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Renegotiate with providers before it's too late

It's time to dust off those old service provider contracts and start hunting for bargains. According to a recent brief by the Stamford, Conn.-based research firm, Gartner Inc., network service providers are about to engage in another round of price wars, which means it's a good time to renegotiate. But like any sale, this one won't last forever. caught up with Jay Pultz, research vice president of Gartner and author of the brief, to find out more about what businesses should think about before the step into the negotiation room.

How can a business ensure that its service level agreements are effective?
You need to have a clearly defined escalation policy so that if there is a problem, it gets to executive levels within the service provider in a hurry. And it has to have teeth so that you can terminate part or all of the contract if the service issue continues for an extended period of time. Also, you must have reporting so that you know what the actual performance is. Many carriers have had financial problems. What is the best way to choose a reliable service provider?
You should look at this like a financial portfolio. Don't place all of your bets on a small tier-three company that has little chance of making it. You should give most of your business, say 70% of it, to a company that will always be around. Then look for places in your network where you can take a little risk, where if the worst happens, you might just lose some capacity. You can go to a smaller company and get as much as a 50% discount on those services. What about the bundled services that service providers are beginning to offer? Are they worth exploring?
There are a few key services that it makes sense to bundle. Long distance voice and data services can be a starting point. It can also make sense to bundle in wireless, especially as carriers begin to integrate wire and wire line services on their own networks. If you buy them separately, it is harder to take advantage of those services. Services based on Multiprotocol Label Switching (MPLS) are getting a lot of buzz. Should business go to MPLS?
MPLS is the direction that future services are going to go. The question is whether a company needs it right now, because it is selling at a premium. Businesses might want to transition to MPLS as they need the capacity. Voice over Internet Protocol is one of the technologies really driving MPLS. For most businesses, it is just a question of timing. Why is this a good time to renegotiate contracts?
Right now competition is very strong. In addition, efforts by AT&T and WorldCom Inc. to hold the line on pricing really didn't

It's a good time to go back and ask whether or not you are satisfied with your primary provider.

Jay Pultz
Research vice president


work out. AT&T has changed its stance so that now it's CEO has been quoted as saying that the company will not lose an account based on price. You say these bargains won't last forever. Why not?
Eventually there will be consolidation in the market, and it will shift from a buyers' market to a sellers' market. People should try to get deals now. We expect to see acquisitions. Large long distance companies and Baby Bells are likely to hook up. Some of those companies that went into bankruptcy will either file for Chapter 7 or be consolidated. In addition, in another four to six months the major player could go back to holding the line on pricing again. You never know. How long before we see the consolidation you're talking about?
Two to three years. What are the key things a business should do when it considers renegotiating a service provider contract?
Companies need to think in the long term. This is not a tactical decision. They need to look at this broadly. It's a good time to go back and ask whether or not you are satisfied with your primary provider. Are there other companies you want to do business with? Companies should also think about what kind of services they will need two or three years from now.

Once the decision to renegotiate has been made, you need to know what you want to get out of it and what you have to offer before you sit down at the table. You also need to put together a solid team to do the negotiating. The strength of the team often matters much more than the size of the deal when it comes to negotiation. I have seen good negotiating teams that commit $1 million a year [on a contract] do better than teams that commit $10 million a year. Who should be on that team?
Initially, you want to bring together all the separate parts of the company that deal with the network. You need to understand what other parts of the company want. You should have someone who has a good view of the voice, data and wireless needs; the telecommunications director usually has such a view. You also want to include the people who do procurement for the

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entire business. They can help leverage the buying power of the corporation. And you need to have legal counsel involved. Businesses should also get some outside help. Consultants can take a quick look at the contract to make sure that you are getting market rates and they can bring an important perspective on the industry outside of your specific business.

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