Don't Enrich the Cellular Carriers

The industry profits from your mistakes. So get expert assistance for managing your voice/data rate plans. By Bob Brewin

Maybe it seemed like a good idea to sign up all of your mobile workers for a cellular phone plan with 1,000 minutes per month—and long-distance service included—even if some of those workers use only 800 minutes a month.

Or maybe you took a seemingly more conservative approach and signed up the mobile workers for just 500 minutes a month, even if some of those workers then used additional minutes at premium rates.

In either case, savvy telecommunications buyers such as FedEx Freight and Burlington Northern Santa Fe Corp. (BNSF) say you've played right into the scheme national cellular carriers such as AT&T Wireless Services Inc. and Sprint PCS Group use to maximize their revenues.

As John Hicks, director of unified messaging at Fort Worth, Texas-based BNSF, puts it, "Overage and underage is how [the cell carriers] make their money." If an organization uses too few minutes on a cell phone plan, it loses money on the unused minutes. It also loses money if mobile workers exceed the number of minutes on their cell plans. "Multiply that by thousands of users, and it's big dollars." he says.

The national cell carriers maximize the overage and underage game—called "breakage" in the industry—so well that it accounts for up to 50% of the cell phone industry's revenues, according to Greg Fitzgerald, vice president for marketing at Traq-wireless Inc. in Austin, Texas. Traq-wireless has developed sophisticated optimization algorithms to help companies, including FedEx Freight and BNSF, manage their voice and data wireless services.

Bulk-minute purchase plans—the kind advertised daily in most major newspapers—usually aren't great deals for organizations with thousands of mobile workers, Fitzgerald says.

Even so-called nationwide plans carry their own hidden costs, according to Delly Tamer, president and CEO of Inc. in San Francisco, which offers cell phone management and optimization services to major enterprise users.

Users who roam off the nationwide network of any major carrier and use an affiliate network will get hit with hefty charges, says Tamer. Although this occurs more often in rural locales than in major metropolitan areas, Tamer says it can happen in big cities such as San Francisco, where a major carrier's coverage holes can force users to unwittingly make expensive roaming calls.

A Daunting Task

Enterprises could try to fine-tune their management of cell phone costs themselves, but that's a daunting task, says Bill Marsh, founder of Traq-wireless and the company's vice president for strategy and technology. Indeed, the cellular carriers have such a bewildering array of rate plans that looking for the cheapest airline fare seems easy by comparison.

Marsh estimates that the cellular carriers offer a staggering total of 14,000 rate plans—far too many for even a heavily staffed IT department to decipher.

Few enterprises bother to make sense of these rate plans or to centrally manage their cell phone costs, according to a report by Peter Firstbrook, an analyst at Meta Group Inc. in Stamford, Conn. Firstbrook estimates that 30% to 40% of U.S. corporations allow mobile workers not only to expense their own cell phone costs, but also to choose their own plans. It's "not only an inefficient way to control spending, but also results in higher overall costs due to lack of corporate discounts," the report says.

FedEx Freight, a division of FedEx Corp. in Memphis, is able to tap into corporate discounts that its parent and sister companies have obtained from all the national cellular carriers. But those deals didn't help FedEx Freight determine what kind of plan various classes of users should be on.

That's where Traq-wireless comes in, says Jeff Amerine, managing director for communications and network services at FedEx Freight. Traq-wireless helps the company determine—on a month-to-month basis—the best plan for each of its users.

Marsh says Traq-wireless typically monitors an organization's wireless use for three months, analyzing usage patterns (for 2,000 mobile workers in the case of FedEx Freight) with its optimization algorithms. At the end of that time, Marsh says, Traq-wireless can determine whether a user should be on a national, regional or local plan, how many minutes should be allocated to each user and whether long-distance service should be bundled with the plan.

The optimization algorithms also allow Traq-wireless to switch users from one type of plan to another every month based on their usage pattern. According to Amerine, FedEx also uses Traq-wireless to track multiple devices other than cell phones, such as BlackBerry e-mail devices, with the costs for each mobile worker highlighted on a Web-based billing form.

Amerine says that using Traq-wireless has helped him cut the average cost of cell phone use from 25 cents per minute in July 2001 to 15 cents per minute in August 2002 -- while the number of minutes used jumped from 77,000 to slightly more than 600,000.

The gross savings amounted to $309,800, with net savings of $278,400 after subtracting $31,400 in payments to Traq-wireless.

Amerine says he's so impressed by Traq-wireless' capabilities that he plans to turn over management of FedEx Freight's wireline long-distance services to the company.

Cutting Costs

BNSF's Hicks reports similar results from the service. He says the railroad company, which currently has 3,500 cell phones under management by Traq-wireless, was able to cut its per-minute costs by 30%, while the number of minutes used doubled.

Besides cutting costs, Traq-wireless provides BNSF with a management tool that correlates cell phone use with productivity. Hicks says this allows BNSF to compare the cell phone usage rates of salespeople to the amount of revenue they generate, thus making it easy for managers to allocate extra minutes of cell phone use to top performers.

At the same time, the Traq-wireless service allows BNSF to monitor the ratio of personal calls (which the company allows) to business calls and cut back on the minutes allocated to mobile workers who make an excessive number of personal calls.

In addition to the bottom-line savings generated by the optimization software, Traq-wireless saves BNSF the time and trouble of analyzing individual phone bills.

Hicks, who's responsible for all of BNSF's phone, e-mail and wireless systems, says he plans to outsource virtually all of the company's cellular infrastructure and billing, including the purchase of phones for individual employees—another timesaver, since Hicks estimates the average life of a cell phone within BNSF to be about six months.

Meta Group's Firstbrook says this centralized approach to wireless and cell phone management is the exception rather than the rule today. He estimates that only 10% of organizations have the kind of visibility into their wireless voice and data costs to even attempt to centrally manage them.

But Firstbrook predicts that over the next two years, companies such as Traq-wireless and LetsTalk will continue to gain customers as they beef up their expertise and spread into all areas of wireless device management—handheld computers, smart phones and high-speed cellular data. By 2004, he expects to see a merging of wireless management with the management of wireline networks.


How to Control Cell Phone Costs

DON’T. . .

Treat cell phone bills as an expensed travel/entertainment item.

Take a one-size-fits-all approach to cell phone rate plans.

Buy nationwide plans for mobile workers who never leave a specific state or region. And don’t buy regional plans for coast-to-coast road warriors.

Buy too many or too few minutes. The cellular industry calls that “breakage” and derives about 50% of its revenues from those customer mistakes. DO. . .

Manage enterprise cell phone usage centrally.

Buy cell phone service to fit mobile workers’ geographical range, usage and long-distance needs.

Consider using a wireless management company to optimize your cell phone costs.

Special Report

Tiny Gadgets, Huge Costs

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Copyright © 2002 IDG Communications, Inc.

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