The telecom contract may seem like a straight forward agreement. You sign a slightly reduced rate if you agree to stay with a carrier for a predefined period of time. It seems good on the surface, but over time you could end up overpaying as a result of a number of variables that impact telecom contract rates.
Here are 5 areas to look at in your telecom contract to be sure you’re paying the best possible telecom rates and what you can do to fix it if you’re not.
1. Auto-renew Clause
Many telecom contracts have auto-renew clauses. The auto-renew clause may seem like a benefit because you don’t have to watch for your plan to end, avoiding the revert to month-to-month pricing. The trouble with this is that your initial contract rate, often referred to as a tariff or regulated rate, is likely to go down over time.
Don’t let an auto-renew clause stop you from looking for savings. Whether auto-renewed monthly or every 2-3 years, new rates can often be negotiated as long as a contract with similar terms is signed again with the same carrier. Although likely, there is no guarantee that your rate will decrease over time. However, without a periodic review of your auto-renewing contract, you will never know, possibly wasting thousands of dollars each year.
2. Current Price Quote
If you do not have an auto-renew clause in your contract, your plan will revert to month-to-month pricing when the contract is up. Often when a carrier signs you on a contract, typically 2 or 3 years, they will quote you a better rate than their typical month-to-month rate. If you have multiple locations or significant volume, you could be eligible for an even larger discount. It is important to watch for the contract expiration because any discount you gained as a result of locking into a contract will return to the original rate. Depending on contact duration this could be anywhere from a 10%-30% price increase.
A revert to month-to-month pricing presents a good opportunity for your organization. Once reverted you are no longer obligated to stay with your carrier and can browse the market for better pricing, rates and contract terms from a variety of carriers. It is almost certain that if you go about doing this preparedly and intelligently that you can find a better rate or negotiate a new contract with your current supplier that reflects up-to-date pricing.
3. Service Upgrade
In some cases a review of your contract could result in you being able to upgrade to new technology or an improved product with minimal or no increase in your rate. While an upgrade to new technology may not provide a “cost reduction,” it will likely allow your organization to operate more efficiently and provide a better quality of service. This will transfer into qualitative improvements which will ultimately benefit your business with both intangible and monetary benefit.
When you’ve signed a long term contract, say anywhere from 5-10 years, it is likely that new technology (or lower rates for your existing services) will become available before the contract ends. You will want to review periodically to see, not only if you are still paying a correct rate, but if you can upgrade equipment or service without incurring any substantial cost.
4. Fine Print
As with almost anything, telecom contract fine print is very important and should be thoroughly read and understood before commitment. There is often an element of the fine print concerning your regulated tariff rate that says your carrier reserves the right to adjust your rate should the regulated rate increase or decrease.
The sad truth: If the tariff rate goes up you will likely see it reflected in your invoice and if it decreases you won’t be notified. This usually isn’t borne out of malicious intent, but because actions that decrease revenue generally hold lower priority.
Without a proper review of your telecom contract rate you will never know if you can save money by taking advantage of the fine print to renegotiate terms. Thankfully, many cost control consultants work on a contingency basis and don’t charge you anything for the initial review to find these opportunities for savings.
When negotiating your telecom contract, volume is an important variable in determining the discount you receive. Volume is made up of two categories: quantity of service and usage.
- – # of Lines
- – # of DSL or Internet Connections
- – # of Locations
- – # of Circuits
- – # of minutes
- – # of calls
- – Local or Long Distance
When negotiating your contract rate, be aware of how your volume will change over time and how this could impact the price you pay. Here are three examples where volume is a serious factor in receiving lower contract rates.
Example #1: You’re a smaller company that chooses to start on month-to-month pricing because you may not have enough volume for a contract.
If this is the case, periodically review to determine whether you are eligible for a discount by signing a contract rate, regardless if you have had any significant changes in your volume.
Example #2: You’ve signed a long-term contract (5-10 years) and your volume has grown over time.
Long term contracts are tricky because there are typically several opportunities to negotiate lower rates with many influencing variables. The caution here is to make sure that you maximize your benefit by re-negotiating usage in a way that still leaves plenty of room for fluctuation.
Volume may become important even in short term contracts, as a lot can happen in 2-3 years. Volume is just one way a business can manage telecom costs overtime and in accordance with growth.
Example #3: Volume has decreased due to changes in technology and you’re in danger of receiving shortfall penalties.
Volume commitments can cause problems for organizations whose usage was previously significant, for example, when most business was done over the phone. With the increased dependence on email and ecommerce, a business could be in danger of reaching a point where they are penalized with shortfall charges for not meeting their annual commitment level.
This is common with organizations that have signed long term contracts and is often easily fixed by a review and renegotiation based on current trends and technology.
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Valerie Paquin is account executive and senior analyst at Cost Control Associates. Since 1999 she has developed her utility-cost expertise for energy, water/sewer, telecom and waste removal. She earned the designation of project executive in 2012. Valerie received her ABA in accounting from State University of New York-Adirondack. Learn more.