Wringing Costs Out of Telecom

By Caron Carlson  |  Posted 2005-01-10

Wringing Costs Out of Telecom

With a chain of more than 370 hotels in 33 states and an environment of near-constant change, La Quinta Corp. was accustomed to receiving close to 1,000 telecommunications bills a month from about 100 service providers.

Such numbers, which masked myriad cost inefficiencies, combined with intensifying network complexity to force the company to seek outside help to manage its telecommunications.

"There are probably very few long-distance or local carriers that we dont deal with," said John Novak, senior vice president and CIO of La Quinta, in Dallas. "As quickly as these things change, I cant stay on top of them."

For the hospitality industry, the telecom network is not only an internal business tool but is also a source of revenue and the most vital link to the customer base.

At La Quinta, reservations are processed via the companys network, the Internet or its reservation center or through sales partners. The same telecom network is used for its financial systems, its guest information database and general communications.

"The data network is really the umbilical cord between the properties and our centralized systems," Novak said.

To deal with rising network costs and complexity, La Quinta turned to the cost management group at Symphony Services Corp. two years ago. The Palo Alto, Calif., company, in turn, developed systems to compare rates and usage among the hotels to weed out inefficiencies, oversights and errors.

It also created workflow tools to facilitate telecom moves, adds and changes, which are often a disproportionately labor-intensive burden on the network managers.

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The frequent changes in a large enterprises work force can result in forgotten assets, redundant services and wasteful practices. And thats where Symphony began its work with La Quinta, taking an inventory of the hotel chains telecom and IT assets. The companys ability to aggregate invoices allowed it to consolidate services, practices and methods.

"[Applying] economies of scale is a big way to cut costs. Many organizations dont have centralized management," said Eric Kertz, senior director of solutions management in Symphonys cost management group. "A certain geographic location might negotiate its own rates."

By consolidating the organizations telecom systems, Symphony enhanced its negotiating leverage, ultimately reducing the number of providers La Quinta uses and procuring better rates and terms.

"When it comes to telecom, people really dont see the charges," Kertz said. "People kind of get lazy about it."

Telecom inefficiencies can be propagated not only by service providers but also by the work force, which is why Symphony looks for ways to modify usage practices among employees, Kertz said. For example, high cell phone use by employees who are rarely away from their desks probably does not optimize network resources. Additionally, there can be equipment and lines paid for but not used.

At La Quinta, the visibility into employee usage patterns has been particularly helpful, Novak said. For example, the company is able to determine when fax lines are being used inappropriately for long-distance calls.

"This allows us to look at utilization of [the] phone system," Novak said. "If theres a night auditor who has nothing better to do and wants to call his family in the Dominican Republic, thats something we now have visibility into."

Symphony looks for ways to prevent telecom resources waste at a more tangible level as well. In health care, where the cost of lost pagers can add up, Symphony can monitor the losses and make users more accountable. Reporting and tracking tools that Symphony produces can affect changes in usage patterns by providing management with detailed illustrations of the inefficiencies.

"This helps the employee understand the importance of that particular asset," Kertz said. "It adds a much higher awareness within an organization. Change really starts at the top."

Next Page: Weeding out oversights and errors.

Weeding out oversights

In addition to identifying system and usage inefficiencies, Symphony sifts through the reams of telecom invoices that large enterprises typically receive, weeding out oversights and errors. By creating electronic feeds from the service providers, Symphony can also reconcile a companys bills with its contracts to determine whether it is paying for services it isnt receiving.

La Quinta realized immediate cost savings by terminating payment for lines that had been decommissioned but were still appearing on invoices, Novak said. It also discovered services billed for hotels that had not yet opened and services billed after properties were sold. "It amazes me how often there are errors on invoices," he said.

Fortune 500 companies spend about $100 million annually on telecommunications, and up to 12 percent of that expense can result from billing errors, Kertz said. In addition to charging for terminated lines, it is not uncommon for service providers to bill at higher rates than agreed to and to charge for services that were not requested, such as line maintenance, he said.

Hotels are almost unique among enterprises in that their telecommunications networks are not just a component of the cost of doing business but they also serve as a tool for generating revenue.

With the explosive popularity of wireless phones and Internet communications, however, hotels are rapidly losing this revenue stream.

"Traditionally, long-distance service has been a revenue service for hotels," Novak said. "The total revenues are a fraction of what they were. Its become much more of a challenge to break even."

While Symphony specializes in managing telecom costs, it has begun working with La Quinta to address the dwindling income from guest-dialed long-distance calls over the hotels network, Novak said.

Without divulging details, lest competitors take his ideas, the hotel CIO said that he expects to apply new methods not only to squeeze costs out of his network, but to squeeze more revenue out of it as well.

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