINE TELEPHONY

14 4.6 IP APPLICATIONS 16 4.7 SATELLITE 16 4.8 MOBILE EXTENSION 17 4.9 IMPLEMENTATION 17

5. SERVICE OPTIONS 18

5.1 BUSINESS REQUIREMENTS 18 5.2 SERVICES AVAILABLE 19 5.3 OUTSOURCING 20 5.4 CONTRACT MANAGEMENT 21

6. COMMERCIAL CONSIDERATIONS 21

6.1 UK SPECIFIC 21 6.2 GENERAL 22 6.3 CONSULTANCY 22 6.4 RISK 22 6.5 BULK RESALE 23 6.6 BILLING AND PAYMENT 23 6.7 MOBILE 24

7. SUMMARY: WHAT TO LOOK FOR IN A SUPPLIER 25

APPENDIX 1 27

GLOSSARY OF ACRONYMS AND INDUSTRY TERMS

APPENDIX 2 30

USEFUL CONTACTS


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1 Introduction

A survey conducted by business telecommunications company Energis found that 38 per cent of senior executives in the UK had dropped a supplier or potential supplier because of failure to return a phone call, or because the executive was left too long on hold. In companies of over £500 million turnover, the figure was 48 per cent. 31 per cent have found a supplier's telephone engaged so often that they have taken their business elsewhere.

Apart from this impact on potential sales and reputation, reliable voice and data telecommunications are essential to any business, and in today’s world, many businesses completely depend on effective telecommunications for voice, and more importantly data communications. However, a survey of European cross-sector organisations in 2004 identified that 38% of respondents had no telecommunications procurement strategy in place. The survey also showed that 80% of the data-provider companies anticipate a reduction in total expenditure on fixed-line telecommunications, whilst volumes of both voice and data calls, especially on mobile networks and WANs respectively are widely expected to increase in the next three years and 92% of respondents expect to see an increase in the volume of calls made using Voice over Internet Protocol (Voice over IP/VoIP).

The global market for telecommunications is extremely volatile, with mergers, acquisitions and bankruptcy all being prevalent over the last few years. In addition the cost of hardware is decreasing rather than increasing, technology innovations happen at alarming speed, and the recent huge increase in the capacity of telecoms networks has resulted in a minefield of price and contractual risk for the corporate purchaser. Add to this the widespread use of acronyms, jargon and techno-babble, and the task of undertaking a telecoms procurement can appear very daunting. There are real cost and service benefits available in the marketplace, but business needs and market trends should be kept under constant, systematic review.

This guide does not aim to recommend ‘best buys’ or individual suppliers, but to outline the more significant trends and developments, to alert buyers to the risks of technology innovation and the volatile marketplace, and to explain some of the jargon which exists in the industry. (Note that a comprehensive Glossary is provided towards the end of the guide.)

2 Global telecoms market

The global market for telecommunications services has undergone a rapid change over the past few years, brought about by step changes in technology innovation which have happened at an almost alarming speed. In addition the volatility of the IT and communications market since the halcyon days of the “internet bubble” and the subsequent impact of the “bubble bursting” has had a huge impact on the landscape of suppliers. It is fair to say that since the late 1990’s this has been a volatile market, and will probably stay that way (even though to a somewhat lesser extreme) for a good few years yet.

The market is considerable in scale, and revenues are growing rapidly year on year, although not in the area of traditional fixed-line telephony. Industry statistics are impressive and include (2004):

industry revenues $1.37 trillion (2003)

1.2 billion fixed telephone lines


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1.4 billion people carry mobile phones

665 million people have access to the internet

consumer spending on communications is growing faster than in any other category.

Global Telecoms Market

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1991 1993 1995 1997 1999 2001 2003

Revenue, $trn Mobile Subscribers, bn

Main Telephone Lines, bn Internet Users, bn

Source: ITU At face value it looks like a successful industry, with strong demand, growing traffic and record revenues, however the global industry has been beset by fraud, bankruptcy, debt and destruction of shareholder value. Estimates suggest that around $1 trillion has been lost, with dozens of companies going bankrupt including Global Crossing, 360 Networks, Williams Communications, Viatel and most famously, Worldcom in 2003 – the biggest ever accounting fraud which overvalued assets by $11bn. The frenzy that accompanied the rise of the internet persuaded many companies that the demand for network capacity was about to explode and many spent hugely on vast infrastructure investments. However this never materialised and the huge debts incurred by telecoms providers caused telecom share process to crash spectacularly. Meanwhile, European firms gambled that the expected increase in demand for fixed-line communications would be accompanied by a similar huge increase in demand for mobile capacity, and spent euros 109bn on 3G mobile network licences. Many incumbent ex-Government operators tried to transform into global players, expanding networks, buying stakes in foreign operators and running up debt. When the explosion in demand failed to happen and the internet bubble had burst, operators cut costs and equipment makers sales collapsed. Nortel’s stock prices crashed e.g. market capitalisation fell from $400bn in the summer of 2000 to just £3bn two years later. This experience, together with the pre-boom raft of mergers and acquisitions, which is still continuing to a lesser extent, means that buyers should be aware of the potential risks of entering into long-term supply contracts.


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There are many examples of mergers and acquisitions, as well as a number of international ‘alliances’ many of which have fallen by the wayside eg. Concert (BT/Telefonica/MCI) and Global One (Deutsche Telecom/France Telecom/Sprint). De-regulation has also played a part in the telecoms market landscape. Free competition in EU countries has been mandatory since 1998. The UK telephony market has been progressively deregulated since the privatisation of British Telecom in 1984 (although BT itself, as the dominant player, ex-monopoly and owner of most local connections, is still constrained through its license agreement). The US has similarly been largely deregulated, other than the need for approval of most mergers and acquisitions, since the break-up of the old AT&T into separate long-distance (the current AT&T) and local carriers (the ‘baby Bells’). Although the rest of Europe is de-regulated, de-nationalisation has happened to a lesser extent than in the UK, and country Governments still own a large share of companies such as Deutsche Telecom, and still have a large measure of control eg. France Telecom. Predicted convergence between telephony and the internet has seen Cable & Wireless buy MCI WorldCom’s Internet backbone network, and Energis acquire Planet Online. Vodafone bought US company AirTouch and is close to establishing a network across the USA (although the actual operation of this is largely outsourced to other telecoms concerns). One-2-One was bought by Deutsche Telecom, while Energis was buying Racal Telecom. Then Mannesman of Germany bought UK mobile operator Orange, and was in turn acquired by Vodafone and so divested Orange. The UK marketplace for mobile operators has been through a similar period of acquisition with brands changing on a fairly rapid basis. The current principal mobile operators are:

Vodafone (previously acquired by Mannesman in world’s biggest ever merger in 2000) O2 (previously Cellnet, owned by BT and Securicor) T Mobile (re-branded after acquisition of One 2 One by Deutsche Telecom from Cable & Wireless) Orange (Owned by France Telecom, originally by Hutchison Telecom then Mannesman) 3 (Hutchison Telecom – focused on 3G revenues) The UK mobile market is worth around £15 billion p.a. (2004) with corporate revenues accounting for one third of this. Mobile data revenues are growing, with forecasted revenue of £2.8bn for 2004.

3 Buying preparation

Before considering a major telecommunications procurement, it is necessary for the buyer to do some homework, and to have clear in his or her mind the scale and nature of the task, both inside and outside of their organisation. The following points may be useful.


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3.1 Process

It is essential to have a clear process outlined, and a team in place before approaching the market. This will prevent any issues with mixed messages reaching suppliers from different parts of the organisation. The procurement process should be managed carefully, and sufficient time should be allowed for the procurement to be conducted thoroughly, including the necessary research both internal (requirements and usage) and external market research. For a successful outcome, a cross-functional team should be nominated to handle the procurement. This should comprise both full and part-time members from the relevant functions, including both commercial functions and subject matter experts e.g. procurement, legal, IT/technical, finance, property/facilities, HR, and key stakeholders. Clear roles and responsibilities should be defined for the team members, and to avoid any confusion when interacting with the supply base, it is particularly important to define responsibilities and ownership of the procurement/commercial and the technical roles, upfront in the process. It may also be useful to develop and use an internal ‘Stakeholder Map’ for use in implementation and to identify potential ‘sponsors’ versus ‘blockers’ to any possible change. A Communication Plan is certainly essential to keep senior management and key stakeholders informed throughout the process, as well as to ensure effective communication within the team. In any procurement good communication is key to success. Objectives and targets for the procurement should also be set by the team prior to undertaking any procurement activity, and information collecting with regard to the organisation's past and future potential needs should also be completed at this stage.

3.2 Traffic, usage and inventory

An ideal starting point is the availability of itemised billing over an extended period (at least six months, preferably a year, especially if the business is subject to annualised or seasonal patterns of activity) to determine current telecommunications usage and as a yardstick against which potential new suppliers may quote. However, many organisations do not have the required reporting in place to easily collect this data (a key point when designing future reporting and billing on any new telecoms contract!), and much time can be spent in trying to obtain this data, especially in decentralised organisations. Good sources of information are invoices, and possibly the easiest method is approaching the current suppliers directly. However, past patterns are a very poor guide to future usage. As is well known, many business activities are increasing their dependence on telecommunications at an exponential rate, and usage is switching away from traditional fixed-line telephony to data and mobile communications. To gauge the business's likely requirements over a potential new contract period the following factors and their impact on telecoms usage need to be considered:

company business strategy and plans e.g. any plan to outsource IT or call centres

eCommerce and any plans to increase this particularly as a sales channel


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IT strategy and plans - data communications requirements/sizing – between locations, in-ternationally, with external service providers etc. Current and potential future use of graphics and how any transmission usage may increase e.g. from engineers’ remote PDAs

remote and home working

real estate strategy and plans eg. plans to open or close locations.

It is possible to engage specialist consultants to undertake a telecoms usage review, in view of the time and effort that can be expended on this exercise, this can prove to be a good investment to make. In addition it is essential to review all current contracts and their terms and notice periods, to ensure everything is in place for a possible change in supplier when required. In light of the above, it should be clear that any 'reasonable' estimate of traffic volumes for data more than a year or so out should for contractual purposes be able to be increased by an order of magnitude, flexibility for this needs to be built into the new contract. Note also that the rise in data traffic makes considerations of conventional voice traffic almost irrelevant - generally, this will rise only in proportion to the number of employees. This is not the case for mobile, where both voice and data traffic are increasing for most corporate users.

3.3 Equipment

Most competitive suppliers offer communication speeds and volumes beyond the wildest dreams of only a moment ago. This however has 'knock-on' implications.

A 'conversation' between two modems only works at the speed of the slower. (Long-time fax users will be familiar with the 'connecting at 96000kbs' message, even though they themselves have a much faster modem.) To use the new technologies effectively, all the parties to the communication need fast (= new) equipment.

Failure to use the fastest equipment impacts in several ways:

users of conventional phone circuits stay connected longer, and therefore the call initiator pays greater charges

the same applies to users of the various mobile technologies, except that both sender and user may be paying longer than necessary for connection

data transmissions via IP (Internet Protocol) systems, and Voice over IP calls are to some extent out of this loop because since the advent of broadband capability data communica-tions are now usually charged on a fixed fee rather than a volume basis.

There is a need for telecoms procurement to be fully integrated with corporate IT policy; it is essential to keep equipment technology refreshed in line with the forecast volumes of communication traffic and usage.


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It is also necessary to examine the existing contracts for equipment such as switches and routers; is it owned or leased and can contracts be terminated? If so, what are the cost implications? Lease versus buy needs to be considered, or possibly incorporating equipment into a telecoms services contract – this will simplify the procurement but may have an impact on the length of any new contract, again a certain amount of flexibility for technology refresh needs to be built into the contract.

3.4 Market analysis

Prior to undertaking a telecoms procurement, research needs to be undertaken on the current suppliers available who may be capable of bidding for the contract. In addition, research needs to include an element of current technology available, and potential technology innovation during the lifetime of the new contract. Benchmarking of costs, commercial terms and commercial contract options currently in use can also be very valuable.

One of the best and easiest places to start is with existing suppliers, but other sources of information are internet research, industry analysts, Oftel, Communications Managers Association (CMA), Telecommunications Users Association (TUA) and the OGC (see Appendix 2).

Another good source of up to date market intelligence is that obtained by conducting an RFI (request for information exercise).

3.5 Changing suppliers

Should you wish to change telecoms suppliers, the first thing to ensure is that incumbent service suppliers are managed professionally and ethically during the transition. This will help to reduce any bad feeling and consequent issues in the transition to the new supplier. In addition, it is essential to ensure that all contractual obligations with incumbent suppliers regarding termination and notice periods are adhered to, with any written notices required being given in good time in order to avoid any automatic contract renewals.

For voice telephony, and most cable-based data transmission, there is no great implication on existing hardware arising from a decision to change service provider - the role of BATB and other standards authorities is to ensure that equipment is compatible. (Of course, if you are leasing terminal equipment from your current service provider, there may be other changeover implications.) There may however be an extensive, and potentially expensive, software reprogramming implication. On the other hand, changing from terrestrial to mobile, or between mobile operators, or including mobile telecoms in the overall package, is likely to have some implications. Mobile handsets may have been provided as specific to a particular network, i.e. ‘SIM locked’. And as the technical capabilities of handsets grow (in terms of data and video transmission) this factor may increase in importance. In addition, a change to mobile provider, and especially if handsets are to be replaced, will involve a potentially large staff communication exercise. Note that mobile number portability should no longer be an issue as there are now regulations in place to cover this.


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Any change to supplier will involve substantial effort in both communication and implementation within the organisation; it is important that this is properly planned and effectively executed. So, telecoms service decisions may have significant additional costs, well outside the contract with the actual service provider.

3.6 Geography

Geographical patterns of telecoms use are of importance for a number of reasons:

Mobile coverage can be patchy, and is still not at 100 per cent in the UK, never mind other areas of the world. Consider different networks coverage at key business locations in par-ticular, and especially inside relevant buildings.

Businesses located in metropolitan business centres (e.g. London, but increasingly also cen-tral Leeds, Manchester, Glasgow etc) have a significantly greater choice of service provider, especially if they are high volume users.

Even if located outside major cities, the range of options may be greater if the business is located close to the actual (or even better, planned) line of a service provider's trunk route - in such circumstances, even small users may be able to obtain a direct connection at a reasonable rate.

International requirements, volumes and expenditures may also be relevant. The existence of trans-national alliances may be a significant factor (although, rather like airline code-sharing agreements, such alliances can be both ephemeral and open to attack by regulators and competition authorities). It is also important to note that a number of telecoms ‘alli-ances’ have more the characteristic of an investment than a technological or systems mar-riage - just because one telecoms operator owns a significant percentage of the share capi-tal of another operator there is no necessary advantage to the user of either network.

An additional complication affects the cross-border use of mobile networks. In general, the user of a mobile telephone (or other device) outside the ‘home’ area will find that the phone looks for and locks on to the strongest local compatible signal, regardless of whether that is the signal of the phone’s provider, and will stay with that signal. The fortunate bene-ficiaries of such traffic have no compunction in charging at what may be considered extor-tionate rates for handling such traffic. As technology capability improves it is possible to de-fine networks abroad to which the mobile handset will roam, however this needs a physical change to the handset SIM before issue to staff, with associated process and logistical im-plications for the service provider and company.

Note that there is no rule to say you have to use the same provider for international telecommunications as you do for local, regional and national calls (although the additional costs and risks of managing multiple suppliers clearly have to be considered). In the UK, traditionally fixed-line voice and mobile network services have been provided by different suppliers, although some will partner to jointly respond to an ITT, however this is not the case in various European countries where the same suppliers can support both fixed line and mobile services e.g. Germany.


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4 Buying telecoms - considerations

4.1 Direct and indirect connections

A direct connection means that your network operator runs their cable directly into your premises, and handles and charges for all your calls - local, national, or international. BT offers direct connection to any domestic or business user; cable companies will offer a direct connection if they have already run a cable past your premises. Some metropolitan areas with a high concentration of data-intensive telephony users, particularly London have geographically-limited networks offering direct connection to many businesses. Another is Kingston Communications (the municipal operator in Hull) serving major business areas of West Yorkshire and now expanding to other areas. Other operators face high costs in providing a connection and will generally only do so for companies with a high telephony spend. Otherwise they will use an indirect connection. A notable exception is Thus plc (formerly Scottish Telecom, now de-merged from Scottish Power Group) taking advantage of the fixed radio access network in Scotland to offer smaller business a direct wireless connection. Other companies will no doubt follow this route. An indirect connection means that your service operator has an ‘interconnect agreement’ with another network operator, BT in the UK, to use that operator's local connection with your premises (the ‘local loop’ or ‘last mil’”) to carry your call until it reaches a gateway with your own chosen operator. Interconnect charges with BT are regulated by Ofcom to try to ensure the proverbial ‘level playing field’, an indirectly connected operator can charge their own rates for the long distance and international components of a call. In 2004 Ofcom produced several reports on the state of the UK’s telecoms market, in which it criticised BT’s high wholesale prices and alluded to the possibility of breaking the company up. This problem of the ‘local loop’ has been addressed by the regulator Ofcom. From July 2001, BT has been required to make its local lines available to competitors, and to allow them to install their own equipment in BT exchanges in order, for example, to provide digital services such as Broadband to their customers. Under this arrangement, all telecoms operators that have the right to interconnect with BT’s network are able to upgrade BT’s lines with their own equipment; without restriction on the type of service offered (subject to technical compatibility). Ofcom sets the price for such use of BT’s local loop. In addition, BT must provide wholesale access to its high speed broadband network to the other competitive operators (see DataStream below). This and other actions by the regulator are forcing change in the UK market. In 2004 Ofcom produced several reports on the state of the UK’s telecoms market, in which it criticised BT’s high wholesale prices and alluded to the possibility of breaking the company up. Soon afterwards BT announced large reductions – up to 70% - in the prices it charges to other operators who provide competitive broadband services over BT’s network. At the moment, BT shares its network with rival broadband providers in three ways. First, it offers them its own broadband services on a wholesale basis, for resale under their own brands. BT makes a good margin, and the rival operator does not have to build anything. Of the 2m or so broadband connections delivered over telephone lines in Britain, BT retails around half of them itself, and acts as a wholesaler for the rest in this way.


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Second, under a scheme called ‘local loop unbundling’ (LLU), the rival operator can install its own equipment in local exchanges and lease BT's lines for the ‘last mile’ from the exchange to the subscriber. This involves a lot more investment for competitors as they need their own high-speed networks to link up the exchanges, but allows them to differentiate their services from those provided by BT. Uptake of LLU has, however, been slow: fewer than 10,000 lines had been unbundled prior to this price action by BT. BT reduced the cost of unbundled loops by around 35% in mid–2004, with further cuts forecast. However, whilst the monthly cost per unbundled loop has fallen, the set-up charge for each one is still 50% above the European average (Source:Ovum) although revenue per loop will fall, BT should still benefit as the overall market grows.

Cutting the wiresMonthly price of *shared unbundled loop, £

0 2 4 6 8 10

Finland

Britain (now)

Germany

Sweden

EU average

Spain

Britain (from June 1st)

France

Italy

*DSL only

Source: Ovum BT's aim is to encourage rival operators to pursue LLU and not its third broadband service offer, called DataStream. This is a halfway house between the first two options, forced on BT by Ofcom, in which rival operators use BT's network as well as their own infrastructure, providing some scope for differentiation. BT says this is unfair, since it allows its rivals to use for free the modern high speed new backbone it is now building. It would much rather its rivals simply resold its broadband products, or built their own backbones and used LLU.

BT has now made LLU cheaper than DataStream. In addition, Ofcom has said that if LLU takes off, it might relax the regulatory requirements around DataStream. There now seems to be agreement across the industry that ‘infrastructure-based competition’—i.e. more LLU—is the way forward. BT has historically been reluctant to push LLU, but has decided that doing so is in its own best interests.

Where a cable company serves an area, a network operator may use the cable connection rather than BT if this is to commercial advantage. Cable & Wireless has an extensive cable network providing in some locations a complete alternative to BT. Interconnect charges other than with BT are not regulated by Ofcom.


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A drawback for business in using cable for the local connection used to be the need to change telephone numbers. New rules on the ‘portability’ of phone numbers introduced since 1996 have largely eliminated this problem, reinforced by an EC Directive (98/61/EC) requiring all telecoms operators and service providers within the EU to allow customers to retain their numbers when changing companies.

An alternative to the BT local loop problem should have been Ionica, a wireless-based service. Licensed in 1993, the idea was technically attractive, but arguably ahead of its time. The limitations of wireless technology at the time confined Ionica to the residential market. Eventually, with insufficient cashflow, it collapsed and the service was bought (and closed) by BT. As wireless technology has improved it is apparent that Ionica was merely ahead of its time, rather than being fundamentally flawed. Users with high volumes of traffic between identified nodes may use ‘leased lines’ dedicated to their use e.g. credit card companies use leased lines to connect directly with merchant terminals. Competition in this market used to be limited but has improved with leased lines now available from large IT vendors and outsource service providers, such as Fujitsu, as well as from telecoms suppliers.

4.2 Convergence of voice and data

Telecoms networks now exist that support voice data and video, this is called ‘convergence’. Convergence can be supported by fixed line networks i.e. Broadband, or wireless networks (‘wireless convergence’) e.g. mobile cellular networks. As ever, universal standards do not exist, but IP is the de facto standard for fixed line Broadband, with WiMax gaining support of major vendors as the leading wireless – data protocol. To a large extent, such developments are a result of increasingly fierce competition between telecoms companies producing technology innovation. These suppliers claim, however, that there are very real advantages for their customers, particularly for the larger corporations. One estimate, which did not become reality, (by data networking company 3Com) was that thirty percent of [larger] corporations would be using converged data, video and voice networks by the end of the year 2000. Advantages of convergence, of using a single communications network rather than different networks for voice, data, and video, and for internal and external networks, are given as:

reduced equipment costs (capital and running)

reduced operations costs (lower charges)

rationalised network management (reduced overhead in IT and Telecoms specialists, and fewer constraints on expanding or changing the network as the business changes)

new applications and business methods, particularly in customer-centred applications such as call centres and help desks, and with hand-held devices such as PDAs.

4.3 WiMax

WiMax is a high-speed, long-range wireless standard. Aperto Networks of California is one of several firms who launched WiMax products in 2004. Other large corporations such as Intel,


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Nokia and AT&T are also backing this standard. Sean Maloney, the head of Intel's telecoms division, says it will put “the next 5 billion users” on the internet. The hype surrounding the launch of WiMax is similar to the fuss over Wi-Fi, a popular technology that uses a small base-station plugged into a broadband connection to link laptops within 50 metres or so to the internet. Wi-Fi is undoubtedly useful—in 9% of American households, for example—but it is used mainly to provide wireless internet coverage inside homes, offices and schools.

Schemes to cover whole cities with Wi-Fi and make expensive third-generation (3G) mobile-phone networks redundant have got nowhere as few people are prepared to pay for fee-based access to WiFi hotspots e.g. in airports. But whereas Wi-Fi provides coverage within a small hotspot, WiMax, which has a maximum range of 30 miles, could provide blanket coverage if enough base stations/hotspots were introduced.

The initial aim of WiMax is modest: it will ensure compatibility between different vendors' fixed-wireless broadband equipment, which provides fast wireless-data connections between fixed points over long distances. This ought to help to expand the market for fixed-wireless access, since operators will no longer have to worry about being locked into vendors' proprietary technologies, and economies of scale will bring prices down. That is good news for people in rural areas, for whom broadband access—via cable networks or supercharged telephone lines—is often unavailable. Subscribers simply fix a WiMax receiver to the outside of their homes and plug it into a Wi-Fi base-station, or directly into a PC. In the UK, BT is already testing WiMax in four rural areas.

Another interesting application of WiMax is for use as a wireless ‘last mile’ in the developing world, since it can carry voice calls using Voice over Internet Protocol (VoIP). Instead of laying copper cables, network operators would set up far less expensive WiMax towers, and then install WiMax telephones in subscribers' homes. Internet access could also be provided.

Currently WiMax is a fixed technology. But if the technology can be scaled down to fit inside mobile devices, then interesting innovations are possible. Intel, the world's leading chip-maker, plans to make WiMax support a standard feature of most laptop computers starting in 2006 or 2007. By then, a mobile version of the WiMax standard is expected to have been approved. It would then be possible to provide fee-based Wi-Fi-like coverage to mobile users over wide areas. This might have far more appeal than a service limited to a few hotspots; it would, for example, work in a taxi. Mobile WiMax could also be used in mobile phones, allowing fixed operators that have built WiMax networks to transform themselves into mobile operators. BT, which sold Cellnet it’s mobile division, is interested. (Although BT has now started a new BT mobile service, this is currently as a reseller on the Vodafone network.) However some difficulties can be foreseen; equipment vendors may be reluctant to push WiMax equipment as it may jeopardize sales of more lucrative 3G equipment. And operators are reluctant to commit themselves until the technology is proven. There is also opposition from some in the mobile industry. Turning WiMax from a fixed into a mobile standard is difficult as a separate mobile broadband standard, known as 802.20, is already in development. Proponents of 802.20 retort that it will require less spectrum than WiMax, and will work in fast-moving cars and trains, which WiMax will not.

So far, despite claims by several companies that they can offer WiMax technology today, it is not happening in reality and the danger is that the earlier promise of WiMax will not be fulfilled; however it is certainly worth monitoring what is happening in this technology. WiFi however is a reality, with public access WiFi hotspots available in airports and hotels. One


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of the issues however is how these services can be paid for, which is one of the reasons why so far this technology has remained limited to private access (home/office) and public access where the user can easily be charged on a fixed fee basis e.g. as part of charges for a hotel room or airport executive lounge.

4.4 Voice over Internet Protocol (VoIP)

Using the internet for voice telephony is termed Voice over Internet Protocol (VoIP). Simply put VoIP digitises voice calls, breaks them into packets of data and allows them to be piped around like any other kind of internet traffic. VoIP was an almost accidental discovery in the mid-nineties by enthusiasts, who combined voice compression software with packet-switching communications. Initially, both parties needed specialised software on an internet-connected PC, which was hard to set up and gave poor sound quality. Free software such as Microsoft Netmeeting overcame this problem for individuals. For companies, a more interesting development was the development of the IP telephony gateway. This combination of hardware and software links circuit switched voice networks such as those traditionally used by telephone companies and the packet switched networks of the internet. As a result, IP calls can be switched across the telephone network, and telephone calls switched to an IP network. The most prominent example of this, in the US, is Qwest, which has a US-wide VoIP service. Users with a conventional telephone and a password can access Qwest's long distance IP network which carries their call to a ‘gateway’ near to the recipient, where it is redirected to the local telephone company for the final connection. Qwest is able dramatically to undercut competitors because it does not pay access charges to long distance carriers (and the local connection in the US is free or virtually so). There are several ways of using this technology. Large organisations are increasingly using Voice over IP to replace voice and data networks with a single ‘converged’ network which produces cost savings. VoIP is also used by telecoms operators to carry calls inside their networks to reduce costs. International calling cards use VoIP to keep prices down. By plugging an ordinary phone into a broadband connection using a small adaptor or a wireless base station, it is possible to make and receive calls in the usual way via the broadband internet link. The advantages of this are clear for both consumers and corporate buyers, rather than pricing structures based on volume, time and distance, VoIP offers voice telephony on a fixed fee basis, as just another subscription- based internet service, at much lower costs than traditional call-time based voice telephony. This could be bad news for the conventional telecoms operators, however most of them are embracing VoIP (they probably have little choice). BT and AT&T launched VoIP services in 2004, an incentive for AT&T is that offering VoIP over their own broadband network will avoid some of the $10bn per annum fees it pays to the ‘Baby Bell’ local operators for routing traditional voice calls over their local networks. As broadband take up increases, more companies will offer VoIP services, including cable companies.


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There are also other cost advantages to using VoIP. Private voice circuits based on leased lines are expensive to own, and are rendered unnecessary by VoIP. Voice traffic digitally compressed can occupy just 15% of the bandwidth without loss of quality, in other words packetised voice traffic can be carried over a WAN for around a sixth of the of the cost of a circuit switched message (because charges on WANs are generally by volume of data transmitted, not by duration of call). By some estimates, the biggest corporate cost savings lie in using IP for fax as well as voice. Faxes over conventional telephone connections are notoriously slow (fax is of course a data transmission anyway) and by some estimates 40 per cent of the telecoms bills for some large companies goes on faxing. Faxing using IP can readily give a tenfold performance improvement.

Although companies can implement their own VoIP systems, investment in new equipment is needed and initially corporate buyers of VoIP services have tended to limit VoIP implementations to new ‘greenfield’ locations, or to outsource their equipment and applications requirements. Reasons include:

the inconvenience and risk of changing existing systems

reluctance to invest in IP gateways or servers that may quickly become obsolete

doubts about the ability of computer based technology to match the near 100% reliability shown by circuit-switched networks.

Network outsourcing is growth area for established telecoms companies like AT&T and BT, and for IT service companies such as EDS and IBM Global Services. As with any outsourcing, it is essential that buyers understand their current costs and services, choose vendors carefully, conduct thorough due diligence and negotiate a flexible contract based on outcomes and service levels.

4.5 Emergent technologies – the convergence of wireless and fixed-line telephony

Mobile phones now outnumber fixed ones, and their numbers are growing fast, while the number of fixed lines is flat globally and declining in many countries. An increasing number of people, including 5% of Europeans, are doing away with their fixed lines altogether and using mobile phones for all voice communications. For example, Nokia in Helsinki has no fixed-line phones, but has its own mobile network ‘cell’ located over its head office location. Fixed-line phones have hardly changed in years; however, mobile phones have lots of new features, such as voice recognition, text messaging, MP3 players, FM radios, games and a host of other downloadable features and internet services. However fixed-line phones do have their advantages. Calls are cheaper and clearer, and connections are still much more reliable, as there is often still a problem with getting a strong mobile signal in some locations and inside buildings. Hence the current enthusiasm throughout the telecoms industry for the idea of ‘fixed-mobile convergence’, which uses new technology to provide the best of both worlds: the freedom of mobile and the reliability and low cost of fixed lines. Subscribers would use the same handset to make calls via fixed lines at home or office, and mobile networks when out and about: they would have one number and one voicemail box, and receive one bill.


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This involves some exciting new technology innovations, calls are handled within the home by a small base-station plugged into a fixed-line broadband-internet connection. This base-station communicates with nearby handsets using radio technology that operates in ‘unlicensed’ spectrum, such as Bluetooth or Wi-Fi (so you will need a new handset). The base-station pretends, in effect, to be an ordinary mobile phone base-station. As you enter the building, your phone ‘roams’ on to it. When you make a call, it is routed over the broadband link, which has enough capacity to handle several calls at once by different members of the household. Calls made in this way are billed as fixed-line calls. If you leave the house while making a call, you roam seamlessly back on to the ordinary mobile network. And when a friend comes to visit, her phone roams on to your base-station, but the charges for any calls made appear on her bill. Major fixed-line operators such as BT, who are a leading supporter of this new fixed-mobile convergence, have rather obvious reasons for backing it. Instead of losing more and more business to mobile phones, fixed lines can now co-operate with them, and win back some traffic. After selling off its mobile company Cellnet (now O2) a few years ago, BT has re-entered the mobile market by re-selling airtime on other operators' networks, via an arrangement with Vodafone. A converged fixed-mobile service will enable BT to lower costs by shifting some mobile calls on to its fixed network; it will also allow the company to differentiate itself from mobile-only operators. Telecom operators, who own both fixed and mobile networks e.g. Germany's Deutsche Telekom and Japan's NTT, also like the idea of fixed-mobile convergence. They can save money by merging network infrastructures and doing away with separate fixed and mobile divisions. France Telecom, for example, is reorganising itself into consumer and business divisions, rather than fixed and mobile. And Cingular, an American mobile operator owned by two fixed-line incumbents, BellSouth and SBC, is pursuing convergence as a way to improve coverage within buildings, and thus exploit fixed networks to gain a competitive advantage over other mobile operators. For mobile-only operators, there is an opportunity to develop business by partnering with fixed-line providers. Fixed-mobile convergence could help them fill the excess capacity on their 3G networks, and enable them to unload calls on to cheaper fixed networks where possible, in order to reduce costs and increase margin, to recoup some of what has been spent on 3G networks and licenses. The expectation is that this technology convergence will expand the telecoms market overall. Once people get into the habit of carrying their mobile phones around with them all the time, even in the home, they will probably make more calls. Mobile handset suppliers also like the idea too, because as well as requiring lots of back-end equipment, fixed-mobile convergence presents the opportunity to replace around a billion or so of the existing fixed-line phones in homes and offices. The idea of fixed-mobile convergence has been around for several years. But it is only now gaining any traction as more and more people own a mobile handset. It is also now possible to cram multiple radios (one for mobile use, and one for use within buildings) into a single handset without adding too much to its cost or size. But perhaps most important of all is the emergence of technical standards. A consortium of operators and suppliers, including Alcatel, BT, Cingular, Ericsson, Motorola, Nokia, Nortel and T-Mobile, has announced specifications for integrating wide-area mobile with short-range Bluetooth and Wi-Fi networks. An agreed


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standard means that operators can proceed without the risk of being locked in to a particular technology. BT has co-founded an alliance of operators called the Fixed Mobile Convergence Alliance, the other members of which include NTT, Brasil Telecom and Korea Telecom. BT’s fixed-mobile convergence technology, known as ‘Bluephone’, is being developed by a seven-company consortium that includes Alcatel, Motorola and Ericsson. If Bluephone proves a success in Britain, it is likely to trigger the launch of similar services elsewhere in the world. Mobile-only operators may then rush to team up with cable operators in order to compete, since being a mobile-only or fixed-only operator may no longer be viable. If this happens, the distinction between the current two types of telephones, ‘fixed’ and ‘mobile’ would vanish.

4.6 IP applications

There is considerable potential for the convergence of voice, data and video to produce new improved applications. These include customer-based applications, in particular call centres and help-lines, sometimes described as 'web-enabled communications centres'. It is possible, for example, to speak to a help-desk operative, while simultaneously being shown a diagram of the problem. However, there are key issues of system reliability, and of bandwidth at the client end (customer and help-desk spending five minutes chatting about the weather while the diagram downloads) to be addressed before firms will be prepared to make critical call centres reliant on internet applications. Applications for mobile phones and other WIDs which benefit from the convergence of voice, data and video are becoming more commonplace and this use of technology will probable increase further with the roll-out and take up of the 3G mobile networks.

4.7 Satellite

VoIP and technology innovation in terrestrial and wireless communications have so far not challenged the more specialised satellite communications, as some predicted a few years ago. In fact the satellite communications industry has also been developing more sophisticated technology. In general though, satellite is still relatively expensive and limited mainly to emer-gency, government and military type use, although it does provide an effective corporate al-ternative where coverage and reliability are key. Satellite can also now provide the option mo-bile office capability in remote global locations not serviced by reliable mobile or fixed line communications.

The new generation of satellite phones are smaller and more portable than ever, allowing you to make calls, send text messages and email from anywhere on the planet. High speed satellite data services now offer mobile office capability anywhere in the world. Satellite phones are more affordable than ever and they provide the peace of mind of knowing that you need never be out of reach, even in an emergency.

For example Iridium, Globalsta, Inmarsat, Satphone UK


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4.8 Mobile extension

One current option for organisations not wanting to make the leap from their current fixed line and mobile communications to VoIP or mobile-only alternatives is the option of adding the corporate mobile fleet to the private network, or more usually, the virtual private network (VPN) as ‘extensions’. This can be a great opportunity for cost savings in a larger organisation as all calls, including mobile, within the network are free. This option also avoids fixed handset rental charges. This service option has been available for several years, but there has been a surprising lack of take up by large companies, which may be due to the planning, organisation, and up-front investment needed to implement. This service is usually a network-based option, implemented by forming a closed user group on the GSM network i.e. a secure area of the network accessed by dialing codes. Most large com-panies choose a hardware-based option, requiring purchase of specialist kit, although intelli-gent network-based options are available for smaller companies. However, when using this service, all devices used on the network must be authenticated in advance as the network rec-ognises the SIM card of each mobile. This means that a process to authenticate each mobile prior to issue must be implemented by the organisation. In addition a number numbering plan is needed e.g. 7 digit dialing plan where the last 4 digits of the full mobile number are the ex-tension number (mobex). From the corporate network locations callers can dial a prefix plus

the mobex number, in the same way as dialing any other internal call. Registered mobiles can call all corporate network locations and other mobiles by dialing prefixes. External callers use the full mobile number as usual. In addition ‘one number’ dialing solutions are available where users have one number for home/office/mobile and calls are routed until answered.

4.9 Implementation

As with any new service, any change to telecommunications provider will need effective and professional implementation of the new contract and service. This will encompass both the service and the commercial elements of the contract. The quality of implementation is key to the success of the service and should not be underestimated either from a resource (require-ment) or planning (time) perspective. The implementation team should consist of both full and part-time members from both client and supplier, and there should be continuity of some personnel from the procurement team – so that the service implemented is the one negotiated and agreed through the commercial discussions. Communication with the supplier, within the wider team, with stakeholders and users is key, to success - it is well worth investing the time to define a ‘Communication Plan’ up-front. In addition the implementation team should ensure that processes are defined eg. short dialing schemes, billing/payment requirements and process, and that mechanisms to measure and review the service - performance measures, SLAs, KPIs - are finalised, agreed and documented. All performance measures MUST be relevant to the required service outputs; try to avoid the trap of measuring for its own sake, or agreeing SLAs based on criteria which cannot be meas-ured or are too vague.


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The implementation team also needs to put in place processes and procedures for ongoing contract management. Note: When agreeing service levels against ‘guaranteed uptime’, ensure that you check exactly what this means. For example, an impressive sounding guarantee of 99% uptime can actually leave a client exposed for relatively long periods without a service if this uptime is against a ‘standard business day’. Do the calculation for the implications over a month based on 24 hours a day, 7 days a week (24x7) coverage.

5 Service options

5.1 Business requirements

Newbridge, a vendor of equipment to service providers, suggests that organisations are look-ing for the following:

new, advanced business services

uniform services, anytime, anywhere

outsourcing of service management

performance guarantees in Service Level Agreements

predictable, pay as you go, charges

services on demand

pay based on value (i.e. quality of service)

customised, cost-effective services

accommodation of legacy systems

competitive pricing.

It is apparent that service is, for most businesses, a greater consideration than price, perhaps unsurprisingly. Service failure can directly cripple any business, in particular failure of data communication networks. Unit prices, meanwhile, are continuing to fall considerably – the reason that corporate phone bills do not also fall is because of the rapid growth in use, pri-marily of data and mobile networks. A survey of European organisations telecom procurement undertaken in 2004 revealed that 85%of respondents are expecting an increase in data communications over WANs and 80% expect an increase in mobile call volume. The costs of telephony are therefore an issue of internal management, as well as effective

procurement and of the supply market.


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5.2 Services available

The many telecommunications service companies across Europe and the US offer varying ranges of services for voice, data, and video. Some firms deal only with the larger customers, others have packages especially targeted at smaller businesses. The availability of some services may depend on the quality and nature of the local link, and availability of Broadband connections (although most large businesses have the influence to persuade operators to install a Broadband connection in the unlikely event they are located in an area not yet hooked up to Broadband). This is not always the case for small businesses based in more rural or remote areas. It is also important to ascertain, where appropriate, whether services are available through your preferred service provider on a global basis. The following list shows some of the additional services a business may require.

Private circuits, virtual private networks, and fixed leased lines e.g. between two computer systems or local area networks, and to ensure maximum security.

Freephone (0800), local rate (0845) and premium rate (09xx) numbers.

Audio and video conferencing.

Call forwarding/diverting, call waiting and call hold.

Internet connectivity and services, including security, web hosting, intranet and website creation.

Roaming access.

Answerphone, voicemail and other messaging services, including remote access to them.

Pagers.

Short Message Services (SMS) and Multimedia Message Services (MMS).

Mobile telephony requirements (noting any limitations to geographical coverage available).

Remote telemetry (e.g. for condition monitoring at distant unmanned sites).

Least cost call-routing.

Mobile extension (mobex).

Chargecard services.

Integral billing (with tailored breakdowns e.g. by cost centre), and billing presented in digital form (to be input direct to accounts or analysis packages).

Availability of remote and home-working and mobile office capability.


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Call logging, traffic and usage analysis, response/SLA monitoring. System services that may be required include:

Remote alarm monitoring and fault management

Network design and integration (especially integration with 'legacy' systems and or third party operating or applications software e.g. call centre systems)

Equipment provision, maintenance, support and upgrading. ('Equipment' here may include handsets, pagers and other terminal devices, exchanges, cabling, wireless transmitters where used, and IT equipment).

Fully outsourced network operation and maintenance, added value managed network services e.g.) desktop infrastructure management – the total management of desktop hardware and software including order management, installation, moves, hardware and software refresh etc.

Outsourcing of call centres and data centres.

Provision of billing information electronically in a specified format. Many of these added value services can be provided by equipment manufacturers and IT services suppliers as well as through larger telecommunications service providers.

5.3 Outsourcing

Increasingly organisations are deciding to outsource service provision; telecommunications services are no exception to this. Business drivers for outsourcing are many and varied, but include:

focus on core business/growth opportunities

cost reduction

moving from a fixed to a variable cost base

improve service levels

innovation and new product development

acquiring a specialist or emerging service

access to latest technology

realisation of capital

organisational objectives/flexibility

use of tiered supplier arrangements.


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Outsourcing opportunities within the telecommunications arena can range from the total outsource of all telephony, to the selective outsourcing of a particular part of the service. Examples of outsourced services provided by suppliers are:

outsource of switch (PABX) and services

managed network services eg) data network, desktop infrastructure

call centres

billing management

mobile handset management. Note that any outsourcing contract that involves the provision of services which were previ-ously provided by the client’s own staff, will be subject to the TUPE (Transfer of Undertakings Protection of Employment) Regulations 1981), and expert legal advice needs to be obtained.

5.4 Contract Management

As with implementation, ongoing contract management is essential to the provision of a cost effective, high level service, and this must not be allowed to become forgotten or drift into the realms of unimportant. The outputs from this process will be very important as the input into the process of contract review and re-bid. There should be regular reviews of both the service and commercial elements of the contract at all levels of operations and management, some of the items for discussion may include:-review processes, both contract and operational, communication effectiveness and issues, in-novation and technology refresh, price benchmarking, KPIs and performance measures, Busi-ness Continuity Planning, and forecast savings validation.

6 Commercial Considerations

6.1 UK specific

Except for the largest customers, whose volumes may justify the creation of a direct connection to the carrier of their choice, most users still depend on BT for their local connection. However, as discussed earlier in this publication, Ofcom is gradually forcing change and competition into the market, which is leading to a reduction in prices from BT, across a range of services from wholesale to resale. It is now possible to negotiate more effectively even with BT, due to the increasing threat to BT from competition. As by far the largest UK telephone operator, BT operates under a complex licence from Ofcom, which amongst other things obliges it to give 28 days public notice of any tariff changes, thus giving competitors time to react. The other suppliers however, do not have to give advance notice of their tariff intentions, and most are not required to notify Ofcom of their tariffs at all. This tends to mean that BT’s rates are relatively static and predictable, but not always the most competitive, however competitors’ rates can fluctuate with very little notice. Generally, telecommunication unit prices have fallen significantly since the creation of a competitive market in the UK, and since the increase in global capacity brought about by technology innovation and infrastructure investment in recent years (see Section 2). BT rates are however are still very much the industry benchmark, at least for local and national


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calls, and competitors tend to present their offers in terms of by how much they can undercut BT. It can, however be difficult to be sure that like is being compared with like - for example, BT's definition of a call is national (over 35 miles), regional (up to 35 miles) and local (local area) but other carriers may have different definitions.

6.2 General

In order to avoid the “apples with pears” comparison described above, it is a good idea to re-quire bidders to provide a 'worked example' on the basis of an example of an actual billing from the current service provider, preferably over a time period of six months or more. It is also important to achieve clarity over what additional services are 'bundled in' to the basic rates, and what services would be chargeable extras. Separate to charges related to traffic are the 'fixed' charges of line and equipment leasing, etc. For these reasons it is recommended that all potential new suppliers bid on a like for like basis, the easiest way to ensure this is to provide bidders with pre-prepared templates, or spreadsheets to complete. Time invested in addressing this up-front will be saved many times over later in the process, as ‘free format’ bids will require hours of validation to enable comparison.

6.3 Consultancy

There are various consultancy firms operating in the market who can provide help, advice and services related to the procurement of telecommunications services. Services range from undertaking the total procurement to locate the 'best buy' given details of an organisation’s current and/or predicted telecommunications usage, to niche services or advice in specific areas. Some specialise in telecoms, (usually ex-telecom industry experts or practitioners), others as part of wider fuel, power and utility consultancies. Use of consultants is sometimes controversial, especially where the consultant's reward is defined as a percentage of savings achieved, rather than an agreed fee. Undoubtedly there are some questionable tactics, however there are also many good and reputable firms offering such services, and these services can provide great benefits. Consultancy is available from large industry firms, specialised market consultancies, or a range of procurement consultancies. Larger firms who are investing significantly in equipment may also find that such consultancy services may be offered by systems providers such as Siemens, often combined with proprietary software that will track usage patterns and identify the least cost channels for particular classes of traffic. When considering use of consultants it is important to carefully define terms of reference, and commercial arrangements. It is advisable to fully consider the needs of the organisation, and where help is needed, before engaging a consultant. By focusing on real needs and pressures eg. time pressure, cost pressure, resource pressure, then added value can be obtained by using consultants where required. This might include: calculation of traffic volumes/usage from past invoices, billing management (can be outsourced to specialists), handset (‘mobile fleet’) management, outsourcing the procurement and contracting on a time and materials or fixed fee basis (useful for smaller organisations with small, less specialised, procurement functions).

6.4 Risk

Identification, quantification and mitigation of risk is an essential part of any large telecommunications procurement. Risk can be: operational, contractual, reputational or


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commercial/financial. It is worth also remembering that suppliers also have risk, and that this risk is often costed into service pricing, unless open negotiations have been undertaken with both parties agreeing how each element of risk will be handled. If a good solid relationship exists between supplier and client, then a “shared risk and reward” (incentive) contract could be considered in a complex services or outsourcing arrangement. ie. both parties share risk and responsibilities, in turn supplier is incentivised for performing above defined criteria. Business continuity planning should also be examined and developed in conjunction with the telecommunications service provider, as telecommunications are essential to the operation of companies today.

6.5 Bulk resale

As discussed in Section 4, BT wholesales Broadband capacity to other service providers who resell this to corporate clients. As part of local loop unbundling (LLU) BT has substantially reduced wholesale prices making the market much more competitive. Large users such as banks and credit card companies bulk-lease fixed lines for direct links, such as to merchant terminals in stores. Quite often prices are more competitive when leasing lines from a re-seller rather than directly from BT. For a considerable period in the late eighties and early nineties, there was much activity by companies re-selling international voice capacity to business users. This was in part because, although national telephony had been opened up, international services from the UK were originally restricted to two licence-holders (BT and Mercury). Re-selling was targeted at large-scale users of international lines. They worked by leasing a fixed quantity of lines from BT and selling capacity on them at lower cost. If they could attract enough traffic over their leased lines they could both undercut BT/Mercury and make a profit. Since more players have been allowed into the international market, prices have come down considerably, so that simple resale has effectively become redundant. International call-back services, which exploited price differentials between the UK and lower cost countries by allowing you to make a call and immediately hang up - your call then being automatically returned at the cheaper overseas rate - were always a bit cumbersome for business use, and have similarly faded away as UK rates for international calls have tumbled. Interestingly, however, the bulk buying and resale of capacity resurfaced in an entirely different arena, by Internet Service Providers (ISPs), such as AOL, bulk-buying access to 0845 numbers so that they can offer their subscribers local internet dial-up connection rates at substantially below the normal BT cost. This too may be short-lived, however, due both to LLU and to the retail take up of direct Broadband connection which obviates the need for special deals to facilitate internet access via dial-up lines.

6.6 Billing and payment

When any contract for telecommunications services is implemented it is essential to sort out and implement effective processes for billing and payment. If this does not happen, any


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savings made from negotiating a new deal will rapidly be eaten up by the costs incurred in trying to approve and pay invoices, not to mention tracking usage and dealing with employees personal mobile calls. Accuracy of billing from suppliers is an issue, especially for network telecoms, so both parties must agree exactly how information is presented. There must be clear rules for employees as well as suppliers, organisations must agree the policy and procedure for dealing with employees’ personal mobile calls, and any telecommunications costs for remote or home working e.g. central payment by company or individuals settle bills by T&E or purchasing card and reclaim via expenses. Note: Quite often the cost of the time and effort expended by companies in collecting employee contributions to centrally paid mobile bills, outweighs the cost of simply paying for the calls, however employees not paying at least a nominal sum for personal calls will be liable to income tax on company paid bills as a benefit. A workable solution is for employees to pay their own bills using a company card, and then to reclaim business calls via the company standard expense procedure. Many suppliers have now introduced improvements in central billing procedures e.g. cost centre breakdown is now web-based rather than disk. In addition it is possible to obtain software to analyse usage from billing information, and it is also possible to outsource billing management to specialist companies.

6.7 Mobile

Mobile voice and data services can be purchased from network operators or from resellers such as BT Mobile, Kingston Communications, Carphone Warehouse. The mobile industry has traditionally suffered from lots of different and confusing tariffs, although some recent realignment is now easing this. The introduction of sharing minutes and data volume across users will provide companies with the ability to reduce total cost, but this will need effective management. In general useful requirements to look for are:

• network coverage – geographical and in types of buildings where users will be located • delivery of bills electronically • loan of handsets prior to contract award/finalisation • ability to handle or re-bill personal calls • ability to measure call clarity eg. by measuring no. of bits lost • eporting tools • provision of free consultancy eg. help to reduce costs.


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7 Summary: what to look for in a supplier

It will be clear from this guide that telecommunications is an exceptionally fast-moving business sector. The rate of new company formation, and of mergers and acquisitions between existing firms, renders many normal supplier selection criteria fairly irrelevant. It is often difficult to find much relevance in past financial results; as with other high-tech areas market capitalisations are extremely volatile (at any one time most have been almost certainly both over valued and undervalued), and a successful track record in past or current technologies may not be an adequate indicator of the supplier’s likely future performance in a market still full of emerging new technologies. However, the following simple guidelines may be helpful in assisting in the selection of telecoms service providers.

1. Check that the company is licensed with Ofcom, and the terms and extent of its licence. (Note that all telecoms providers operating in the UK, from resellers of simple voice capacity to full service providers such as, have to be licensed by Ofcom.) The Ofcom website (see ‘Useful contacts’ at Appendix 2) holds an up to date list of licensees. Does the company hold the appropriate licenses for other countries in which you are interested? It is useful also to check with Ofcom whether the company has any track record of being in breach of its licence terms.

2. Ascertain the extent and implications of any alliances, especially international ones,

that the target company may be part of, and whether these are of an investment character or are of real significance in terms of the ability to offer attractive rates and services. Look also at whether other telecoms operators hold minority stakes - this may indicate future merger directions. Would you be as confident if one of those minority holders took the company over?

3. Ascertain the extent and direction of the company’s future investment plans, and

whether these are in line with your own intentions. For example, is the firm concerned going to concentrate on mobile or wireless, is it moving into VoIP is it still committed to traditional fixed line provision? Does the intended scale of investment appear feasible, given the size and capitalisation of the company? Is the company proposing to pioneer a new technology and if so, does this expose its customers to undue risks?

4. What plans does the company have for taking advantage of ‘local loop unbundling’

(LLU) i.e. access to the BT local loop, and how will this affect its services and prices?

5. Do any additional value added services offered meet your current and foreseeable needs?

6. How competitive are the company’s pricing structures? (Where possible this should be

considered over time, rather than as a snap-shot view - a particular company may be responding attractively to a short-term competitive pressure, but may otherwise tend to be pricier.) How flexible is the supplier with regard to flexible contract structures and pricing? Will they agree to benchmark pricing clauses enabling re-negotiation of prices on a six-monthly basis (key when the market prices are falling)? How easy would it be to renegotiate price and other elements if user needs, company locations or technology changes?


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7. Does the company’s existing customer base contain substantial numbers of customers

with needs and geographical and usage profiles similar to your own? Are such customers prepared to talk about their experiences and their relationship with the service provider?

8. Ensure that evaluation criteria are set and agreed by the whole cross-functional team

involved in the procurement. There must be an effective weighting system agreed, and both qualitative and quantitative criteria should be included, for both technical and commercial requirements. For any large outsourcing contract or contracts that depend on a good, trustworthy and honest working relationship, ensure that ‘softer’ factors such as a supplier’s ability to work flexibly and it’s cultural fit with your organisation are also taken into account.


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Appendix 1

Glossary of acronyms and industry terms

ADSL Asynchronous Digital Subscriber Line. A high bandwidth connection from

home or office into a service provider's network. (There are variant technologies, with acronyms in xDSL format). The 'carrying capacity' of copper wires is increased by a factor of 40.

Analogue Original mechanism of transmitting sound or data. Transmits continually everything on the line, including silence! ASP Application Service Provider – provides hosted and managed software applications to companies on a usage or rental basis. BABT British Approval Board for Telecommunications, which approves terminal

equipment for connection to the network. Use of unapproved equipment, besides being illegal, can cause both local and widespread damage (but unapproved equipment is nonetheless legally on sale, and can be used, for example, on an entirely independent network not connected to the common carrier).

Bandwidth Originally a radio term referring to how much of the radio spectrum is taken up by a radio signal, measured in Hz (MHz). Now applied to the carrying capacity of any medium – copper cable, fibre optic, radio – and expressed in kbps/Mbps. Broadband Typically carrying capacity in range from 150Kbps to 2 Mbps. Cell Area around a radio transmitter for a mobile communications, or cellular network. Neighboring cells connect to each other and to a switching exchange which connects to the fixed line telephone network. CDMA Code Division Multiple Access. A method of increasing the capacity and

security of cellular phone transmissions for a given bandwidth. Circuit switched network

Traditional fixed-line telephony, both parties are connected for the duration of the call. Limits number of calls that can be carried at one time.

CPE Customer Premises Equipment - terminal equipment connected to the

telephone network, which may be supplied by the service provider or by an independent supplier.

Digital Computer representation of sound or data, more efficient as only transmits the actual sound or data in compressed form.

Direct access A service where the network operator provides its own connection to your


© CIPS 2005 - ISBN 978 1-86124-139-9 28

premises. Frame Relay A method for sending data over a network which uses bandwidth very

efficiently; simpler and more powerful than the older X.25 standard. GMPS Global Mobile Personal Communications System - a wireless standard

designed specifically for satellite mobile communication. GSM Global System for Mobile communications – the standard in Europe. IP Internet protocol – rules governing the way packets of data are handled on the internet. ISDN Integrated Systems Digital Network – basic rate (copper cable) and primary rate (fibre optic). Predates ADSL. Take up was compromised by high cost. ISP Internet Service Provider – provides access to the Internet. LAN Local Area Network – linked computers e.g. in a building – linked via fixed line

or wireless. Local loop The fixed line link between domestic/commercial premises and the local exchange. Mbps Megabits per second – speed of data transmission. Metropolitan Area Networks High capacity networks serving large metropolitan areas or business districts and usually dedicated to high specification services for volume business users. MMS Multimedia Messaging Service. Adds images, text, audio and video clips to SMS e.g. photo messaging. PABX Private Automatic Branch Exchange – typical corporate switchboard. Packet switched network (PSN) Originally data only networks. Data split into ‘packets’ for transmission which are then recombined at the receiver. More capacity for simultaneous call transmission. Private circuits Lines rented from the network provider for high volume use. They cannot be

dialled into from outside the organisation.

PSTN Public switched telephone network. A public network provided by telecoms

companies to be used in common by all subscribers ('public' refers to the customers, not the ownership).


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SMS Short Message Service – ability for text messages on mobile phones. Twisted pair Conventional, old-fashioned, telephone cabling. Fine for voice, extremely

limited for data transmission. TETRA Terrestrial Trunked Radio. A standard defined by the European

Telecommunications Standards Institute widely used by public safety and emergency organisations and combining features of mobile cellular telephony, fast data communications and the workgroup capabilities of mobile radio.

TDMA Time Division Multiple Access is a method of allocating several calls to a single

cellular channel by dividing them up into time slots ('multiples' is simply an elision of 'multiple access').

UMTS Universal Mobile Telephony Service. High capacity standard for wireless

networks (US equivalent is IMT-2000). VANs Value Added Network services – telecom network services which 'add value' to

the basic carriage of calls, usually through computerised operations. Examples include bulletin boards, reservation systems, EDI. Arguably, we have had VANS since TIM, the talking clock.

VoIP Voice over Internet Protocol – method of transmitting voice traffic via the internet using a Broadband connection. VPN Virtual Private Network - a system of encryption for the exclusive use of a customer on an operator’s public network. Provides the security and exclusivity of a physically separate network without the capital outlay. WAN Wide Area Network – linked computers over a wide area e.g. within a company – fixed line or wireless. WAP Wireless Application Protocol – standard for transmitting data to mobile devices. WID Wireless Information Device – e.g. mobile, laptop with wireless modem, PDA WiFi Wireless Fidelity, an over-the-air interface between a wireless client and a base station or between two wireless clients. WLL Wireless Local Loop - uses short-range radio links to overcome some of the

limitations of the traditional copper connection, including (limited) mobility and increased carrying capacity.

X.25 The original international standard for packet switching, now being

superseded by more advanced technologies.


© CIPS 2005 - ISBN 978 1-86124-139-9 30

Appendix 2

Useful contacts

Cabinet Office (old OGC–Office of Government Commerce and old CCTA - Central Computer and Telecommunications Agency) and OGCbuying.solutions) Efficiency and reform enquiries ERG Service Desk Cabinet Office Rosebery Court St Andrews Business Park Norwich, Norfolk NR7 0HS Email: [email protected] Enquiries 0845 000 4999 Website: https://www.gov.uk/government/organisations/cabinet-office Ofcom Ofcom is the independent regulator and competition authority for the UK communica-tions industries, with responsibilities across television, radio, telecommunications and wireless communications services. Provides guidance for communications companies, setting out details of the general authorisation regime, general conditions of entitlement, telephone numbering alloca-tion and other regulations. Also provides help and advice for consumers about tele-coms companies and other service providers, including details of complaints proce-dures, Codes of Practice, consumer guides and how to locate mobile phone base sta-tions in your area. Ofcom Contact Centre: Tel: 020 7981 3040 or 0845 456 3000 Fax: 0845 456 3333 Email: [email protected] Website : www.ofcom.org.uk/telecoms Main Ofcom switchboard: Tel: 020 7981 3000 Main Ofcom Fax: Fax 020 7981 3333 Ofcom Contact Centre Riverside House 2a Southwark Bridge Road London, SE1 9HA

https://www.gov.uk/government/organisations/cabinet-office

mailto:[email protected]

http://www.ofcom.org.uk/telecoms

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