Telecommunication Vendors: Tier-1, Tier-2, CLEC and IXC
Many of our clients find it unique that we would offer our expertise to
Tier-1, Tier-2, CLEC, and IXC service providers in the United States and
Western Europe. In reality, service providers are highly dependent upon other
service providers for what we call "last mile
connectivity." In most cases,
they also require the telecommunications services of other vendors for their
administrative and retail operations across the country. Telecommunications
vendors have as much of a need (if not more) to
rationalize their "wholesale"
and "retail" telecommunications
connections as typical end-users of their
Telecommunications service providers are provisioning thousands of new
client services where "last mile connectivity" is a service provided by
other service providers. It is also true that the same service providers
disconnect end-user services frequently, when clients no longer need them
or, when they have changed vendors. This is an opportunity for continued
and increased expense when the "last mile connectivity"
remains intact with
the underlying service provider. Vendor personnel
have little time to "ensure"
that disconnect orders are actually implemented by their last mile service
providers, in a timely manner. The process is highly time consuming, and
with limited personnel, the process of disconnect verification is often
never addressed once the initial order has been generated. It is surprising
that many vendors do not realize many of the initial disconnect orders go
Most of these services fall under "wholesale"
agreements between vendors.
Unlike normal end-users, these contracts are typically
"dollar volume" based
and are not specific to each service asset type, or by location. We have
seen problems with dead-end services at Tier-1 service provider in the past.
It is easy to amass hundreds of thousands of dollars of unused, wholesale
assets over an extremely short period, ultimately compounding infrastructure
costs, month-over-month and year-over-year. For the larger Tier-1 providers,
this can eventually reach into millions of dollars in monthly falling margins,
as well as increased pressure to raise end-user prices, in a compensatory
Increased end-user prices result in higher client turnover or migration
rates (consumer seeking comparable alternatives, based on price comparison).
Increased end-user turnover results in decreased gross revenue and higher
breakeven points, as a percentage of gross revenue, exacerbating the problem
further. Vendors' personnel rationalization, over the past decade, has
complicated this problem further, as vendors no longer have an abundance
of personnel at their disposal to conduct thorough and extensive auditing
of these end-point connections.
We conduct the same discovery process as we would with normal enterprise
or SME end-user clients. Telecommunications vendors are the most difficult
to audit, because the requirement for cross-referencing data is highly labor
intensive. The process is slow and time-consuming, considering the overwhelming
amounts of data that require correlation. Augmentation of existing, internal
protocols is of absolute importance in this client class.
To develop a clearer perspective, the Telecommunications Industry,
inter-carrier revenue was over $55 billion for 2010 (Lee & Lynch, 2011; p. 15).
According to a report from Aberdeen Group (2005), 7 to 12 percent of all
telecommunications expenses are erroneous or extraneous assets. These two
research points would mean that yearly, 3.85 to 6.6 billion dollars of
inter-carrier invoicing is erroneous or extraneous. Additionally, according
to the same report from Aberdeen Group (2005), about 15 percent of costs are
actually audited for accuracy, an industry-wide standard for both vendors and
end-users, leaving 85 percent of costs unaudited. With decreasing revenue trends,
since the early part of the last decade, this type of revenue loss can produce
long-term, negative financial consequences for vendors. This is an ongoing
industry issue today in the U.S., compelling vendors to abandon markets to
bolster profitability. For European counterparts, this phenomenon is only now
beginning to manifest itself.
Issues undermining vendor profitability are not strictly relegated to last
mile connectivity issues. As auditors, we see numerous programming and billing
issues that negatively affect vendors' monthly revenues. These issues often
revolve around contract term expirations of their end-users. Although invoicing
platforms generally stop applying "discount-based"
term conditions to client
invoices, upon expiry of contracts, special contract
conditions require "manual"
adjustment processes, which are rarely implemented.
Telecommunications Provider Example
During an audit of a multi-location client, we identified hundreds of PRI
ISDN accounts that had previously been under contract terms in past years.
Although the Customer Service Record (CSR), detail showed that the services
were no longer under a valid contract agreement, they were still receiving the
then contract rates, not tariff rates. This was an under-billing arrangement
of over several hundred thousand dollars per month in lost revenue to the
vendor. Since the current offered contract rates were less expensive than past
contract rates, we placed the services under a new three-year term agreement
with the vendor.
In this example, had the vendor reverted the affected services to tariff,
after the original contracts expired, the end-user would eventually have
discovered the dramatically increased rates, and generated a dialogue with the
vendor representative. However, other similar end-user accounts were under
tariff rates already, leading one to believe that they may not have reacted to
increases in rates on the aforementioned affected accounts. The vendor lost
revenue by not reverting the accounts back to tariff basis. Without a direct
interaction between the end-user and the vendor, the vendor would have collected
one or more months' of increased revenue, until a contract had been requested,
compiled and executed between the end-user and the vendor.
Our experience has shown that most clients lose track of past contracts
they have executed with their vendors. Further experience has also shown that
most clients do not know how to request and read customer service records,
which often identify the execution and term of existing (or in many cases, past)
agreements with their vendors. For this reason, vendors need to comply with
existing agreements, as well as comply with tariff when such agreements expire
without renewal provisions.
Vendors often fail to revert end-user accounts to tariff compliance pricing
upon contract expirations. The effect can be the difference between not meeting
or meeting quarterly and annual expected EPS in the equity market.Rationalization
of your wholesale and retail telecommunications cost
structures reduces corporate capital requirements; optimizing ROI through
decreased, average per end-user costs. Use the "contact us" form to initiate
a probative dialogue by clicking here.