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August 7, 2001
Think your phone bill's crazy? Firms have it
worse By Andrew
Backover, USA TODAY
For 6 months, Nelson Human Resource Solutions paid $1,000 a month for 80 phone lines that weren't being
used. The staffing company also paid $600 a month for empty voice-mail boxes.
Workers would switch offices and order new service. But they wouldn't disconnect the old service, Nelson says. The Sonoma, Calif., firm only discovered the problem after hiring a consulting firm to check its telecommunications expenses.
Many companies like Nelson are throwing money away as bills skyrocket for telephone service, cell phones, wireless handhelds, Internet accounts and laptops connected to networks.
The cost of telecommunications now ranks in the top five expenses for most companies, up from about No. 10 a decade ago, companies and consultants say. Companies spend 5% to 35% more than they need to, experts say, because they pay for services they don't use. Or they fail to find the cheapest calling plans. They miss billing mistakes. And employees make calls they're not supposed to. As telecom costs rise, so does the potential for excessive expense.
The expense isn't minor. This year, U.S. businesses will spend an estimated $403 billion on local and long-distance telephone service and equipment. That is up from $274 billion in 1998, says the Telecommunications Industry Association. In 2004, the total will approach $600 billion, or nearly twice the Pentagon's annual budget.
In a time of layoffs and belt tightening, more companies are eyeing telecom budgets, says analyst Maribel Dolinov of Forrester Research. And no item is too small. Investment banking firm Salomon Smith Barney recently suggested that its employees stop dialing 411, which costs about $1, to get phone numbers. A handful of branch offices have banned it.
Consultants who help companies rein in telecom expenses say most businesses waste money because of:
· Billing mistakes. Last year, refrigeration equipment and laundry services firm Mac-Gray upgraded its telecom network linking regional offices in 11 cities with its Cambridge, Mass., headquarters.
But when AT&T upgraded the service, it continued to bill Mac-Gray for the old service as well. Mac-Gray, with 500 employees and $150 million in annual revenue, failed to catch the mistake for several months because the bill was so complicated, it says. The overcharge: $75,000.
· Carelessness. Companies and organizations cannot always blame phone companies. Pricewater-houseCoopers had one client that paid $80,000 in monthly service charges over 18 months for 36 cell phones sitting in a crate in a warehouse. "It's not that clients are lazy," says PWC's Moore. "It's simply impossible to stay on top of it."
Eisai Research Institute, a drug research firm in Andover, Mass., thought it was on top of it when it banned employees from calling 900 numbers frequently used as sex, astrology and gambling hotlines. But Eisai forgot to put the same block on its fax lines.
· Inefficient contracts. Because of an outdated long-distance contract, law firm Paul Hastings Janofsky & Walker wasted $300,000 last year.
The Los Angeles-based firm was in the middle of a 5-year contract that charged 7.8 cents a minute. When the contract was signed, the firm saw it as a good deal. But long-distance prices have plummeted. Businesses now often get volume discounts in the 3-cent to 4-cent range. Finding the best deal, and anticipating market trends, was beyond the 800-lawyer firm.
"We just don't have that capability," says Chief Information Officer Mary Odson.
Likewise, hotel operator Windsor Capital Group estimates it was paying $100,000 too much each year on maintenance contracts for telecom and other technology equipment in its 24 hotels.
One California hotel, for instance, paid 40% more than a Colorado hotel did for a maintenance contract on telephone switch equipment, which allows guests to use the phones. The contract was negotiated by hotel managers, who aren't telecom experts.
Complicated contracts
Buying telephone service used to be simple. Before the breakup of AT&T in 1984, customers essentially bought local and long-distance service from one company.
But the splintering of AT&T led to hundreds of long-distance competitors, each clamoring for business customers with slightly different deals.
As telecom expenses have grown, companies have struggled to respond.
Most large firms have designated employees watching over telecom and computer systems. But in small firms, the chore often falls to chief financial officers, who lack expertise. "Every company in the world can't afford to have an expert in house," says Eisai Research's Drahnak.
Also, telecom expenses can be hard to track. For example, Internet access charges might fall under the budget of a company's information technology department. But cell phones, often purchased by employees and then expensed, might fall under travel budgets.
Consolidating bills can be hard, too. Law firm Paul Hastings has seven U.S. offices. It buys telecom services from 24 companies. The bills came in so often, at different times of the month, that they sometimes got lost or sat on desks until they were late, Odson says.
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