Wrong Distance?

By SmallBusinessComputing Staff | Posted March 01, 2000
by Jane Liano

How to navigate the labyrinth of long distance servicesFew things in life are more confusing than trying to determine which long distance plan offers the best rates. With fixed rates, variable rates, interstate, intrastate, "local" toll, and toll free services all falling under the umbrella of long distance, it gets confusing. And with each company claiming to offer the best service at the best price, how can anyone possibly be expected to make an educated decision?

Last month we helped clarify the facts and figures of "bundled service." This month we clarify long distance deals for those who opt to keep things separate. Following are our tips for outsmarting those crafty long distance telcos ­ whether you're locked into a contract right now or shopping around for a new one.

It's in the numbers
The first ­ and possibly most challenging ­ step toward lower long distance bills is determining how many calls are being made each month and how much you are being charged for each charged for each one. This could be particularly difficult if the long distance agreement dates back several years when rate structures were more complex, but no matter how hard it proves to be, persevere. If you don't determine current charges for each type of call, it will be difficult to know what you're saving with a new contract.

Some quick math (see side bar) will help project savings. While a sales rep should be able to figure this out ­ and stipulate in writing that this be done ­ it's a good idea to be able to figure it out yourself. Find out the cost per minute, initial time period, and subsequent time billing increments for the following types of calls: intra-LATA (nearby toll calls), intrastate, interstate, and international (get information specific to each country you call).

Keep in mind that these calls may be billed differently depending upon whether the call is inbound (toll-free) or outbound, made on a dedicated circuit (like a T1) or switched outside lines, and "on net" (from one of your locations to another over dedicated T1s) or "off net." A general rule of thumb is: If the volume goes up, savings should increase proportionately. Don't forget to find out what you're paying now for directory assistance (cost per call rather than cost per minute) and calling card calls (cost per minute plus a per call surcharge), and compare that separately.

The actual cost listed next to the detail of a telephone call on the paper bill is seldom the real cost, since discounts that show up elsewhere on the bill often apply ­ and may be applied differently for each type of call. Validate current rates with the billing department representative at the long distance company rather than from the sales person. In fairness to the sales reps, rates and discount arrangements are complicated so it is often not straightforward to figure out. If contract pricing is based upon a "discount from a tariff" ask to see a copy of the written tariff to validate the pre-discount rates.

While negotiating a new contract, it's a good idea to determine whether you were billed correctly under the current agreement. Try doing this yourself, ask the long distance company to demonstrate it mathematically, or hire an independent telephone bill auditor with a specialty in long distance billing to do an audit for you. The auditor is usually paid a percentage of a refund he gets back for you.

Shop around
Now that you've determined current costs, it's time to negotiate the best rate for the new plan ­ whether it is with your current telco or a new one. Ironically, although you may be paying above market rates, the long distance company has been selling the same service to new customers for less. Unfortunately, long distance companies cannot offer their very lowest rates unless they believe you're thinking of leaving them, so be sure to get competitive proposals.

Businesses should prepare a brief Request for Proposal, just as they would for other major purchases, enabling them to ask detailed questions of each company and to compare responses. It is not likely that telcos will issue a written RFP for an expense of $10,000 per month or less, but the RFP can be used as a guideline at meetings to ensure that all that is agreed upon is included in the written contract. If the long distance company won't put what they've said in writing, prepare your own letter and ask them to sign it.

Insist that with a new contract the rates in all categories will be fixed until renewed. While it may seem logical for rates to stay the same throughout the duration of a contract, this has not been the case for long distance contracts, and many long distance companies resist putting it in writing. On the bright side, newly negotiated contracts can often be deemed retroactively effective. Ask for this. It can often generate a significant credit on your bill.

And when you finally decide on a long distance plan, make sure not to sign a contract for more than two years. It's a competitive market, so don't get locked in. It is not uncommon for a business to be paying 200 to 300 percent more than necessary based upon today's rates. Make sure the contract can be renegotiated after one year if market rates have dropped.

Before you sign
Before signing your name to any contract, make sure you've covered the following bases:

Calling card surcharges. They are negotiable and in some cases may be waived, although the cost per minute will then be higher.

* Lower billing increments. Some long distance companies provide one-second billing increments ­ at least one has 18-second billing increments. (That means for every call you'll pay for 18 seconds whether you use it or not.) Don't assume that all calls have the same billing increments ­ get specifics in writing for each type of call.

* Installation charges. When changing long distance companies or installing a dedicated circuit (like a T1), ask that the installation charges be waived. You may also ask for a credit to offset the cost of any hardware needed for the T1, such as a circuit board for a PBX.

* Minimum Usage Commitments. If the negotiated rates are based upon minimum usage commitments, make sure that you can easily meet them. Some long distance companies quote minimum usage pre-discount and some post-discount, which can be confusing, so find out which is the case. Also ask for a "business downturn clause" that will allow you to keep the same rates if usage drops due to business changes.

* Ability to renegotiate prices within the life of the contract. As we mentioned above, long distance companies often increase prices during a contract. So turn the tables on them and ask for the ability to request lower prices during the contract if rates for the overall marketplace drop

* Toll Fraud Prevention. Determine liability in case someone hacks into the company telephone system to make fraudulent long distance calls or unauthorized use of calling cards. Most carriers have different levels of "insurance" for a nominal cost, so make sure you are covered as the threat is very real.

* Options for Billing Formats and Management Reports. Validation and administration of long distance bills can be nightmarish. Look for clear simple billing formats that show the cost per minute on each category of call (if you believe you are actually looking at such a document, pinch yourself to make sure the experience is real). Find out if access to billing information is available during the month via the Web.

* Customer Service. Find out who will handle the company's billing questions and service problems. Don't rely on just one person, as account reps for long distance companies often leave for greener pastures or are reassigned to other accounts.

* Commitments for certain types of calls. Try to stay away from committing a certain percentage of calls to be domestic and another percentage international. Some long distance companies ask for this, but it can be hard to predict and manage.

* Package deals. While it is tough to negotiate, recent mergers have opened up the door for savings for companies that purchase other communications services from the same provider. Services include local telephone service (outside lines and calls), cellular phones, pagers, data communications circuits, frame relay services, and even videoconferencing services. Just make sure to check rates carefully because it doesn't always amount to a savings.

Nobody said getting the best deal on long distance would be easy, but it can be done. Above all else, don't forget to let your phone company know you're shopping around. Just don't forget to look up ­ you may be surprised how quickly those charges start falling.

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