Tech leaders responsible for corporate data and voice connections are likely panicked about the viability of telecom service providers given current events. First, telecom service providers Net2000, XO, and GlobalCrossing reported big losses. Then came the topper of all bankruptcies—tier one player WorldCom.

Many companies fear coming into the office to discover that Internet connections and phone services are down, explained telecom expert Joseph Ginorio, president of Telecom Cost Management, Inc. (TCMI) based in Loudoun County, Virginia.

Yet you can reduce the likelihood of such a scenario becoming a reality by following some best practices aimed at investigating your current telecom providers and checking out potential replacements.

Don’t panic
Ginorio, a 20-year veteran of telecommunications, said even if your telecom vendor is in financial trouble, you shouldn’t panic and quickly migrate to another carrier. It’s tempting, but doing so can bring unnecessary headaches and costs.

The best strategy for weathering the uncertain telecom climate should start with defining carrier requirements by answering these questions:

  • What is your enterprise capacity or throughput needs?
  • What sort of geographic coverage does your enterprise require? For instance, if your company has offices in 30 locations nationwide, look for a couple of providers that have a national reach rather than signing up 30 different carriers serving different locales. This will prevent the administrative nightmare of deciphering 30 different bills and contracts.
  • How is the redundancy factor? Just as you build in redundancy to your Internet connection, make sure you do the same with your voice line provider.

For redundancy, Ginorio explained that today’s best practices are to point toward multiple carriers and multiple transmission points. “Instead of putting all of the eggs in one basket, you can have multiple carriers and you can have a diversity of technology that allows you to have failover for land lines and data lines.”

However, building in redundancy for every service can be costly. Try to use a failover strategy in which routers can switch service over to a back-up line to help keep costs low. Meanwhile, you can use the back-up line for less mission-critical things, such as fax lines, so it doesn’t remain idle.

Examine providers’ financials
To avoid telecom vendor troubles when investigating a potential provider, you should check out the companies’ backgrounds and their solvency before signing on. In its evaluation, Ginorio’s company examined Dunn & Bradstreet ratings, annual reports, and recently published articles for telecom providers, all of which can be accomplished in about half a day, he said.

Next, you should baseline service offerings. Examine the list of services each vendor offers and the length of time those services have been on the market. Of course, performance matters as well. So as with any service, you should talk to current customers and clients to investigate their level of satisfaction.

If you’re looking to change carriers, and have developed a short list of potential providers, scrutinize the offered contracts. Surprisingly, many buyers of voice and data lines simply sign on the dotted line without understanding the impact of a contract, said Ginorio. Make sure corporate legal experts and the CFO comb every contract looking for deficiencies or clauses that might later haunt you.

Ginorio offers this advice about possible contractual sinkholes:

Decide on service level agreements and contract terms. Insist on an acceptable commitment to uptime and response time. Should the provider fail to perform to the standards set in writing, have a clear understanding about how your company’s accounts will be credited.

Ask the provider to define an escalation path. This gives you a clear communication route to resolving issues if the account management team or technicians fail to respond to your calls for help.

Watch out for contractual ‘gotchas’. A nasty surprise often comes in the form of a minimum annual commitment (MAC) for consuming a certain amount of long distance time. To stabilize and predict cash flow, telecom companies ask buyers to contractually commit to spending a minimum amount of money over the course of a two-year period or longer.

“They’ll sign you up for five years if you’ll go for it,” warned Ginorio. Don’t let them. A MAC can bite you if you don’t live up to your commitment—you may have to pay a penalty—sometimes as much as 100 percent of the difference between what was used and the contractual commitment.

Ginorio related the experience of one enterprise that had a contract with WorldCom for a $250,000 MAC.

“They thought this was less than they were actually spending. But in fact, they were only using $60,000 in voice service per year,” he recalled. He added that the CEO was quite upset when he realized that the contract was going to cost the company in excess of $.5 million in unnecessary expenses over a three-year period.

Other service nuances
The flipside of a MAC clause is a volume cap. These are volume-sensitive discounts that require an organization to pay a higher price if it uses more capacity than it agreed to purchase. The volume cap is particularly punitive in cases where a company grows rapidly due to a merger, acquisition, or market expansion.

Instead, you should ask for a rate review clause. Providers prefer to avoid them because they would rather lock companies into a set rate for the service. But for large and small corporations, rate reviews can reduce the cost of services based on current market rates.

Along with the rate review, you’ll want a rate stabilization clause, which guarantees that the rate won’t go up if, during the rate review, market rates actually rise.

Keep an eye out for exclusivity clauses that are sometimes buried within a contract—an exclusivity clause makes it impossible to set up telecom redundancies with other providers for the enterprise.

Ginorio offers one final piece of advice—once you’re satisfied and have signed a contract, you still have more work to do. Ginorio advises companies to manage telecom capacity like an asset in the company inventory. If no one is reviewing the telecom services on a monthly or quarterly basis, telecom simply disappears into the overhead. When that happens, companies lose the ability to manage the asset as something that can have an impact on profit margin, he said.