The tumult in the telecommunications sector means now is a great time to renegotiate voice and data service contracts.
That’s the view of Gartner Australia analyst Geoff Johnson, who says the telco industry is heading towards part two of a three-part shake-up that will see carriers and equipment manufacturers transformed into utility-like entities.
“The first stage was the glut in capacity that’s built up. At the moment, 94% of all fibre in the world is unlit.”
The second phase is the consolidation that will result from the bankruptcies and failures that result from the glut, Johnson says.
“We’re about a year away from that and what we’re seeing now, with firms going into Chapter 11 in the US and seeking further funding like Ericsson in Sweden, is a preview.”
The final stage, transformation, is two to three years away, Johnson says. “By then, the industry will be nothing like it was in the past. It will be far more utility-like, with [telcos offering] a narrower range of services and partnering more with the likes of IBM and HP.”
The state of the industry now, with phase two on the horizon, means it’s the perfect time for IT managers to renegotiate contracts, he says.
The first thing to do is aggregate demand across the business, he says. Another key point is to ensure all contracts finish at the same time. Johnson says it’s also vital to cast a critical eye over whole-of-business offers, pitches offering voice, data and mobile services from the same provider or partnership.
“If you get offered a whole-of-business deal, you need to evaluate each part — you need to know what prices are in each area before signing.”
Shorter contract terms are becoming the norm, he says.
“In the past, time has been the basis of contracts. Three years was common, but now you’d be crazy to do a contract for more than 12 months, because prices are dropping and you need to be able to renegotiate.”
Quality of service and service level agreements will be key drivers, he says and to negotiate on discounting alone would be unwise.
Wine company Montana earlier this year switched telecomms provider, choosing Telecom over TelstraClear and Vodafone. The switch, a reversal of what happened last time Montana tendered for telecomms provision, was made on the basis of technology, service delivery and cost, according to Montana finance chief Rob Aitken.
“The terms [of the deal] weren’t the single most important objective.”
Montana chose a three-year contract, the same term as the previous one with Vodafone and TelstraClear, originally signed with the latter’s predecessor.
Aitken says Montana was comfortable with a three year contract because there are opt-outs.
“We have service level agreements and there are ways to reduce the term if certain targets aren’t achieved.”