• Billing history. Whether you intend to negotiate with the same vendor or a competitor or both, know exactly what you were charged over the past six months or, even better, over the past year. Then perform a billing audit.

Yes, conducting a billing audit is more tedious than listening to former Enron executives testify before Congress, but the payoff will make it worth the pain. An accurate billing audit comprises far more than a total of what was spent during the past year or pay period. You're looking for a series of data: overall daily, weekly, monthly and yearly charge averages, preferably broken out by call type; similar data from different service providers (for example, even if AT&T is your primary carrier, you may be using services resold from MCI); new order charges (if any); rate increases (when, how much and affecting which services); and billing errors.

Data for the first three points is simple to collect--just tally your bills and break out the averages and totals. Calculating rate increases, however, is such a specialized job that many companies hire investigating consultants to track down billing errors and obtain refunds. Typically, errors stem from too much bureaucracy and too little cross-departmental communication at the phone company as well as from rate changes. Nevertheless, this data is extremely valuable when you're renegotiating. It's also acceptable to request the aid of a phone-company representative in going over your billing, though you'll probably have to endure a waiting period. And that person will lack the objectivity of a consultant. Also make sure that any such rep comes from the billing department, not from your local sales office.

• Carrier-management and call-detail reports. Carrier-management reports summarize all your calls by location; call-detail reports carry a summary list of all calls. Both types of reports are available from your carrier. Indeed, you may already have them if your contract specifies they be delivered to you on a regular basis.

• Carrier tariffs. For real detail, you should look at your carrier's tariffs by state. This information usually is available on your carrier's Web site; ask your sales representative or billing department how to find it. Now compare this data with your state's published tariff lists for all types of calls. This will reveal billing errors and give you a baseline for rate negotiations. Getting there, however, requires a good deal of work. First, break out the analysis into the two basic categories of voice and leased lines. Then subdivide voice calls into calls between states, long-distance calls within a state, immediate-area toll calls (also called intra-LATA) and international calls.

Leased lines cover not only traditional data services (T1, frame relay, ISDN and so on) but also any voice traffic carried via those lines or any leased lines installed specifically to carry voice traffic between two dedicated points. Leased-line calls will be broken out into "on net" connections--those made between two of your locations with both locations having a dedicated leased line to the telco--and "off-net" connections, which require outside lines. Additionally, you'll be billed differently for calls that originate on a dedicated leased line but are routed onto a switched network and those that begin and end on a switched network.

You'll also notice billing differences for specialized services, including calling cards, toll-free numbers (inbound) and directory-assistance calls. Once this data has been compiled, you must analyze it for current costs and verify that you were billed correctly. Your accounts-payable department can help with this, and you can request that the phone company prove its billing as well. Frankly, it's a good idea to use a professional phone-billing auditor at this point. You can find independent auditors or work with a telecom consulting company. Large billing volumes are so notoriously overbilled that most of these auditors simply charge a percentage of the refund they'll inevitably secure for you. Additionally, they'll establish a baseline of organization and billing-recording practices that your accounting department can follow in the future.

Most billing errors should have been recorded by your AP department during the year. And that department should have performed monthly billing audits to obtain data similar to that described above. If this is the case, your gathering process could be reduced to a single phone call to your AP department. If not, you should still involve someone from that department in this process and make sure AP starts bill auditing in the future. Billing errors should be categorized by type, and the amount of each error and how long it took to rectify should be recorded.

The Negotiation Plan

Next, record your goals for the negotiation. Obviously, lower rates are a prime consideration, but there are additional features and products you might want to consider. From an IT manager's point of view, these features often are focused on new technology--added data services, long-distance voice, packaged cell-phone service and wireless data services, for example. But don't forget to consider products aimed at other departments.

Many phone companies, for example, offer multiple billing formats, providing various information sets and delivery methods (standard mail or in an electronic format, such as EDI). These can be valuable options for your AP department. Query all relevant department users and heads regarding new services they'd like to see and problems they're having with the current service.

Your goal is to compile a functional requirements document focused on voice telephone service. At this phase, you're weighing only business needs--specific technology considerations are a distraction. Once a needs list has been compiled, sit down with your in-house telecom specialist or a consultant and match needs to technology, subsequently attaching estimated costs, implementation schedules and management considerations. You'll have a service-proposal document you can submit to senior management for approval, as well as a blueprint for your contract negotiations with telecom providers.

An important prerequisite to discussing technology specifics is to examine your maintenance records and perform a traffic study. This is simply a request put through to your telecom maintenance provider (the phone company or a third party) to perform a traffic study on all telecom lines during a given month. This task should be performed at least twice a year and during your busiest months.

The results of this study become more than just the basis for telcom capacity planning in the coming year. If you don't know your traffic patterns, you'll be at a significant disadvantage when comparing bids from vendors. Typical results from such a study should break out your current minutes for every type of call, then project the same information for the next six months or more. You also should know the average call length as well as the usage level of all special call features. Leased-line traffic should be studied for average bit rates, spikes and drops, along with geographic rates in the case of dedicated leased lines.

Art of the Deal

First, when renegotiating with your existing provider, use the data gained during the billing audit to establish that you're being billed properly. Odds are you're not, which automatically gives you a slight advantage, especially when you reveal that you're looking at bids from other providers.

Next, you want to stabilize your rates. You won't be able to secure all your rates, but you should be able to secure interstate voice calls and the basic port costs on leased lines.

It's critical to remember during this negotiation, however, that rates are continually decreasing. Make sure to review your rates and leave a door open in your contract to take advantage of new rates. Don't commit to any contract longer than two years. This lets you renegotiate for better rates and serves as a safeguard in case your company wants to use new technology, such as VoIP (voice over IP) or alternate data access.

It's also a good idea to check into the rate scale your carrier is offering new customers. The 10-year subscriber to Sports Illustrated isn't eligible for the free football phone because he's not a new subscriber. Similarly, many telcos offer significantly reduced rates to new customers while charging their existing customers above-market rates. Not only do these rates need to be rectified and stabilized in the new contract, but you should see if the carrier will pro-rate existing calls for a period as an incentive.

Next, chisel away at ancillary charges, often the biggest cash cow for many telco providers. A short list of items to dispute or reduce includes installation charges and minimum usage requirements and calling-card charges.

Installation charges may be waived if the carrier knows it's competing for your business. Minimum usage requirements won't be waived, but they are negotiable. You should make sure that if new rates come with minimum usage attached your company will be able to meet those requirements. Calling-card charges should be killed, especially in light of readily available cell-phone service and convenient billing options.

Finally, you'll need to watch out for a number of "gotchas." Security is always a key issue, so it's important to determine your company's level of liability should your voice system be hacked and abused. While carriers have insurance to cover this eventuality, you should also investigate the liability of your phone-system software provider, especially if security is a feature played up by that company.

Watch out for carriers requesting that you commit to certain types of calls-- interstate, international and so on. This kind of requirement is often slipped in during mention of minimum-usage requirements. Even if your call analysis indicates a large percentage of a certain type of call, it is still difficult to predict and verify. Most carriers won't fight too hard to keep this on the table in any case, so do your best to get rid of it early.

Even if the carrier agrees to fixed rates, most carriers reserve the right to change those rates--often without the consent or notification of the customer--in response to future rate changes imposed by the industry. The only weapon you have is to request the ability to renegotiate rates during the life of the contract. You'll meet resistance, but if you play up the competition enough someone will give in eventually.

Although the prime focus of the negotiation is long-distance voice service, the telecom industry today is awash with competition. That means many service providers are throwing in all kinds of package deals, including discounted options for cell-phone service, pagers, calling cards, local voice service and a wide variety of high-speed and even wireless data services. A savvy network manager should match various package options to his or her company's current and future network needs.