CHALLENGES AND POTENTIAL REWARDS OF COMMUNICATIONS COST MANAGEMENT

The accounting question in lay terms: Are the charges valid, can they be verified, and are they treated in a manner consistent with accounting practices across communications expenses and assets?

Beyond basic compliance issues, there are immediate potential hard-dollar savings. There are also other benefits that come from good management practices. Potential savings vary depending on the size of the organization and the effectiveness of current practice. Realizing the savings requires headcount and computer resources appropriate to the size of the organization. To get a feel for potential impact you can compare your organization to large and mid-size business.

Fortune 500 companies average $10 to $12 billion in annual revenue and typically spend $100 to $120 million on communications. Mid-size companies average $18 to $20 million in revenue and spend $20 to $30 million on communications. It takes between one and seven heads to pay the (monthly) telephone bill, which typically ranges between a few hundred and several thousand invoices, where each invoice may contain several hundred or several thousand pages (or pounds). The monthly delivery of the telephone bill becomes a point where the physical work involved in breaking the bill down and entering the actual charges into an accounting system is a daunting effort. Validating the charges is almost never done, and that’s one of the areas where cost management can realize significant hard-dollar savings. How much is the issue. General industry consensus based on experience is a range of 10% to 12% of total spending during the first year, tapering to half that level over the next 4 or 5 years. If one took the numbers literally, that would indicate a positive impact on earnings for the Fortune 500 on the order of $10 to $12 million or 10% of earnings, and $2 to $3 million for mid-size companies. How to realize that kind of impact on net income is attention-getting for any sane chief financial officer or chief executive officer.

Very few, if any, large companies receive and pay paper phone bills today. Even with the demise of paper invoices, the number of transactions and invoices cries for some form of automated invoice validation. Pricing complexity for basic services, plus the burdens of taxes, access charges, universal service fees, and other add-on charges imposed by federal, state, and municipal tax authorities all add up to a significant challenge. Adding normal business expansion, contraction, churn, and change doesn’t make it easier. Automated invoice verification requires the bill in machine-readable form and an accurate, well maintained reference database containing standard cost and inventory of circuits, equipment, facilities, and services.

Defining the Problem

Recall the earlier description of what is included in telephone service bills—they are highly summarized and comparing each charge in each invoice is very labor intensive. To put the problem and a potential approach to solving it in perspective, it is helpful to diagram it out as shown in Figure 1.

Figure 1: End-to-End Billing and Cost Allocation Process

On the service provider side, it is easy to see that the billing submitted is made up of many components. The basic service charges include a fixed monthly charge for local service and variable charges for long distance service. In addition to basic service charges, there are a myriad of federal, state, and municipal taxes, FCC access charges, universal service fee, and others. 

FCC access charge funds do not get remitted to the FCC. They go into the RBOC Treasury. This has implications for the future as far as eliminating variable long distance charges.

On the organizational side of the problem, we have two basic needs: keep track of taxes that may have an impact on corporate income or other taxes and fees that may be useful when dealing with community relations or investor information, and allocate total expenditures to all the departments in the accounting system.