January 20, 2003 (Computerworld) -- While the telecommunications industry licks its financial wounds, customers are taking a long, hard look at their wide-area networking strategies and contracts. The debauchery of WorldCom and Global Crossing grabbed headlines, but mainstream carriers across the board are battling serious financial setbacks caused by two years of overspending, cooked books and artificially deflated prices. Business customers, then, are challenged to build network contingency plans that are more robust than simply moving from one beleaguered supplier to the next.
"Telecom is at the heart of what keeps CIOs awake at night now," says Zeke Zoccoli, CIO at Plano, Texas-based LifeCare Management Services, which owns 20 acute-care hospitals around the country.
Indeed, the public telephone network, corporate intranets and Internet links have become the lifeblood of large organizations. To avoid network disruptions, Zoccoli and others are lowering their risk with shorter-term deals and special contract clauses that keep them agile in the face of vendor setbacks.
They're also restricting the network traffic volume commitments they make to any single carrier. Instead, they're spreading the wealth across diverse, redundant connections from multiple suppliers.
Diversification racks up additional monthly network service costs, but the cost of not having the protection is far greater, companies say.
"It's more valuable to us to have the network up than to get a bigger monthly volume discount," says Mark Carrier, telecommunications manager at Crate and Barrel. The Northbrook, Ill.-based retailer learned that lesson the hard way in 1999, when WorldCom Inc.'s frame-relay service suffered a notorious 10-day networkwide outage. Crate and Barrel did have backup Integrated Services Digital Network (ISDN) circuits in place. But those links, too, were provisioned by WorldCom and weren't in service.
"We got stung," says Carrier.
So the 100-site retailer has now split its frame-relay traffic loads between the networks of Sprint Corp. and Qwest Communications International Inc. The company still uses ISDN backup links—but they are provisioned, in part, by AT&T Corp. "to further hedge our bets," says Carrier.
Diana Beecher, CIO at Travelers Property Casualty Corp. in Hartford, Conn., agrees that experience has taught her to use diverse routes from multiple carriers. "There have always been risks associated with any one provider being able to continue service," she says. "You just have to make sure you have a plan in place for when that day comes."
This means soliciting bids from several carriers before the dam breaks, says Greg Douglass, vice president of Telecom Media Networks, an industry practice of Cap Gemini Ernst & Young U.S. in Dallas.
"If the lights go out tomorrow, it would take another carrier several weeks just to come back with a bid, let alone get a connection up. Make sure the alternative carrier already understands what you want to do," he recommends.
There's no safe bet about vendors, though. Meta Group Inc., for example, expects 65% of the carriers that have undergone financial reorganization in the past year to be forced back into bankruptcy by 2005.
"Any provider today could go belly-up," asserts Dennis Brixius, director of telecommunications and security at Praxair Inc., a Fortune 500 international maker of industrial gases. He says Praxair has been affected by the financial troubles of WorldCom, the demise of Global Crossing Ltd. and the discontinuation of certain services by Cable & Wireless PLC.
Brixius says IT departments should consider using carriers that they might have overlooked in the past but are financially solvent. For example, he says he's evaluating Cincinnati-based Broadwing Inc., a nationwide spin-off of Cincinnati Bell Telephone Co., for this reason.
Others agree with that strategy. "The first thing to falter with financially troubled carriers is service and support," says N. Britton Choi, IT strategic planning and implementation manager at Hogan & Hartson LLP, an international law firm based in Washington. "Newer players are better able to focus on customer service than carriers preoccupied with reducing operational costs."
So the firm is using the inherently redundant IP virtual private network (VPN) services of Denver-based Virtela Communications Inc. The 2-year-old provider offers multihomed connections from different Internet service provider networks. "And we have tertiary ISDN in case the local loop goes down," says Choi. "Virtela is managing it all for us, which has saved us a great amount of administrative time."
But what if Virtela were to disappear? "Then, contractually, the circuits become [under] the ownership of Hogan & Hartson. We can work directly with the carriers at the prenegotiated rates throughout the life of the contract," says Choi.
LifeCare and Crate and Barrel have also signed on with providers that aren't yet household names. LifeCare subscribes to the services of Dallas-based Masergy Communications Inc., a 2-year-old provider of international IP VPN services. "Masergy is not someone I would have gone to in the past," Zoccoli acknowledges. "But these new, smaller companies aren't in cutback mode, and they offer customer tools to improve the management of the network."
Still, he did his due diligence. "I talked to Masergy's backers, called customer references and tested their service before signing on," Zoccoli says.
Crate and Barrel has dropped local phone services from the incumbent local-exchange carriers, where geographically possible, in favor of service from Dallas-based Allegiance Telecom Inc., a nationwide local-exchange carrier. But Carrier, too, says he didn't make this decision lightly.
He engaged Allegiance when SBC Communications Inc. was unable to deliver a range of 700 direct inward dial numbers in a new Crate and Barrel building. "From there, Allegiance had to earn our trust over a period of about a year," says Carrier. "We added them market by market."
Contractual Clauses
If a carrier goes bankrupt, enterprise customers lose their clout. "Telecom contract clauses stating that a customer can terminate if a supplier goes bankrupt are no longer enforceable under U.S. bankruptcy laws," warns Hank Levine, a partner at Levine, Blaszak, Block & Boothby LLP, a Washington-based law firm. Yet when emerging from bankruptcy, carriers can decide whether to retain you as a customer, despite your contract, Levine notes.
So customers need to protect themselves in other ways. "I no longer sign a contract that's longer than 12 to 18 months," says Choi.
Crate and Barrel's telecom contracts allow the company to add sites at the same billing rate. "For example, if Qwest were to go out of business, Sprint would be obligated to fill in the coverage gaps at the same rate it charges for connectivity at our other sites," Carrier explains.
Jim Metzler, vice president of Ashton, Metzler & Associates, a telecom consultancy in Sanibel, Fla., suggests spreading a single aggregate volume commitment across all network services. This tactic avoids penalties if customers fall short in one service area but are at or over their financial commitment in total. Otherwise, for example, companies might move to voice over IP to save money but then get penalized for falling below their long-distance phone service commitment.
Metzler also recommends that you request rate reviews at regular intervals throughout the life of the contract and compare the rates of at least two viable competitors at those times.
"Try to include a clause that if the average of the competitors' pricing is lower than your current pricing, that number becomes your new price," he says.
Wexler is an independent IT and computer networking writer in Campbell, Calif.
Telecom Survival Kit Guidelines for positioning your organization to cope with carrier troubles:
Make the vendor's financial viability and track record for service quality the top priorities when selecting a carrier.
Negotiate an aggregate volume discount so you can redistribute traffic loads without incurring penalties.
Try to negotiate technology-refresh terms in telecom contracts so you can add new services for the lowest rate offered to other customers.
Back up the backup. Make sure that services from different carriers don't run over the same last-mile cabling and that they terminate in geographically diverse central offices.
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