Beware of Sneaky Rate Increases

While many enterprise businesses have been busy planning technology migrations, service providers have been quietly increasing list (i.e., tariff or "Service Guide") rates on traditional services. In my role as a consultant, I have the privilege of talking to a lot of enterprise clients with complex voice and data networks. And when we get to the topic of TDM services (meaning traditional voice and local services), they tell me that they aren't worried about them because they are "going away."

This is concerning for a couple of reasons. Migrations always take longer than expected. Even when the migrations are complete, it often isn't realistic to expect to have no residual traditional services. Following a SIP or VoIP migration, there is still some amount of traditional TDM voice usage as well as traditional business lines that remain in place for things like alarm services. So if you've decided that it's alright to ignore pricing on such services, you are going to see your costs increase over time as the gap between what you are paying and negotiated market rates increases.

On Aug. 1, for example, AT&T pushed through an increase on interstate and international usage (outbound, toll-free, and some card services) on OneNet and AT&T Business Network Service (ABN), its largest business platform service offerings. The increase was of about 25% on average.

You may be thinking that this wouldn't have impacted you because you have negotiated custom rates in your agreements and they are stabilized. That's probably true for the majority of your services, but what about international calling? We all know that AT&T likes to limit the number of countries that have custom pricing in your agreements. So what happens to the calling to those countries that maybe didn't have much volume when you last negotiated so they got left out but have since grown? Or perhaps AT&T has increased rates to the country that you didn't previously do business in where you are now standing up new locations.

Here is an example of what rates look like in the OneNet Service Guide:

Even with a discount of 50% (38% is more common), are you going to be happy about paying $10 a minute to call the Bahamas? It is very typical for sophisticated enterprise clients to be 30% off-market for TDM services they are purchasing because the provider has done a great job of convincing them that they are no longer important. Again, it is common for clients that have completed their SIP migrations to find that they don't have "zero" TDM volumes at the end of the transition.

Local services is another area in which providers have been increasing guide rates. Business line and Primary Rate Interface (PRI) pricing has increased on average 20% in the last 12 months. As an example, you can see in the chart below that the cost for an individual flat-rate business line purchased from AT&T in Florida has doubled from $57 to $114 in three years. And since most clients have a discount off tariff, the net effective rates they're paying have increased by a similar margin.

In addition to TDM voice and local services, providers have been increasing non-Ethernet access and private-line pricing. Did you know that on July 20 any AT&T customers using sub-T1 interoffice channels (IOC) or access channels at Service Guide pricing saw list rate price increases of approximately 25%? Additionally, effective Sept. 1 AT&T increased its Administrative Expense Fee from 0.88% to 1.36%. As the Service Guide explains here, this fee helps AT&T recoup its costs of collecting your universal service fund contributions (which is at 17.9% this quarter) and remitting them back to the appointed FCC agency.

I am left to wonder how it could cost that much to assess a fee and deliver the funds to another entity in this digital age. Maybe AT&T is converting the fees into quarters and hand delivering them? Even though AT&T is doing a great job of making sure it assesses this fee to all customers without exception, you should still have a conversation with the provider about how it is going to make up for this unjustified increase by lowering the service rates you are paying.

The lesson learned from the provider's strategy of increasing rates on services that are not necessarily on your radar is that you have to keep an eye on the rearview mirror at the same time you are caring for the pricing of services you are moving toward. As a best practice regularly review your inventory to be certain that you have negotiated custom rates (rather than discounts that are based on tariff/Guide rates) for all the services you purchase and that they are regularly adjusted to market rates.

You can leverage the information shared above regarding rate and fee increases to bring your provider to the table for negotiating all of the pricing elements that impact your bottom line. So make sure that you continually review the details of your plans and negotiate with the carriers.