Don’t Pay Too Much (or Too Long) for Custom Network Services

By Beth O’Hern

In an ideal world, you as a telecom services buyer negotiate contracts based on existing, validated rates for standard services and well-defined business terms and conditions. This helps ensure relevant comparisons, competitive rates and quality service. In many cases, however, you require specialized, custom services such as private rings and high bandwidth private lines. Pricing for such services is highly dependent on location, routing and availability, and typically requires vendors to invest in special equipment and expertise. These investments are generally passed on to you, the customer. While that’s reasonable, you often continue to pay high rates long after vendors recoup their investment and have significantly lowered their internal monthly costs.

One reason this happens is that specialized services are typically contained within a larger network services agreement and, during renewal, tend to be wrapped into the big-picture discussion rather than separately and directly negotiated. As a result, the high rates get pushed into the next agreement. Moreover, the competitive landscape for custom services is unfamiliar, so finding a market-based comparative precedent for special services presents a challenge.

How can you prevent this long-term overpaying? At a minimum, insist on including custom services in renegotiations as a separate discussion item. While direct, like-for-like market-based pricing comparisons are hard to come by, you can apply rules of thumb regarding margins and payback period for custom access and special builds. Using the contract to show evidence of install dates and details such as ring locations and private route paths, you can make an effective case for lowering monthly rates.

Vendors will typically push back, stating that the complexity surrounding custom services requires special support on an ongoing basis. But don’t be too quick to accept that argument, and don’t hesitate to demonstrate a willingness to put the service out to bid. Keep in mind that custom services generate significant margins for vendors, so even with lower monthly rates your deal will remain a profitable one and your vendor will not want to see you walk.

While the opportunity varies, the size of the prize can be significant for a Fortune 1000 enterprise. I’ve seen instances where a business spends $10 million annually on capital-intensive custom services and could easily lower that spend by 40 to 50 percent.

Bottom line: don’t ignore the potential of this low-hanging fruit.

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