Talking About a Revolution

The communications industry in Australia has undergone considerable expansion in recent years. At the centre of this change is the Australian Competition and Consumer Commission (ACCC), which is responsible for competition regulation of telecommunications in Australia. Stuart Finlayson looks at the current state of play in the telco industry.

The ACCC is in possession of a big stick with which to wield to any telco that is guilty of anti-competitive practices in the sector. Its responsibilities include regulating access to telecommunications services declared by it and enforcing telecommunications-specific anti-competitive conduct provisions.

HoR magazine spoke to an ACCC representative and asked firstly how it approaches this task.

"The Commission carries out these responsibilities, where possible, by encouraging self-regulatory processes. However, where intractable disagreements arise or anti-competitive conduct occurs, the Commission will use its regulatory powers efficiently and effectively."

Though keeping a watchful eye on the industry, the ACCC spokesperson says it is not its place to dictate how it develops, other than to ensure the guidelines are adhered to.

"Rather than actively shaping the industry, the Commission's role is to provide a setting where competition can flourish by breaking down the barriers to entry and harbouring competition in the telecommunications industry by discouraging and punishing anti-competitive conduct.

"However, in opening up access to certain bottleneck services and facilities, such as the local loop, by reducing entry costs the Commission can actively promote competition in what has been a monopoly area. Local loop unbundling and wholesale provision of services in particular have greatly promoted competition in broadband services in recent years."

A consequence of the opening up of the telecommunications market in recent years is the plethora of new telco providers offering competitive rates for various aspects of home and business users' communication needs.

Making the Right Choice

Small business must be cost conscious in order to survive and thrive. With communications being one of their major areas of expenditure, it pays to shop around for the best plan to suit their needs.

However, this can be a laborious process as there are numerous different rates and packages on offer. One carrier may offer better value in one aspect but poorer value in other areas. Imperative as it may be to get the best deal for your business, often smaller businesses do not have the time to find the best option or the expertise to work out how to reduce their costs.

One potential answer to this problem is to enlist the help of a consultant. A recent article by Sydney associate Graeme Cox from Expense Reduction Analysts (ERA) looked at how a company can use a consultant to make savings in the area of telecommunications. "The first thing that needs to be understood is that some consultants are tied to carriers, generally through the payment of commissions," wrote Cox. "While there is nothing wrong with that per se, it does give rise to the question of whether advice from such consultants is truly independent. On the other hand, there are consultants who are completely independent in that they receive no payments from carriers. Their entire fee is met by the client."

So, choosing the right consultant for the job is important, and the fee should not be the only criterion. Cox suggests the following checklist for a company considering the use of cost management consultants:

– Does the consultant have a demonstrated track record of achieving cost reduction?

– Does the company have the resources to deal with a company of your size?

– Is the consultant completely independent, with no payments being received from suppliers?

The Full Fee

Arrangements can range from a fee for service to a contingency fee (based on results). A consultant who receives his or her fee entirely from the supplier (the carrier in the telecommunications example) cannot be assumed to be independent.

"Where a contingency fee is charged, it is generally expressed as a percentage of the savings obtained over a period of one year, although shorter or longer periods can be involved," says Cox. "Percentages vary. The usual figure is around 50 percent, although lower percentages can be found."

While 50 percent might seem a large figure, Cox believes that it pays to examine exactly what is being received for that fee. Remember, from the consultant's viewpoint, he or she is bearing all the risk in proposing a contingency fee. If no savings are found, he or she does not receive any payment, and, even so, he or she will need to undertake a lot of work 'up-front' before being entitled to any fee.

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As an example, Cox outlines the steps a consultant might need to undertake in the telecommunications analysis outlined above, where a change of carrier is deemed necessary:

– The company's telecommunications spend is analysed in detail to form the basis for selecting an appropriate carrier. This ensures that carriers asked to quote do so with a full understanding of the company's needs.

– The preparation of tender documentation aimed at ensuring that there is full understanding of what is required from carriers and that carriers have sufficient information to be able to offer the most favourable rates.

– A detailed review of tenders received to enable a decision to be made.

– Actively working with the company through the implementation process, which typically takes six to eight weeks.

– Checking bills, once the new carrier is in place, to ensure the correct rates are being applied, and helping to resolve any other 'teething' problems.

– Working with the company and the carrier, over a period of one year, to ensure the company receives all that it expects from the new arrangement.

– Finally, helping the company to understand movements in telecommunications rates over the one-year period so rates can be re-negotiated with the carrier in accordance with general movements in the market.

The Online Advantage

Another way in which SMEs can reduce their telecommunications costs is by taking advantage of Voice over Internet Protocol (VoIP) technology. Andrew Littlejohn, voice marketing manager of business communications provider Commander, outlines how the technology can save businesses money.

"This involves the transmission of voice calls over the internet or a data network. VoIP and internal telephony allow the user to avoid per minute call charges associated with normal public telephone network. Essentially, a user can also side-step long distance calls altogether by paying a monthly internet access fee for all telephone calls, video conferences, faxes and emails."

Another Australian telco provider looking to offer SMEs and residential users a better deal is Multelink. The company recently challenged Telstra to match its offer of a local rate to customers – irrespective of where the call is made to or from – anywhere in Australia. The company offered business customers a rate of 22 cents for the first five minutes of a call to other Multelink customers anywhere in Australia, with national calls to non-Multelink customers charged at 50 cents for five minutes.

Multelink's executive chairman, Terry Crews, who has more than 39 years' experience in the communications industry, explains how his company could afford to make such concessions and remain economically viable.

"All the larger carriers are overstaffed, suffer from poor billing systems and a lack of flexibility in office products. Because we have an innovative tariffing system, we can operate with less staff and pass on the savings to our customers."

Crews adds that his main motivation behind setting up Multelink six years ago was to drive down prices, an aim he says he has achieved by introducing the lowest national call rate in the country.

"Up to now, we have just been searching for the cheapest prices for our customers that were available from other operators."

Multelink did this by selling a telephony system that automatically calcu
lated which company offered the cheapest rate for a call, be it local, national or international. The call would then be made through that provider, but to make billing arrangements easy for the customer, Multelink would calculate what the customer owed to whom, and they would receive a single bill from Multelink.

Crews says that because Multelink has generated a significant volume of customers, the time is right to offer their own tariffs.

"Consumers need to know that there is an alternative to using large telecommunications companies and paying premium rates."

 

Reducing Costs

It's hard to believe, but up to 90 percent of Australian businesses are overspending on everyday items. Not only are they paying too much, some are paying up to 75 percent too much!

Expense Reduction Analysts (ERA) scrutinise the small costs incurred daily by a company. ERA uses its time, expertise, and purchasing process improvement and negotiation skills to track and control costs such as travel, stationery, printing, phone charges, couriers, document storage, cleaning, maintenance and more. All those 'little things' that are often overlooked or unmonitored for years at a time because they're too small to notice and too hard to benchmark.

ERA works with clients to enhance the value they receive from suppliers. They use their worldwide database of supplier pricing information to benchmark clients' costs and negotiate the lowest prices with existing or alternative service providers, without clients losing out in quality or value. Every solution for every company is different, because every solution is tailor-made to that company's requirements and goals.

"Our clients always make the decisions about which alternatives are most suitable for them and are included in the process all the way through," says Fred Marfleet, chairman of ERA Australia. "But our help and guidance ensures that they make the right decisions."

ERA guarantees that if they can find no savings for a client, then there is no fee. There are five steps in the ERA cost-saving process:

– Usage patterns and current prices are audited and analysed. If the client is targeting stationery, for example, that area of spending would be scrutinised. Then workshops are organised where ERA presents stakeholders with its findings to date. ERA opens discussions about service levels, needs and helps stakeholders define their version of the perfect system for the issue in question.

– Independent review of market prices in that area, doing the exhaustive research and benchmarking that most companies these days simply don't have the time or resources to conduct on their own. Recommendations are shortlisted and put to the client and ERA helps them choose a service provider.

– Facilitates the implementation of the new systems, through an agreed approach.

– Monitors the planned implementation through regular contact with stakeholders and service providers, helping to solve any issues that arise. Services are reviewed quarterly to see where further savings can be identified.

– The client sees improved value from suppliers and reduced overheads – usually quite significant.

ERA can usually save a client 10-20 percent or more of its current spend in the examined areas. The savings are then shared on a 50/50 basis. Either way, the client wins. If the recommendations don't work, they don't pay. If they do work, the client is paying with a percentage of money he or she wouldn't otherwise have had.

"The seller, or supplier, possesses vital market knowledge that the buyer, or company, does not have because of a lack of resources, time, expertise, or a combination of all three," says Marfleet. "Consequently most, if not all, organisations overspend significantly on their business operating costs."

How does a company know if it is one of the 90 percent who are overspending? The ERA website (www.expense-reduction.com.au) suggests that if it can answer 'yes' to any of the following there's a good chance a company can reduce its business operating costs and free up profits:

* The company has no centralised purchasing system. Each department seems to have its favourite suppliers and its own purchasing processes.

* The company always seems to be purchasing in an ad-hoc, as-needs, manner, instead of benefiting from bulk purchases.

* The company sticks to the same supplier and trusts that they're giving value for money.

"While there is no doubt that where significant savings are involved – for example, in excess of $1 million – a 50 percent fee may well be excessive. Generally consultants will be prepared to accept a lower fee in those circumstances, provided that is negotiated in advance," says Cox.

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