Deb Boehling and Hank Levine of Levine Blaszak Block & Boothby take an in-depth look at how to prepare, persist and protect in today's global telecoms industry.
"For multinational enterprises, global telecom sourcing projects and deals are now the norm, but they are accompanied by financial, structural, 'political' and regulatory challenges."
Twenty years ago, global enterprises rarely exercised common management or control over global telecom resources. Each country or region purchased the services it preferred from the vendor(s) of its choice and interconnected its data network with the rest of the enterprise via a hub-and-spoke architecture over international private lines.
All of this has changed with the rise of truly global telecom vendors, the introduction and widespread adoption of MPLS and IP telephony, and the move to more centralised telecom sourcing and management. For multinational enterprises, global telecom sourcing projects and deals are now the norm, but they are accompanied by financial, structural, “political” and regulatory challenges.
The team. The first step to a successful global telecom procurement is assembling the project team. The core team typically includes representatives of sourcing, IT and finance. It should (and sometimes does) also include someone from legal.
Many parts of a company have a stake in a global telecom deal, and each stakeholder has a separate focus or area of interest. Priorities include finance, risk management/data security, technical/engineering, and law. Among business stakeholders, some are regional and some are product-specific. The core project team will need to interact with all of these interests to identify their requirements and balance competing objectives and priorities. In short, global technology procurements often resemble diplomacy and treaty negotiations more than carrying out a decision of the company’s senior executives.
During negotiations, best practice is for the core team to keep all stakeholders apprised of significant developments and seek advice/approval on key issues as they arise. Throughout the procurement process, the core project team should be the central point of contact with the bidders, as only it has a complete view of the state of the deal. Other stakeholders – particularly the overseeing executives – must fight inevitable bidder attempts to circumvent the process and gain executive agreement without the core team’s input.
The request for proposal (RFP). Once the team is formed the RFP must be drafted. This document is the key to soliciting like-for-like vendor proposals that comprehensively address all of the stakeholders’ requirements – not just pricing but technical specifications, service levels, data security, implementation, service management, financial, accounts payable and general terms and conditions.
The team should follow best practices for the RFP document, which include a list of key contract terms and the requirement that each bidder state whether or not it will accept each term. The terms should encompass both your major requirements and terms you won’t accept, stated simply to encourage responses that go beyond the vendors’ boilerplate. It should require the bidder to agree or disagree with each, and offer an alternative if it disagrees. In our experience, with a few exceptions (eg, government procurements) the RFP shouldn’t include a draft contract. Bidders typically respond to these with useless boilerplate, most of which will be negotiated later. The purpose of the RFP is to help the customer narrow now the field of bidders; draft contracts (as opposed to plain language lists of key contract requirements) rarely do that.
Second, the RFP should include a detailed Excel pricing template so you can compare the prices bid. The pricing template should provide reasonable details about your current services and anticipated growth over the next few years. The inventory detail is particularly important. Giving bidders a reasonable approximation of your current telecoms inventory and future service requirements in areas like WAN, internet access, IPLs, conferencing services, SIP trunking and managed services ensures that they understand what they are bidding. The same is true of information on anticipated deployments of new technology – such as a move from TDM voice to IP telephony. It also helps the project team accurately assess the total cost of ownership of different proposals.
Beyond types of services and bandwidth at existing locations, the inventory should address planned or reasonably anticipated expansion to new countries. If you cannot provide street addresses, at least identify the cities under consideration. The RFP must require specific pricing and technology proposals based on the provided inventories – if you insist on use of your pricing template, these will be individually and consistently priced across vendors, making comparisons much easier.
Third, the RFP should not include requests for public or irrelevant material. Asking for 10 years of annual reports, or collateral on each service being bid, will just kill trees and distract the team from its real mission: assessing each bidder’s ability to meet your key requirements. Once a bidder or bidders are chosen, due diligence on their performance and stability (ideally through interviews with existing customers) can be performed.
Multiple bids are beneficial, but too many can be as bad as too few. It takes time to develop the RFP, and it can take even more time to analyse responses from too many bidders. An appropriate bidders’ list comprised of qualified providers will also persuade bidders that the RFP is not just a tool for seeking leverage with the incumbent.
Finally, leverage – the perception that a customer can and will shift its business for the right price and terms – remains the key to a successful RFP. Leverage is enhanced when a global enterprise has shown a willingness to change vendors and/or takes service from multiple vendors. Conversely, it is weakened by, for example, a history of being a “captive” customer, successful end-runs to senior management and placing substantial orders while an RFP is pending.
After the bids come in, take the time to validate each bidder’s pricing (vendors routinely make mistakes) and analyse its response to your other key requirements. When the initial evaluation is complete, compile a short list of bidders for further negotiations. Expect to conduct two to four rounds of negotiations before selecting the winning bid(s). The best deals emerge when a manageable number of bidders are fiercely competing until the final award is made. Two bidders competing to the end also discourages the providers from leaning too heavily on their favorite negotiating tactics: delay, reneging on promises made in the bids, and the late introduction of new requirements or issues.
Of course the deal is not done until it is reduced to writing, but vendors and customers have different views on what should be included in a contract. Customers want assurances that vendor promises will be kept; vendors want customers to trust them, and to take a substantial portion of the risk should the vendor be unable to perform.
Different parts of the world take different approaches to written contracts. But as of 2013 it is true virtually everywhere that when things are going well the contract is forgotten, but when a relationship sours the written contract remains the touchstone of the relationship between the customer and the vendor. It is therefore important to allow appropriate time and resources for the contract negotiation effort.
To avoid unpleasant surprises such as price fluctuations, withholding taxes, or unrecoverable VAT, the contract must explicitly include the agreed rates, reflect those rates in the chosen currency, and require invoices to be sent to (and paid from) the locations preferred by customer’s finance and tax teams. The contract should also eliminate or minimise hidden charges, taxes and fees, and reflect the key stakeholder requirements. Vendors often seek unwieldy and difficult-to-validate pricing structures based on discounts off list prices that are subject to change, and referring to online vendor terms (which can be unilaterally changed) for matters such as service levels and billing practices. The more you can fight these off, the better the deal.
Securing prices and key terms in the contract is critical, but a global enterprise’s assessment of the costs and benefits of a telecoms deal may be incomplete if it plans to send voice over its data (eg, internet or MPLS) network or encrypts its traffic. In these cases, the enterprise has to determine if the activities create unintended regulatory risks in particular countries (many of which may be avoided or reduced by restructuring) and should seek protections in the deal to mitigate some of its exposure.
It goes without saying that telecoms vendors should be required by the contract to maintain any authorisations required for a global enterprise to use their data services for voice without violating applicable law. Beyond this, however, a global enterprise that uses its own data network to transmit voice may be considered to be offering telecom services without proper authority depending on the country, the terminating technology (Internet or PSTN), the relationship between the speakers (eg, employees of the same company, of affiliated companies, or of different companies), and whether there is an exchange of money related to the services. Whether the activity is legal or illegal can depend on the types of services a vendor is authorised to provide – even if they are services that the global enterprise is not purchasing.
If a global enterprise encrypts its traffic, in some countries (eg, India) it may be required to turn over the key to regulatory authorities and, if it sends encrypted traffic across country borders, import and export restrictions may apply.
Finally, when a global enterprise uses its telecoms network and the vendor services underlying it to transmit personal data, a maze of country-specific privacy laws must be addressed. Doing that sometimes involves a delicate balance between prohibitions on encryption of data and requirements that personal data be adequately protected against disclosure.
Preparing, persisting and protecting in global telecoms procurements requires diligent project management and a robust procurement process. Properly structuring the team, appropriately balancing competing interests, sending honest but strong signals to bidders to maximise negotiation leverage, and taking time to analyse and document the details will avoid unpleasant surprises and produce an easier relationship with the vendor and better services for the customer.