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Telecommunications Cost Management
Brian DiMarsico Thomas Phelps IV and William A. Yarberry, Jr.
AUERBACH PUBLICATIONS
A CRC Press Company Boca Raton London New York Washington, D.C.
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Library of Congress Cataloging-in-Publication Data
DiMarsico, Brian. Telecommunications cost management / Brian DiMarsico, Thomas Phelps IV, William A. Yarberry, Jr. p. cm. Includes bibliographical references and index. ISBN 0-8493-1101-2 (alk. paper) 1. Telecommunication--Cost control. I. Phelps, Thomas, IV. II. Yarberry, William. III. Title.
TK5102.5 .D457 2002 384'.068'1--dc21 2002071716
This book contains information obtained from authentic and highly regarded sources. Reprinted material is quoted with permission, and sources are indicated. A wide variety of references are listed. Reasonable efforts have been made to publish reliable data and information, but the author and the publisher cannot assume responsibility for the validity of all materials or for the consequences of their use. Neither this book nor any part may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, microfilming, and recording, or by any information storage or retrieval system, without prior permission in writing from the publisher. The consent of CRC Press LLC does not extend to copying for general distribution, for promotion, for creating new works, or for resale. Specific permission must be obtained in writing from CRC Press LLC for such copying. Direct all inquiries to CRC Press LLC, 2000 N.W. Corporate Blvd., Boca Raton, Florida 33431. Trademark Notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation, without intent to infringe.
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© 2003 by CRC Press LLC Auerbach is an imprint of CRC Press LLC
No claim to original U.S. Government works International Standard Book Number 0-8493-1101-2 Library of Congress Card Number 2002071716 Printed in the United States of America 1 2 3 4 5 6 7 8 9 0 Printed on acid-free paper
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Dedication
To my loving wife, Sheila, for being patient, understanding, and always supportive of what I do for a living. Brian
To Seung-Jin and Martin, for their loving support. Thomas
To Carol, Will, Libby, and my parents. Thanks for your understanding and patience. Bill
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Contents
1 Introduction to Telecommunications Cost Management ...... 1 How to Reduce Telecom Expenses (The “Cliff Notes” Version) ...... 2 Why Telecom Costs Are So Difficult to Manage...... 3 Drivers for Customer Demands...... 4 Carrier Challenges ...... 6 Summary...... 8 2 Vision...... 9 Develop a Cost Management Vision ...... 9 How Do Organizations “Make It Happen”? ...... 10 Looking for the Quick Fix...... 11 Special Needs and Groups within the Organization...... 12 Incidental Revenue ...... 13 Preliminary Information Gathering ...... 13 Getting the Numbers — First Cut ...... 15 Sample Reports and Forms...... 18 Summary...... 20 3 Telecommunications Auditing ...... 27 Reasons for Telecom Bill Discrepancies ...... 28 Telecom Service Providers...... 28 Overly Aggressive Competitors ...... 28 Business Customers ...... 29 The Telecom Service Ordering Life Cycle ...... 32 Two Approaches to Paying Bills ...... 33 Components of a Telephone Bill...... 34 Sources of Billing Information ...... 37 Getting Down to the Details: Audit Steps ...... 37 Review Contracts ...... 38 Obtain Raw and Summarized Data...... 39 Findings Analysis ...... 41 Summary...... 55 4 Wide Area Networking ...... 59 Wide Area Network Technology Options...... 59 Frame Relay ...... 59
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viii Global Information Warfare
Voice Communications Networking ...... 62 Virtual Private Network (VPN) ...... 63 Wireless Options...... 66 Wide Area Network Review Methodology...... 72 Step 1: Organize and Plan...... 73 Step 2: Gather Information...... 75 Step 3: Assess the Quality of Data ...... 77 Step 4: Categorize and Prioritize Circuits...... 81 Step 5: Manage Scope of Work Changes and Issues...... 81 Step 6: Consolidate Billing and Circuit Data ...... 82 Step 7: Initiate a Circuit Utilization Analysis...... 84 Step 8: Realize Savings ...... 90 Step 9: Reconcile and “Baseline” Circuit Inventory ...... 95 Step 10: Assess Processes ...... 99 Step 11: Maintain the Gains ...... 101 Summary...... 104 5 Architecture and Local Access Strategies...... 105 Voice-over-IP: Premises Equipment ...... 105 The Centrex Alternative ...... 109 Small Offices and SOHO Markets: Key Systems versus PBX...... 110 The Dreadnoughts: Enterprise Class PBXs...... 112 Local Access Strategies...... 113 Maximizing Traditional Access Circuits...... 113 Miscellaneous Technical Solutions ...... 113 Digital Subscriber Line (DSL) ...... 114 Cable Modems ...... 117 Other Technology Cost Savings ...... 118 Summary...... 120 6 Satellite Communications: Large Savings for the Right Applications ...... 121 Basic Satellite Technology ...... 122 Risk Areas for Satellite Communications...... 124 Controls to Improve Resiliency, Reliability, and Security ...... 125 Other Concerns...... 128 The Future for Satellite Technology ...... 129 Summary...... 130 7 Telecommunications Security ...... 131 Voice and Telephony Security...... 131 Toll Fraud...... 132 Business Loss Due to Disclosure of Confidential Information...... 137 Malicious Pranks...... 138 Using Security Tools to Offer More Services ...... 139 PBX Firewall ...... 140 Savings Potential Using PBX Firewall...... 141 VoIP (Voice-over-IP) Security ...... 142 Summary...... 143 8 Telecommunications Tax Minimization Strategies ...... 145 The Telecom Federal Excise Tax Refund Opportunity...... 146 Ancient History ...... 146 Details of the Opportunity ...... 146
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How the Refund Works in Practice ...... 147 Summary...... 148 9 RFPs, Contract Optimization, and Outsourcing ...... 151 Throwing It over the Fence: Outsourcing ...... 152 The Telecom Procurement/Contract Review...... 152 The Request for Proposal/Request for Quotation ...... 156 Creating the RFP/RFQ...... 156 Evaluating Vendor Proposals...... 157 Scoring Model for Vendor Proposals...... 157 Outsourcing...... 160 Summary...... 161 10 The Future ...... 163 Regulatory Changes...... 163 A World Lit Only by Packets...... 164 Keynes Was Right...... 165 Storage Virtualization ...... 165 General Trends ...... 166 Summary...... 167
APPENDICES A Telecommunications Cost Management Checklist...... 169 B White Papers from QuantumShift...... 175 C Summary of Communications Tax Regulations, United States Internal Revenue Service ...... 189 D Web Sites of Interest ...... 195 E Sample RFP Template ...... 205 F Sample Contract Terms and Conditions for a Complex Telecommunications Development Program...... 217 G Billing-Related Telecom Concepts and Telecom Glossary...... 235 H Audit Program for Telecom Cost Management Field Work ...... 257
About the Authors...... 321
Index ...... 323
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Acknowledgments
Many individuals have contributed both directly and indirectly to this book. We are delighted to continue our association with the editor, Christian Kirk- patrick, who has provided advice and encouragement all along the way. Special thanks to Kathy Dodds, partner in the Global Risk Management Services practice of PricewaterhouseCoopers. Kathy provided many helpful content and editorial insights. Three other PricewaterhouseCoopers partners, Raymond Slocumb, Dana McIlwain, and Rik Boren, provided the initial support and encouragement that helped us stay on course. Bill Moore, a Pricewaterhouse- Coopers senior manager on temporary assignment in Australia, gave us valu- able “long-distance” advice and recommended vendors that provided additional insights. Other contributors include independent telecom consultant Frank Marino, Jeff Richards of QuantumShift, Lee Miller of Sullexis Systems, and Janie Mendez of Compaq Corporation. Finally, we acknowledge the essential support of our families during the months of researching and writing needed to complete the book.
Brian DiMarsico Florham Park, New Jersey
Thomas Phelps IV Los Angeles, California
William A. Yarberry, Jr. Houston, Texas
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Introduction
Telecommunications Cost Management is intended for telecom managers, CIOs, controllers, and others who have an interest in reducing the cost of telecommunications services, equipment, and software. Telecom books on the market today focus on either traditional telecom billing audits or pure tech- nology, with the cost-savings ideas buried deep in the text. In contrast, Telecommunications Cost Management provides a blueprint for cost reduction across all the major technologies — from Frame Relay to IP telephony, from provisioning to contract recommendations. Busy decision makers need the specifics quickly, without plowing through details that may be important but do not affect the economics of a project. Traditional bill auditing texts provide recommendations but only within the context of the existing architecture — for example, they might highlight techniques for reducing circuit switched leased lines but omit the pros and cons of leased lines versus alternatives such as VPN or fixed wireless. Telecommunications Cost Management presents the key facts up front, with sample calculations for broadband, local access, equipment, and services alternatives. To give this guide to telecommunications cost management some order and coherence, we include the minimum necessary level of technical expla- nation, with business-focused pros and cons for each technology. We also add a chapter on traditional telecom billing auditing because the “green eyeshade” approach does indeed result in lower costs, realized as either refunds or process improvements over time. Based on our experiences with companies and their business challenges, we present the following broad approaches to telecom cost management: