In 1993, an average UK business with 25 phone lines was paying £2,643 a year for each of those lines. By last year, that cost had fallen to £1,734. That's a fall of 34%. Phone prices have been going down in real terms, but the phone companies are taking in more money, with revenue driven up by growing use of the Internet and greater demand for fast networking.
Research group Frost & Sullivan forecasts that overall revenue in the European telecoms market is set to rise from $174.7bn in 1998 to $289.7bn in 2005. These kinds of statistics should be good news for IT managers. Prices are falling and competition amongst telecoms companies is growing.
The big difference in the present telecoms market, compared to a couple of years ago, is the rise of companies that do not possess their own telecoms infrastructure. Instead of digging up the ground at vast cost to lay their own cables, these new suppliers simply buy spare infrastructure capacity.
In theory, this means lower prices and in real terms, prices are definitely falling. But the downside is that working through the jungle of different service tariff structures to establish any kind of pricing comparisons can be a nightmare and the fragmenting market can mean having to pick more than a single supplier to cover different aspects - Internet services, mobile services, fixed line voice services - which means managing different suppliers and different bills.
"A much greater choice of facilities is being offered by emerging telecoms companies," says Ed Shoobridge, CEO of independent telecoms company IDN. "It is much more difficult for any single telecoms company to provide all the services needed by the market and while customer loyalty is there, organisations have to work harder to retain it."
It may be harder to choose new suppliers, but it is also an increasingly worthwhile exercise. The telephone bill is still one of the largest single items on any company's list of annual expenses. But caution is needed, says Mark Lower, director of business sales and marketing at cable company Telewest. He comments, "The market seems to be inundated with players, but only a very small number are operating their own network."
Cable companies now have to find a new way to market and sell their services. Previously, they were able to compete with installed players like BT and Mercury (subsequently merged into Cable & Wireless) on price. Now prices are being undercut by new suppliers. These switchless resellers, so called because they have no backbone switching equipment of their own, buy telecoms minutes wholesale and sell them on.
This has forced the cable companies to look to the Internet market and Telewest, for instance, recently launched a flat-rate Internet service costing £10 per month for both access and phone calls. The business equivalent of this consumer service is Telewest's permanent connection service, which costs from £2,995 a year for a 128kbps line.
Trying to compare prices from different telecoms suppliers has always been tough and is getting tougher, according to Simon Sherrington, senior analyst at telecoms research firm Analysys. "They all set their special offer prices for different time periods and have many different tariffs," he says. "A lot of telecoms network managers had reached the stage where it is a full-time job trying to work out the cheapest prices."
One answer is to outsource the problem to consultants specialising in cost analysis, but Sherrington points out that because prices shift so quickly, these types of firms are likely to give general advice, such as which operators have knowledge of specific sectors. Increasingly, companies are turning to service providers that can automatically route their calls at the cheapest rates through the different carriers.
"People want someone to make sense of their telecoms bill, because it's absolutely hopeless at the moment," comments Steve Purvis, manager of corporate sales at independent telecoms company Primus UK.
A single bill for all services is some way off. In the meantime, while call prices go down, the cost of hacking through the tariff jungle is still a major overhead for most companies.
Telecoms bucket shops
Switchless reseller MNS typifies the changes in the UK telecoms market. The company is a middleman in the market, buying wholesale bandwidth and services from seven different telecoms carriers and selling on through telecoms dealers.
When switchless resellers first set up business, they had little influence with the major carriers. That has changed rapidly because of the sheer volume of business they now provide to the telecoms companies. With no equipment of their own and little direct control over the quality of service provided by the backbone carrier networks, switchless resellers rely on fierce competition among carriers to ensure good service. "We have no control over the carriers, but we have enough clout to get things done," explains Denis Chirgwin, sales director at MNS. "The carriers are all competing and they want our business."
Recently, for instance, MNS discovered calls weren't getting through when routed through a particular carrier, owing to congestion. MNS switched the traffic to an alternative carrier, at a loss of £50,000 a month in revenue to the original supplier. "They soon sorted that out," says Chirgwin.
Top buying tips
- Ensure you are familiar with your present telecoms usage and likely future trends - will you want to run voice over data?
- Which matters more to your company, cost or service? Low-cost telecoms carriers can slash call charge costs - but check they can provide the services you may need
- Get outside help if necessary, but be wary. Telecoms analysts can provide broad-brush tariff advice, but may lack the detailed knowledge necessary to make a final decision on the best telecoms bets for a specific business
- Switching carriers may save money, but haggling with incumbent suppliers can offer savings, without the hassle of moving
- Check whether your supplier can provide single billing for all your telecoms costs, including fixed line and mobile services. This is beginning to be an option and makes weighing up costs much easier.
Falling price of phone calls
Average single 25-line business* line business (cost per line) 1993 £855 £2,643 1994 £826 £2,559 1995 £713 £2,179 1996 £647 £2,015 1997 £606 £1,815 1998 £579 £1,701 1999 £584 £1,734
*Cost is greater because of multiple users per line and greater frequency of international calls