Staying Ahead of the Demand forNetwork Cost Savings

Ben Fox | July 24, 2018

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1 LB3 | TC2 Staying Ahead of the Demand for Network Cost Savings

Wide-reaching cost cutting initiatives havebecome increasingly common at largecompanies over the last decade. Whethermotivated by a business downturn, a badquarter, or a market change, such cost cuttinginitiatives apply huge pressure for short term costsavings, often at the expense of longer termstrategic projects and investments. Networkinfrastructure expenses – e.g. circuits; usage;mobile; managed network services; hardware/software maintenance, licenses and purchases –are often perceived as rich pickings for savingsand are thus one of the first areas to be targeted.A key factor is a general awareness that unitpricing for commodity network services trendsdown over time.

Despite this perception, suddenly extractingsubstantial cost reductions from the networkinfrastructure budget is no easy task. To drivetruly significant reductions requires competitivepressure (e.g. via a competitive request forproposal (RFP) process) or implementing new,more cost-effective technologies. But both thoseoptions take time – time that it is rarely affordedunder cost cutting initiatives that almost alwaystarget in-year savings. And to deliver in-yearsavings, such initiatives would have needed tostart months before the cost cutting initiative wasannounced…

But in fact, waiting for the arrival of the demandfor cost savings before starting to think aboutspecific network cost reduction initiatives is amistake. Astute network departments have aconstant focus on driving continuous costimprovements. When the cost cutting initiativealmost inevitably arrives, they can respond withmultiple initiatives already in-flight and already ontrack to deliver in-year savings. The harderquestion then becomes how the realized savingswill be distributed between meeting the in-yearsavings requirement versus reinvestment in thenetwork infrastructure.

© TechCaliber Consulting, LLC and Levine, Blaszak, Block & Boothby, LLP 2018. All rights reserved. LB3 | TC2 2

Delivering such continuous network infrastructurecost improvement involves multiple complementaryactivities:

Staying ahead of the pricing curve

Pricing for network infrastructure services andproducts is constantly changing, so keeping yourpricing and contracts in line with the marketrequires a continuous cycle of sourcing activitiesand negotiations.

Technology transformation

To drive cost savings substantially beyond whatis possible from negotiating best in class marketpricing requires embracing new technologies thatare more cost effective. But it takes considerabletime to identify, evaluate, develop a businesscase, source, contract and implement newservices and technologies, which is whytechnology transformation should be just oneelement of your continuous cost improvementstrategy.

Infrastructure optimization

Keeping network infrastructure and servicesoptimized is unglamorous and often mundanework. But it is highly lucrative and thus crucial forseeing continuous cost improvement. Forexample, terminating unused services; cleaningup legacy services lingering in your network fromthe last technology change; making sure serviceshave been purchased under the correct contract,from the right vendor, using the optimal pricingoption. Network infrastructure undergoes almostconstant change, meaning that optimization is anever-ending cycle.

Assuring vendors’ delivery of negotiated contractbenefits

It’s an unfortunate fact of life in the world ofnetwork services that vendors routinely fail todeliver the benefits agreed upon in your contract.For instance, vendors regularly charge higherprices than are negotiated in your contract,charge extra for services that are supposed to beprovided at no charge by your agreement terms,or fail to apply credits that are due unless youcatch the missing amounts and demand theirapplication. Only by robustly managing suppliers,contracts and billings will you fully secure thebenefits you’ve negotiated.

Developing an approach to continuous costimprovement that includes and integrates all theactivities described above provides an aggregatebenefit that is greater than the sum of the individualparts. The data gleaned from checking invoicesfeeds the optimization analysis and provides the datanecessary to competitively source and effectivelynegotiate vendor contracts, which keeps your pricingbest in class, and all of which provides cost savingsthat can (in whole or part) be reinvested intechnology transformation to deliver even deepercost reductions.

Staying Ahead of the Pricing Curve

Measured over long periods it is easy to demonstratethat pricing for many network services and productsfalls over time, but in the short to medium term therate of change in market pricing for different servicesand products varies more, whereby pricing for certainservices stagnates for a time, while pricing in otherareas drops very quickly. Having up-to-dateinformation on these trends is critical for knowingwhere to focus your sourcing and negotiation efforts.For example, in 2018:

MPLS network services continue to undergosignificant price erosion.

“Internet first” strategies enabled by SD-WANtechnologies are applying huge pricingpressure on MPLS circuit pricing.

Access circuit pricing reductions aregenerally limited to Ethernet accesstechnologies (leading edge pricing for legacyTDM access is close to flat).

Whether price erosion is more pronounced inthe local access charges, rather than theMPLS port and class of service charges,varies considerably between differentcarriers.

Suppliers are meeting the ever-increasingbandwidth demand of the large enterprise bymore aggressively discounting the largercapacity port and class of service elements.

US enterprise wireless deals:

For smartphone users, plans with pooleddata and unlimited voice and messaging arerapidly becoming the norm (mirroring theconsumer market).

3 LB3 | TC2 Staying Ahead of the Demand for Network Cost Savings

Roaming voice/data/messaging charges(that is, the rates for using your mobiledevice whilst travelling overseas) continueto drop at a greater rate than other areasof wireless pricing.

Net Equipment pricing (the cost ofpurchasing equipment once you’veaccounted for the credits/subsidies thatcarriers typically provide) is flat, at best.

Cisco has increased its list pricing for variousenterprise products, but discounts aredeepening, particularly for customers thattackle Cisco strategically, and leverage thetechnologies where Cisco is under the greatestcompetitive pressure. Cisco’s strategy toseparate pricing and support for hardware andsoftware products (such as with the Cisco Oneportfolio), plus the trend towards enterpriseagreements, is also resulting in Cisconegotiations becoming considerably moreinvolved and complex.

Pricing for managed network services remainshighly competitive as specialist providersincreasingly compete with, and win marketshare from, the carriers and large systemsintegrators.

SIP Trunking in the US and Europe is nowmainstream and thus far more competitive.

Recent price erosion has been driven bylower usage rates, rather than lowerrecurring charges for the SIP Trunks.

Additionally, the process and plan toconvert from legacy voice technologies toSIP Trunking lends themselves tocompetitive procurement, which hashelped to drive down pricing.

Following the end of a lengthy contractrenegotiation or competitive RFP process, it canbe tempting to let out a long breath, file thecontract away and not think about it for a while.But before you do so, consider that it is the besttime to document and plan for the calendar ofsourcing and contract events and milestonesacross the term of your new/extended contract,and which need to be followed to keep the contractand pricing at the leading edge of the market. Forinstance:

Benchmarking / Rate Review processes

Often apply annually or mid-way through thecontract term. It’s important to plan for (i)when the process needs to be initiated withthe vendor, and (ii) how far in advance of thatyour work must begin to review the contractand pricing and determine what marketadjustments the benchmarking/rate reviewprocess should deliver.

Contract expiry and time to begin the nextRFP or contract extension negotiation

Whether the plan is to conduct an RFP, ornegotiate a contract extension without acompetitive process, the time to start thoseactivities is the same – perhapscounterintuitively, your negotiation leverage tonegotiate a contract extension reduces as youget closer to the end of the contract, becausethe vendor knows that you have run out oftime to complete an RFP, such that you haveno choice but to extend the contract. Yournegotiation leverage is at a maximum whenyou still have the time necessary to completean RFP process, such that you could move theservices to an alternative vendor if the contractextension negotiation does not meet yourexpectations. That timeline varies dependingon the services, but is typically 9-15 monthsbefore the contract expires.

Major credit milestones

Large IT contracts routinely include significantcredits that apply on particular dates or whencertain thresholds are met by the customer.Vendors rarely, if ever, pro-actively managesuch credits during the contract lifecycle so it’simportant to internally document the key dates/milestones for such credits to make sure theyare paid on a timely basis, and that the fullvalue of the credits is received.

© TechCaliber Consulting, LLC and Levine, Blaszak, Block & Boothby, LLP 2018. All rights reserved. LB3 | TC2 4

Technology Transformation

Technologies evolve so fast in IT and networkingthat there are endless opportunities to investigateand deploy new technologies and services thatpromise to help digitize your business, increaseproductivity and drive new levels of cost efficiency.

SD-WAN and “Internet first” strategies are thetransformation poster child in networking right now,presenting solutions for customers to make betteruse of lower cost bandwidth options. But like alltransformations, it’s not as straightforward as simplyswitching out a legacy technology for a new one, it’sa complete change of approach that affects how theservices are sourced, contracted, deployed andmanaged.

Unified communications remains a keytransformation focus for many enterprises, whetherit’s finally replacing ancient legacy PBXs, examiningcloud contact center services, supportingemployees’ communications anywhere with anydevice, deploying the latest “Teams” cloud toolsfrom Cisco and Microsoft, replacing desk phoneswith soft phones, or other collaborationtechnologies.

Looking ahead, the introduction of 5G wirelessservices in late 2018 (fixed services) and throughout2019 (mobility services) is expected to amplifytransformative impacts in areas such as the Internetof Things (IoT), logistics, media, autonomoussystems operations/control and remote siteconnectivity, just to name a few.

In order to move more quickly, enterprises also lookto deliver transformation through outsourcing andmanaged network services, leveraging an evolvingmarketplace where a range of smaller and nimblerservice providers that specialize in individualtechnologies and services are winning growingmarket share from the carriers and large systemintegrators that still feature strongly in this space.

This just scratches the surface – we haven’t evenmentioned the never-ending need for more (oroptimized ) bandwidth, wireless LAN capacity,

improved network resilience and the new securityproducts and services necessary to protect fromexternal threats. As enterprises becomeincreasingly digitized and hence ever more relianton high performing, reliable network infrastructure,simply throwing money at the existing technologiesdoesn’t make the grade. Delivering technologytransformation across all parts of your networkinfrastructure has become table stakes forsuccessful companies.

Over and above delivering cost savings fromtechnology change, transformation initiatives alsodeliver best in class pricing because they driveintense competition.

Transformation projects level the playing field bysignificantly reducing the inherent advantage thatthe incumbent supplier normally has in a like-for-likeprocurement where there is no cost, risk or work tostay with the incumbent. In transformationalprocurements the customer is already prepared forthe cost and effort of the transformational change,whether that is with the incumbent supplier or a newsupplier.

Customers that are pro-actively embracingtransformation are seen by suppliers as far morelikely to change from one supplier to another. Thisencourages non-incumbent suppliers to deploy theirbest bid teams and provide their most competitiveproposals. And equally, it minimizes anycomplacency from the incumbent supplier.

Transformational procurements put far greateremphasis on the suppliers’ capabilities andsolutions, compared to procurements for commoditynetwork and IT services which tend to becomemostly about price. Suppliers resist simplycompeting on price for largely similar services, butthey are far more attracted to competitiveopportunities that encourage innovative solutionsand allow them to present the competitivedifferentiators of their transformational solutions.

The best and only way to take advantage of thiscompetition that transformation initiatives provide isto use a competitive RFP process to assesscompeting suppliers, technologies and solutions andto drive the best possible deal, with terms andcommercial flexibility that will allow you to drivecontinual cost reduction from the transformedservices over the life of the contract and technology.

© TechCaliber Consulting, LLC and Levine, Blaszak, Block & Boothby, LLP 2018. All rights reserved. LB3 | TC2 5

Contract Compliance and Optimization

Contract compliance (assuring vendors’ delivery ofnegotiated contract benefits – such as checking thatthe bills are correct) and continual optimization of theservices you purchase, are critical processes forkeeping your network costs as low as they can be.

Many large companies’ strategies for these functionsinclude the use of telecom expense management(TEM) services and tools to process invoices, performbasic billing error checks and sometimes providecertain inventory functions. When deployed effectively,such TEM services can be key contract complianceand optimization tools, but they should be only part ofyour toolkit, and need to be combined with a range ofactivities and processes:

Process integration

To extract the most value from TEM services theyneed to be integrated with other processes. Suchas feeding all service adds, disconnections andchanges to the TEM, so that the TEM can confirmthat the changes are correctly reflected in supplierbillings; making sure that contract pricingamendments and other pricing changes are pro-actively provided to the TEM for associated invoicevalidation. Seems obvious, but so-often thesebasic steps are missing.

Vendor management

Defining custom reporting and specific, regularmeetings to use to administer the commercialaspects of large vendor contracts is far moreeffective than ad hoc activities when issues arediscovered. Such reporting and meetings are usedto pro-actively monitor the key financial benefitsunder the contract, as well as progress onresolving billing issues that have been raised.

Periodic deep dive billing reviews and audits

TEM billing checks are quite simple, and largelyfocus on basic billing errors. But large enterprisecontracts typically include a range of complexpricing structures that automated TEM tools won’tbe able to ratify – such as discount tiers, waivers,irregular credits and revenue incentive benefits, allof which we routinely see being missed orunderpaid. Accordingly, it is very important toconduct periodic (e.g. annual) deep dive billingreviews to assure that all such contract benefitsare received.

Pro-active optimization reviews

Just as important as confirming that the bills arecorrect, is confirming that you are purchasing onlywhat you need. Large enterprises with multipledisparate business units and sites routinelydiscover that they are paying for services at sitesthat have been closed or divested, or purchasingservices and capacity that are not required.Combining your invoice validation processes (inparticular deep dive billing reviews) with detailedoptimization reviews will maximize the results.

The data and information that these activities andprocesses provide is also a hugely valuable input formore strategic activities, whether more complicatedoptimization activities (e.g. using the data to assessbring your own mobile device possibilities; detailedcircuit capacity reviews) or as input to technologytransformation initiatives or pricing negotiations.

Contract compliance and optimization activities arelargely about keeping your house in order, and it canbe easy to neglect these activities in place of focusingon more interesting and high-profile transformations,RFPs and deal negotiations. Yet companies that don’tput sufficient focus and effort into these areas end upleaving a huge amount of money on the table.Additionally, in our experience, companies that do aneffective job of contract compliance and ongoingoptimization, end up with a far better understanding ofthe network infrastructure and services that theyconsume and have in place, and thus are considerablymore effective and successful in conducting RFPs,negotiating best in class deals, and delivering costsavings through transformation.

Summary

Successful execution of continual cost reductioninitiatives is the only way to stay ahead of the demandfor network cost savings. It is crucial to be ahead of allthe activities on the perpetual cost reduction cycle -identifying new technology opportunities, running thecompetitive procurement, supplier selection, contractnegotiation, implementation, contract compliance andoptimization, rate reviews and benchmarking, contractextensions, and then back to identifying the nexttechnology opportunity… The job is never done.

Ben Fox is a consultant at TC2, a global IT and networking consultancydedicated to helping enterprise clients develop and execute technologytransformation and sourcing strategies. TC2 maximizes savings, performanceand future capability in telecommunications services and network infrastructurethrough a full range of strategic sourcing, benchmarking, optimization, audit,and technology consulting. He can be reached at bfox@techcaliber.com.

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Levine, Blaszak, Block & Boothby, LLP (“LB3”) specializes in telecommunications

and technology law, with particular emphasis on the representation of large users, includ-

ing almost one-half of the Fortune 100. LB3 has extensive experience in negotiating cus-

tom network service agreements, network outsourcings, and related transactions on be-

half of enterprise customers. Together, LB3’s attorneys have assisted large users in

connection with thousands of network services agreements and related transactions and

collectively have more than 225 years of experience in the field. Beyond transactions,

LB3 is the leading representative of large end users and IT companies before the FCC

and other regulators, and is the first choice of large end users whose relationships with

their communications providers have broken down. LB3 also advises clients in connec-

tion with software licenses and telecom-related acquisitions.

TechCaliber Consulting, LLC (“TC2”) is a leading consultancy dedicated to assisting

its clients to maximize their investment in communications services, networking technolo-

gies, managed services and outsourcing, plus a range of related IT infrastructure and

services. TC2 works primarily for large multi-national companies, supporting over 100

deals each year that range in value from a few million dollars to hundreds of millions. Our

services include developing technology and sourcing strategies, performing market

benchmarks of clients’ contracts and vendor proposals, competitive procurements of IT

services, vendor negotiations, vendor billing reviews/contract compliance and service op-

timization reviews.