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.

Billing System Costs

Billing system costs include the initial hardware, software costs of the system along with the operational costs such as invoice processing, bill printing and mailing, intermediary clearing house settlement companies, customer care (call centers), and collection services.

Hardware and Software

The hardware usually includes high performance computers that operate proprietary software. Due to the complexity of hardware and software billing systems, continuous training operations support may be required to ensure quality services to the customers and to provide revenue assurance.

Invoice Processing (Batching)

Periodically, billing records are gathered for invoicing. If a company has many customers, they may be divided into cycles (or “billing cycles.”) The billing cycles are different for groups of customers. This allows the billing system to only batch a portion of the billing records each time. These billing records must be forwarded for delivery (to a bill printer or for electronic distribution).

Bill Printing and Mailing

In most cases, invoice records are sent to a bill printer or they may be sent by email or printed by the customer when the payment is made online. When bills are sent to the printer and mailing house, this usually costs between $1-$3 per bill. Sending bills by email helps to reduce the cost of providing the customers with bills and receipts.

Call Center

A call center is a place where calls are answered and originated, typically between a company and a customer. Call centers assist customers with requests for new service activation and help with product features and services. A call center usually has many stations for call center agents that communicate with customers. When call agents assist customers, they are typically called customer service representatives (CSRs).

Call centers use telephone systems that usually include sophisticated automatic call distribution (ACD) systems and computer telephony integration (CTI) systems. ACD systems route the incoming calls to the correct (qualified) customer service representative (CSR). CTI systems link the telephone calls to the accounting databases to allow the CSR to see the account history (usually producing a “screen-pop” of information).

Call center telephone systems can cost over $3,000 per CSR station. The average telecommunications service provider has 1-2 CSRs for every 10,000 customers. This results in an average customer care call costing $7-$10 per call.

Figure 1 shows a typical call center. This diagram shows that calls may be received or originated from the call center. The customer traditionally communicates with the call center by telephone. When a call is received by a call center, the user is typically provides with a list of options by an automated interactive voice response (IVR) unit. As the user selects from the list of options, an ACD system routes the call to a CSR station that is qualified to assist the customer (e.g. sales agent or technician). When the CSR agent answers the call, some of the customer’s account information may become available on the CSR’s computer screen (“screen pop”). The CSR will communicate with the customers and should make notes in the customer’s account regarding the activity that progressed.

Figure 1: Call Center

Collections

Collections are activities that a service provider performs to receive money from their customers. Ideally, all customers will receive their bills and pay promptly. Unfortunately, not all customers pay their bills and service providers must have a progressive collection process in the event a customer does not pay their bill.

When customers are first added to a system, they are rated on the probability that they will pay their bills. This is accomplished by using information on their application and reviewing the credit history as provided by an independent credit reporting agency.

The collection process for delinquent customers usually starts by sending a reminder messages to the customer be mail or recorded audio message. If initial attempts to collect are unsuccessful, more aggressive collection activities will progress that include restricted calling, service disconnection and sending or selling the uncollected invoice to a collection service.

A restricted calling class that forces a telephone (usually a wireless telephone) to be connected to an operator regardless of the digits actually dialed. Hotline is typically used when a telephone is first sold or activated to allow activation after the customer has provided the information to register for service or when the customer has not paid their bill.

If all attempts to collect from a customer have failed, a service provider may write off the uncollected revenue as bad debt, retain a collection agency or sell the uncollected invoice(s) to a collection service. If the account is written off as bad debt, the customer’s information is usually placed in a negative file to avoid reactivation and their poor payment history is reported to a credit reporting agency. Various collection companies (collection agencies) offer collection services that work on a percentage of collected revenue. Some collection companies will pay for uncollected invoices. When uncollected invoices are sold to collection services, the service provider is usually prohibited from working with the customer in the future regarding payment on the account.