The Telecommunications Act of 1996 required ILECs to open their networks to competitive carriers. But it didn't say anything about how the bills for such services would be formatted.
Access invoices--that is, bills one carrier of any kind presents another for switched, special or local services rendered--are a particularly onerous breed of billing. There are no standard documentation procedures and formats. Billing errors are frequent and difficult to spot, while overcharges directly affect a carrier's bottom line. Creating a bill is itself a complicated process that produces a complex document to audit.
A tremendous amount of information must be sifted through, and a growing carrier can be overwhelmed by the expense of managing this task. Finally, companies cannot standardize their internal processes because they must be flexible enough to handle the variety of invoices that come from a multitude of vendors.
There are more than 2,000 carriers in the United States. Each generates and receives thousands of invoices per month, requiring auditors familiar with tariffs and experienced in access cost management to process them. The pool of such auditors is inadequate for the volume of invoices, which has created a seller's market for line auditors, who can and do change employers easily and often.
In the highly competitive telecommunications industry, profit margins are small, and any dollar saved goes directly to the bottom line. Access line costs typically represent 45 percent to 50 percent of a multicarrier's cost of sales. Chicago-based D-Square Communications Ltd. (www.d2square.com) estimates that effective auditing can garner savings of 2 to 5 percent of line cost, which can be the difference between profit or loss at year's end. For example, long-distance carrier Excel Communications Inc. (www.excel.com) reports that it saved $30 million in 1999 using an in-house automated auditing system.
Fortunately, in the last two or three years, the landscape has changed and there are now quality products and services to handle access cost management. Until there is standardization of billing procedures, carriers can choose between building an in-house system, buying a commercially produced software package or outsourcing access auditing.
The Options
Building a customized auditing system in-house can be an attractive solution for a large carrier, but it needs to be aware of all of the potential costs. Initial outlays for development plus ongoing maintenance and support, such as regular software enhancements, can add up in terms of dollars and time. Unplanned additional resources may be required because the full range of problems was not anticipated, or the company may not have the expertise to finish the project and will have to hire outside contractors and consultants. And generally, these projects are never completed in the anticipated time frame, which incurs overages.
Large carriers usually have sufficient staff and expertise for building an in-house system, but middle-tier regional carriers often do not. Thus, many medium-sized firms are converting their manual auditing processes to commercially produced software solutions. Smaller companies, too, find it much easier and cheaper to buy a system and then customize it for their needs. An off-the-shelf solution has definite advantages--it has already been built and tested in the marketplace, and it has a fixed cost.
Many companies--particularly start-ups--lack the capital to invest in billing systems. Outsourcing gives them the ability to obtain savings without having to provide the initial capital outlay for building a system. They can enter a lease arrangement for the outsourcing service, deferring capital expenditures over a period of time, and still get the benefits of auditing.
Often there is no single solution to access cost management but a combination of solutions that accommodate a carrier's changing environment. Some firms buy a commercial package for a quickly implemented remedy until resources allow for an internal system to be built. Other firms may find that their in-house system is draining staff and dollars, and so turn to outsourcing or an off-the-shelf solution.
Case Study
In 1998, the telco cost group at Williams Communications (www.williamscommunications.com) faced increasing workloads and decided to automate its auditing and invoice payment procedures. The information technology department put together a team that included both internal parties and outside consultants, who decided that--build or buy--the solution would have to integrate with existing systems. They had to determine whether there was enough time to do the analysis and requirements gathering for in-house development; and how the cost of developing, supporting and maintaining an in-house system compared to the cost of a third-party package and its attendant maintenance costs. They also had to determine the strategic benefits for the firm and whether it would differentiate the company in the marketplace.
The team decided to buy, and then narrowed its consideration to five of the vendors that responded to a detailed request for proposals. After each of the five gave an onsite demo, the team then visited the two finalists to get a more detailed look at their packages and to determine which would make the better business partner. The key drivers were functionality of the package and adaptability of the vendor to Williams' business needs.
Williams finally selected a solution that automates the import, analysis, auditing and payment of telco cost invoices. Its work-flow processing enables access invoices to move from electronic import through auditor review, dispute processing, management approval, all the way to accounts payable processing. Williams' key need was a flexible, user-defined work-flow engine--an important consideration for firms looking for a customized solution from a commercial product. The decision to buy meant that Williams did not have to assume additional resource burdens, including software development, enhancement requests and additional support staff.
Outsourcing
According to most industry experts, outsourcing is the solution for many companies because of the lack of trained auditors and the high attrition rate of the experienced ones. Typically, an outsourced service bureau acts as a carrier's internal auditing department, operating from an offsite location, and performing a variety of functions, from simple invoice summaries to an end-to-end solution. It brings in all the electronic invoices on a system set up specifically for that carrier, sets up the carrier's database and employs auditors dedicated to that carrier. It can provide carriers with customized services, including electronic interfaces with vendors, access audits, dispute and settlement management, and all types of reports.
If invoices are received electronically it makes sense to buy, but outsourcing makes sense for most manual invoices. Auditors shouldn't spend their time on the $1,000 invoices, but on the $1 million invoices. Therefore, companies should use auditors to manually audit large invoices, outsource the high-volume, low-dollar ones, and buy a system for electronic invoices.
Staying Flexible
Of course, no solution a company chooses will stay the same because the telecommunications industry is always changing. Since invoicing will never become a more exact science, it's better to make a choice and remain flexible to the need for change. For example, Qwest Communications International Inc. (www.qwest.com) endorses a three-pronged access-auditing solution, consisting of in-house auditors, commercial software and outsourcing.
Graph:
Savings over a Three Year Period
But the savings from effective access auditing can be phenomenal since access line costs typically represent nearly 50 percent of a multicarrier's cost of sales. Inattention to access cost management can limit a company's ability to compete, to control margins and to maintain healthy profits. The worst decision a company can make is to do nothing.
Industry needs, network requirements and the types of businesses entering the field are all changing. Whatever decision a company makes, it should ensure that the system will have the flexibility to grow with the industry and the company. It requires a hard look at the firm's size, organizational structure, staff experience and business strategy. Deciding whether to build, buy or outsource is not a simple decision, but it is an essential one for telecommunications companies faced with the challenges represented by current methods of access invoicing.
Thomas D. Kins is vice president for telecom solutions at TEOCO Corp. (www.teoco.com). He can be reached at (703) 259-4309.
