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Telecommunications Procurement


Charles A. Tyrrell, C.P.M., A.P.P.
Charles A. Tyrrell, C.P.M., A.P.P., Advanced Purchasing Agent, Electronic Data Systems, Troy, MI 48098, 810/265-2367.

82nd Annual International Conference Proceedings - 1997 

Abstract. Telecommunications is becoming a strategic resource in every organization. The pace of technological change has been accelerating with new products and services offered on a seemingly daily basis. This includes services ranging from basic telephone service, to high speed digital data services, to wireless services, to telecommuting, and the Internet. The Telecommunications Act of 1996 has accelerated activities in the marketplace including mergers, alliances, acquisitions, and spin offs. These market activities will have a major impact on the availability of emerging technologies and their pricing. With these market changes come opportunities for Purchasing to add value and to reduce costs.

Marketplace. The Telecommunications Act of 1996 was signed with great fanfare by President Clinton who took credit for the Act. In fact the work leading to the signed bill was several years in the making. The Act was the first major change to U.S. telecommunications policy since the creation of the Federal Communications Commission (FCC)over 62 years ago. The FCC has been tasked with devising the rules and regulations to implement the provisions of the Act. Already the FCC has come under fire from some industry and consumer groups, and lawsuits have been filed to halt implementation of some proposed FCC rules.

Local service competition has the potential of becoming one of the most visible of the changes brought by the Act. As a condition of local service providers being allowed into other service businesses, most notably long distance, they must open their local service areas to competition. This will initially mean the unbundling of service components and selling them on a wholesale basis for others to turn around and sell to end users. Eventually parallel networks may be established to provide competitive local exchange carrier service. Deals are in negotiation in most major markets and competitive services will begin to become available in 1997. It is anticipated that local rates will see downward pressure in the late 1997 through 1998 timeframes, continuing for years afterwards. Anyone contracting for local service should be sure to include provisions to take advantage of the lower market prices over the life of any new contracts.

One of the most significant business announcements has been the breakup of AT&T. Twelve years after being forcefully divested of their local service entities, AT&T broke itself into three companies: AT&T ( a provider of network services ), NCR ( a manufacturer of computers ), and Lucent Technologies ( a manufacturer of telecommunications equipment ). AT&T is poised to re-enter the local service market as now allowed by the Telecommunications Act. NCR is looking to regain its good name after disastrous years under the AT&T umbrella. Lucent must now energize itself and get rid of the reputation of being slow to market with new products and of being too closely tied to AT&T network operations.

In a related but opposite move mergers are also in the news in the telecommunications marketplace. Bell Atlantic and NYNEX are merging as are SBC and Pacific Telesis. Alliances too numerous to detail have bee taking place in the manufacture and sale of products and services. All of this business activity presents purchasers of telecommunications with great opportunities as well as great pitfalls. The purchaser must keep abreast of these business combinations, alliances, and split-ups and analyze the consequences for their own firm.

Plain Old Telephone Service ( POTS ) Voice telephone service is still the majority of telecommunications expenditures for most firms whether behind a private branch exchange or delivered through Centrex from the local exchange carrier. Long distance is an integral part of voice service.

A portion of the voice expenditures will be with a long distance carrier. Who has not been called at home with confusing offers from long distance carriers if only you would switch your service? In the business marketplace the stakes get higher and the choices get even more confusing. Purchasers need to work with traffic engineers and tariff analysts to determine the optimal solution for their individual circumstances.

Purchasers can add value to their service contracts by providing bill auditing service. This can be done within the firm or contracted to a company that specializes in auditing telephone bills. Areas to be aware of are: correct number of lines, correct features, correct billing increment, have features and numbers been correctly blocked ( 900, 976, etc. ), is the correct company providing the service. Recently there has been a dramatic increase in long distance carriers being switched without the purchaser's permission. This is known as slamming, and it can very often lead to being placed on rate plans that are much higher than what has been contracted with the chosen carrier.

With the volume of expenditures in this area and the opening of the local service marketplace by the Telecommunications Act, Purchasing should be devoting time to understanding the firm's requirements and the marketplace dynamics for each local market. Matching requirements to existing and proposed offerings can lead to significant cost savings and performance enhancements.

Wireless. The availability of a new generation of wireless services is upon us. Cellular telephony, paging, and wireless PBX are becoming available in the same instrument. Cellular data and wireless LAN technologies are being deployed that rival wired applications in speed and security. Digital wireless voice systems are being built by the name of Personal Communications Systems ( PCS ) that promise better sound quality, the elimination of fraud, and better security all at a lower price.

With all that is happening in the wireless marketplace there are a few major points for purchasers to consider.

Security. All wireless systems send signals through the air from a transmission point to a reception point. Precautions must be made to keep any transmitted information from those who would eavesdrop. Some wireless systems are also vulnerable to an outsider using the system for their own purposes with modified, or cloned, equipment. As an example it is estimated that 80% of all cellular calls placed in New York City are fraudulent. Security does come with a cost. Purchasers must determine what level of security risk that they are willing to assume when compared to the cost to eliminate risk.

Business Purpose. Not all wireless technologies are appropriate to all business users. Carefully analyze the job to be done and match it with the appropriate wireless solution. Keep in mind that wireless has limitations based upon the propagation of radio signals and that they may not be used in some areas due to architectural and geographical limitations. Carefully fit the technical and cost parameters to the job to be done.

High Speed Data. New technologies are becoming common that move more data at faster rates. These technologies are an alphabet soup of acronyms that compete and at times overlap. Some are relatively simple upgrades from existing systems while others involve complete replacement of the existing systems.

Many firms fall into the trap of management by magazine. This is when a new technology is covered in many articles in many magazines. Senior management then decides that if this technology is getting so much press then it must be the thing for us. All of this coverage usually comes early in a product's life, before all of the standards are set. Buying in to a new technology too early can result in a technology solution looking for a problem. Consequently costs are too high and the solution is less than ideal.

Purchasers must look for established standards based telecommunications solutions. This will often result in implementing later rather than sooner, but most firms do not need to be early adopters of telecommunications solutions. With all of the risks of downtime that are associated with being an early adopter, as well as the higher costs, most firms are better to wait and lag the technology curve.

Telecommuting. More employees are located remotely from their firm's central locations. Telecommunications technology has combined with computers and the change to knowledge based work to make this possible. Whether the employee is home based or at a small remote office the challenges of communicating are similar.

Remote users must be able to use their applications as if they were in the central location. This is the challenge for telecommunication. Often remote users are located in an area that is not served by the same state of the art technology that is available at the central site, compounding the effort required to connect the remote users.

Mobile workers present yet another level of challenges. All of the mobile worker's applications and communications must be light enough for the worker to carry them wherever they go while still providing full functionality.

Internet. The Internet started as a means for research universities, military contractors, and government agencies to communicate. The Internet was designed to keep operating even if one or more sections were destroyed in a nuclear attack. In 1972 the government opened what has become the Internet to more users. By 1975 there were 75 sites connected and by 1980 there were 205. In the 1980's the National Science Foundation ( NSF ) took control and connected its supercomputers to the budding network. In 1991 the separation of the network from commercial interests fell, and in May 1995 the NSF terminated funding for the network backbone and handed over its responsibility for domain name registration to a for-profit corporation which quickly moved to commercialize the Internet. By this time there were over 1 million computers linking over 30 million users to the Internet.

The advent of the World Wide Web ( Web or WWW ) has quickened the pace of Internet growth. Some estimates have the Internet user base doubling every six to twelve months. The Web provides for graphical presentations of material in addition to text. In spite of the wonderful graphics available on the Web by far the vast majority of Internet traffic is electronic mail.

When evaluating an Internet Service Provider ( ISP ) two major issues to be addressed are the technology and speed that you are able to connect with the ISP and the technology and speed that the ISP connects to the rest of the Internet. Internet connections are only as good as their weakest link and the two weakest, and the most actionable, are between the user and the ISP and the ISP and the Internet. A fallout of this investigation is where are the ISP's connection points in relation to where it will be used. The distance between the ISP connection and the user can have a large impact on the total cost of using the service.

Due to the open nature of the Internet, security can be a major concern to any company wishing to attach to the Internet. Hackers and crackers are looking for ways into your computer system. Some ISP's offer firewall service, which is a security system to isolate the user systems from the Internet while allowing information to flow.

Contracting. In the fast changing world of telecommunications, suppliers want to get long term commitments from their customers. In most cases their boilerplate contracts do not allow the buyer to enjoy the benefit of lower prices and enhanced technologies. This like other terms is negotiable.

Another contracting strategy is to claim that what is being asked for by the buyer is prohibited by tariff. The tariffs are filings that telecommunications providers make to governmental agencies detailing their offerings, prices, and terms. While tariffs can not be quickly changed buyers can negotiate terms that are not in direct conflict with the terms of the tariffs. Supplier will make claims that the terms are in conflict but put the burden of proof on the supplier. Most purchasers do not have the resources to devote to tariff filings. Every year there are tens of thousands of pages of tariff changes filed every year.

Conclusion. Current technological and market information and clear, written requirements are absolutely needed when purchasing telecommunications products and services. Armed with this information Purchasing can make a significant value-added contribution to their organization.

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