Posted February 7, 2024
When it is carrier contract renewal time a competitive sourcing review is the only way to determine if your company is getting the best value from your telecom and data network provider(s). You might be changing technology or want a broad understating of the options available to meet your needs. In this case a formal request for proposal (RFP) process is often ideal. However, you might only be renewing existing services, or you know specifically what you need. A less formal competitive review with a few key vendors would accomplish the same result in this scenario.
With 30+ years’ experience aiding clients with carrier negotiations, we know that bringing competition to the table can lower costs. However, IT leaders often prioritize day-to-day operational requirements and do not always approach negotiations with a long-term perspective. They think it hard to move to a new carrier because of complex agreements or a potential disruption to their business. In turn, they often stay with their current carrier without scrutinizing contract terms or uncovering all the savings available to them.
Here are 4 common reasons IT leaders hesitate to shop around and why it hurts their company:
Telecom rates are typically falling. At renewal time, incumbent carriers always offer a new contract with lower rates. In our experience, the savings offered from a simple renewal are typically about ½ or less of the savings the incumbent would offer in a competitive situation. This isn’t about “beating up the carrier” and potentially damaging a relationship, it is about gaining knowledge. When you do a competitive review, you become aware of changing markets and pricing trends. If you are confident that the incumbent offered competitive prices for the services you need, great! Sign and move on. But if other offers are more enticing, leverage that information to develop a solution that is ultimately best for your company.
Time, effort, and potential problems are all valid concerns and should be considered in the final analysis. However, first you must understand the technical capabilities and value of other providers. If cost and capabilities are similar across all respondents, a good incumbent would win the business. Sometimes another provider has a better solution, and/or a significantly better price. That information can be used to improve the incumbent’s pricing or provide enough overall benefit to justify a change. That is even with the negatives mentioned above included in the broader ROI equation.
A competitive review can be particularly effective at driving improvements to your network and your contract terms. This helps to overcome any concerns about the process. When other industry pros look at your network, they will often have improvement suggestions that you and your incumbent may not have thought of or had on the backburner for too long. These include redundancy improvements, updated technology, simplified design, etc…
Even if you don’t change providers, a competitive review always adds value. In a competitive situation a vendor is much more likely to show flexibility in the critical small print of an agreement. This might be on items such as the length of a contract, auto renewal clauses or service level agreements. Often it is easier for a carrier to improve contract terms than to drop price to keep a customer.
You don’t have to damage existing partnerships to get the best value out of your incumbent. In fact, if you do not build leverage, you will not get strong value. Transparency is key – you need competitive information, but you don’t need to be deceptive to get it.
It can be effective to collaborate with an internal or external third-party contract negotiator on the process. Start with your working knowledge of your network and overall business situation. Then leverage their experience crafting a transparent and fair competitive review for a collaboration that addresses all your concerns. These might include carrier relationships, competitive pricing, technology improvements and advantageous contract terms. This is how the carriers run all their pricing negotiations with clients. Your rep advocates for you while someone “behind the curtain” makes the decisions, allowing your rep to be the “good guy” no matter what. No reason you should not use a similar tactic.
You need multiple carriers who know your environment and your business needs to ensure you get the best service and can effectively react to your company’s changing needs.
In general, economies of scale lead to lower pricing, but this does not mean that a single provider gets you best price. We have been highly successful with carrier contract renewal rates when giving a carrier approximately 70% of a client’s services instead of 100%. In fact, the knowledge that they do not want to lose any more than that 70% is often a strong motivator to keep your costs low. Similarly, you can inform the secondary provider that they can honor their best price for 30% of your business or get no business at all. They typically will choose to have you as a customer at the lower rate than to walk away.
In addition to lower price, and really, more importantly – you need redundancy. It is best to build a strong secondary relationship, so you get more than just back up service. No provider is great at everything. When you have two providers who know your business and your network well, you are in a much better position to deliver on your company’s needs.
Many of our clients have a primary and secondary vendor. This can be divided based on primary and back up services or with a certain percentage of locations split between two carriers. Really, any logical way that does not over complicate the management of your network is appropriate.
In conclusion, we often see clients that at carrier contract renewal time have not shopped other telecom providers. They often feel doing so is difficult or somehow perceived as threatening. However, for the best overall outcome for your company, having multiple providers at the table can bring down rates and improve network resilience and value. This comparison can be done while keeping important vendor relationships strong if handled correctly. An outside party like The BAZ Group can be a valuable resource in this ongoing endeavor of network vendor management.