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Strategies for Maintaining Competitive Leverage with Converged Networks
While one of the key benefits of a converged voice and data network can be considerable savings, a point of concern is how tightly it can tie you to your provider. After all of the time and effort to accomplish putting "all of your cars on one highway," so to speak, the thought of dismantling part or all of a converged network at contract expiration to move it to a new provider that's offering savings can give even the most hardened CIO pause.
Many of the strategies for creating negotiating leverage when network services are delineated and delivered over separate circuits do not work nearly as well, or are more complicated to employ, when all services are delivered over a common network of converged managed circuits. The "deeper level of commitment" that a converged network fosters between provider and customer can create a sense of partnership, but it can also undermine a customer's ability to keep their carrier's pricing competitive.
Here are some of the strategies we encourage our clients to employ to maintain a healthy balance of power throughout the entire contract life cycle:
Gather market intelligence from as many sources as possible. Whether it is through a formal RFP process, pricing quotes from an alternate provider, cost trending data, discussions with industry peers or other sources, you need market data from sources other than your carrier to determine the relative competitiveness of your pricing and to push the carrier to give you their best pricing.
Do not rely on your account rep to give you good pricing unless you make them do so. PERIOD. Carriers never give the most aggressive pricing unless they have to. I know many carrier account reps who are strong customer advocates within their companies, but they can never get the best pricing approved for their customers unless they can build a compelling business case. Additionally they are typically paid more if you spend more, so they aren't motivated to give you the best deal, just a "good enough" deal.
Get other qualified providers in the mix and put energy into developing trusted relationships with them. For any services not integral to the converged network, consider a secondary provider who could potentially fulfill your converged network needs. If your network is MPLS, the second carrier could provide Internet access or possibly MetroE circuits between key locations in the same city.
When your annual network spend is 8 or 9 figures with one carrier, a few circuits with another provider may not seem like much, but if this gets a second successful relationship started it can be invaluable. You'll have quick access to competitive quotes for new services, a second company's services to choose from as new business challenges arise, a comfort level with an alternate provider should it become advantageous to consider a change, and you'll have another set of brains to pick when needed.
Remain open to switching providers if necessary or advantageous. Major conversions are always costly, challenging, and time consuming; however, customers who approach every contract negotiation cycle with an open mind and a realistic understanding of the true costs and benefits associated with converting some or all of their services do a better job in the negotiations.
Pay attention to ALL of the rates in your contract that are relevant to your network. Don't just negotiate prices for the items where you will spend the most money--understand how competitive all of your pricing is. Start out asking for great rates on every service you use. You can always concede some of the minor items later in the process, but you run the risk of leaving money on the table if you ignore the smaller items.
Negotiate rates on all services you MAY use within the contract life cycle. Build great pricing in for the services in place now AND the services you will or may put in place through the term of the contract. If you are planning a conversion or bandwidth upgrade as soon as the new contract is signed, don't ignore the cost of carrying current services in the deal--conversions often take longer than expected.
If you don't expect to upgrade, still insist on good rates for circuit speeds a few levels above and below the speeds you are using today and on any services you may possibly use. You never know for sure if and how your network needs will change.
Do not over-commit on volume. Carriers typically ask customers to commit 85-90% of their spend to provide the best rates; while customers are typically best served with a much lower commitment percentage. In order to determine the most appropriate commitment for a contract, we typically advise clients to start at 75–80% of their spend as the maximum commitment they will accept and then look at the specifics of their situation to see if there are business factors that should be considered to make a reasonable case for an even lower commitment.
We usually advise against including expected future revenue (from acquisitions, expanded circuit speeds, new circuits, etc...) in the calculation unless the client is prepared to order those services immediately upon contract execution. Although we typically ensure that a business downturn clause is included in major contracts, if it is ever invoked the customer will likely have little leverage in the renegotiation that results.
Use an outside adviser. While this is obviously self-serving, it is nonetheless valid. How many more carrier service contracts has your carrier negotiated than you? Even the savviest customers can benefit from tight collaboration with a telecom lawyer or consultant who specializes in putting network deals together.
While converged networks have been a boon for enterprise business, well thought-out and savvy techniques are required for customers to maintain the leverage to keep their pricing competitive over the extended life of the network.
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