Two Approaches to Paying Bills

A company can take one of two approaches in paying its telecom bills. In the first approach, depicted in Exhibit 1, the Accounts Payable department (A/P) pays all invoices without review and forwards a copy to the Telecom department for later review


Exhibit 1: Telecom Department Reviews Invoices after Payment
This approach ensures timely payment of carrier invoices and avoids service interruptions due to late payment, as most payment terms with carriers specify net 30. One disadvantage is the potential for overpayment, as the Telecom department typically runs lean on staff and may not have the resources to methodically review the invoices each period. Because the invoice is already paid, the Telecom department may not consistently review all invoices. Inertia often rules — payment is made without scrutiny if the supporting paperwork exists and the dollar amount is reasonably close to last period's payment.

In the second payment approach, depicted in Exhibit 2, A/P logs the invoices into the accounting system and sends all invoices to the Telecom department. The Telecom department reviews the invoices, notes and investigates exceptions, approves the invoices, and then forwards the invoices to A/P for payment.


Exhibit 2: Telecom Department Reviews Invoices before Payment

The second approach reduces the potential for overpayment, but also increases the potential of service interruptions or late penalties because the cycle time from invoice receipt to payment is doubled. The Telecom department may not have the capacity to review the invoices in a timely manner, or the invoices may get lost or misdirected in routing. Additionally, if the telecom department incorrectly disputes charges that are actually owed to the carrier, late penalties will accrue.

The second approach is generally preferred because billing errors are typically identified and resolved more quickly by the Telecom department. Companies that have their A/P departments pay the bill without the Telecom department first reviewing the bills may want to train an A/P clerk to perform the bill review. For this to be successful, the A/P clerk should have access to the Telecom department's circuit and service inventory and be aware of service connections, disconnections, or changes to validate the bills.

Reasons for Telecom Bill Discrepancies

Telecom service providers, their competitors, and business customers all play a role in inaccurate bills. Let us start with the pivotal 1996 Telecommunications Act.

Telecom Service Providers

The Telecommunications Act of 1996 dramatically altered the telecom landscape by deregulating telecommunications. The resulting fierce price competition in long-distance rates, which drove down telecom service providers' revenues, prompted a decline in customer service levels that often leads to inaccurate billing.

Historically, a carrier's customer account manager may have supported a few major business accounts. However, with the pressure to control costs and boost profitability, the same account manager now services more accounts with less time for each one. Turnover and the lack of adequate training may also contribute to declining service levels.

For example, one long-distance provider's sales representative insisted to a client that his firm did not offer toll fraud insurance. He was somewhat embarrassed when shown the details of a toll fraud offering on his firm's public Web site. Telecom account managers must understand their customer's business and telecom usage, as well as their own offerings. Otherwise, service orders may not be correctly executed and billed.

Overly Aggressive Competitors

The Telecommunications Act of 1996 ushered in new competitors eager to aggressively increase their market share in the local and long-distance markets. The terms "slamming" and "cramming" were quickly added to the telecom lexicon as some service providers allegedly engaged in illegal business practices to gain new customers.

Slamming
Slamming is the illegal practice of switching a company's preferred local or long-distance service provider without explicit authorization. When a company orders telephone lines from the local telephone company, it specifies the preferred long-distance carrier for each line. The preselected long-distance carrier for a telephone line is commonly referred to as a PIC (preferred interexchange carrier). In telecom vernacular, we say that the line has been "PICed" to a particular carrier.

Telephone customers are slammed in a variety of ways. A common method is the use of forged copies of Letters of Authorization to the local telephone company, which "authorize" switching the PIC to an unauthorized provider. In another method, a service provider contacts a customer about new services but does not inform the customer that selecting the new service will also result in changing the preferred long-distance provider or PIC. In some cases, particularly for residential services, truly deceptive practices have been used. For example, "free" raffle tickets at retail malls have tiny print at the bottom that authorizes a switch from one carrier to another. When unsuspecting victims fill out and sign the raffle ticket, they are unknowingly authorizing a carrier change.

Cramming
Cramming is the illegal practice of adding charges to a business telephone account for products and services that have not been authorized. In one press release by the Federal Communications Commission (FCC), a service provider was fined for placing "unauthorized fees for 'membership' in the 'Friends to Friends' psychic services hotline and 'other' charges on consumers' telephone bills." What the FCC found particularly egregious about these violations was that many customers were billed for these services although they had no contact with the service provider or the psychic services hotline.

PricewaterhouseCoopers has encountered several cases of cramming in its bill audits. While auditing bills for a global professional services firm, there was one office with a telephone line that was billed twice for voicemail — by two different service providers. If a representative from either service provider had called the telephone number prior to cramming the line, he would have found that the line already had voicemail — from an onsite Avaya voicemail system that the firm owned. Another common example of cramming is a charge for "inside wiring," which is, in most cases, an unnecessary line maintenance fee.

Business Customers

One major business issue that corporations face today is how to react to business cycles and rapidly changing economic conditions. Corporations may engage in mergers, acquisitions, and right-sizing activities. Without adequate telecom cost controls, businesses may drive up their total telecom costs, which hurts the IT budget and the earnings before interest, depreciation, taxes, and amortization (EBIDTA).

Reacting to Cyclical Business Activities
Business expansions and contractions involving significant changes to employee headcount directly impact telecommunications costs. Typically, these business activities result in overpayment for unused circuits and inappropriate services.

In an expansionary period, a company providing services to its new employees may incur significant expenditures for installing lines to the employee's desk, purchasing hardware such as additional cards for the PBX, or provisioning additional trunks from the telephone company. Services such as call forwarding may be inappropriately provided to employees who staff inbound contact centers. Employee telephone abuse is frequently attributed to call-forwarding features that allow employees to forward toll-free phone calls from friends and family to the employee's home after business hours.

In an optimal control environment, appropriate controls are implemented to ensure new telecom assets, and services and telephone features are authorized and commensurate with job responsibilities. Replacing antiquated, manual chargeback systems with automated, scalable systems provides an additional level of control. Employees and their cost center managers can monitor their own network, calling card, and long-distance usage, and report fraudulent activity to appropriate personnel.

During economic contraction, when the organization typically reduces headcount, telecom assets such as cell phones, pagers, calling cards, and radios may not be recovered. Also, services may not be disconnected appropriately. Experience shows that ineffective asset management contributes to losses. The exit interviewer may not have objective information on the departing employee's telecom assets (cell phone, pager, calling card, etc.); sometimes, information from Human Resources is not current. The net result is that services may continue to be provided to the terminated employee for months after termination.

Effective controls ensure that any reduction in workforce will trigger a set of actions to identify and recover assets and remove services. Without adequate controls, cost centers could be inaccurately billed for usage and equipment charges; significant business risks are incurred from disgruntled individuals misusing or compromising telecommunications services and systems.

Consolidating Offices after Mergers or Acquisitions
Companies that merge with or acquire another entity typically relocate or consolidate offices. Without appropriate bill review processes, consolidation activities frequently lead to paying for unused services and dangling circuits — circuits that are not terminated at one endpoint — because they have not been removed from the telephone company's billing records.

Although the local telephone company has disconnected the enterprise's circuits, the long-distance carrier can still render usage charges. The enterprise is essentially paying for someone else's long-distance services. This situation occurs when the local telephone company reassigns the circuit to another enterprise. If the circuit has not been removed from the original enterprise's long-distance carrier's database, the long-distance company will continue to bill the original enterprise for all usage charges incurred by the new circuit owner.

Implementing Technology Solutions
The advent of the Internet, intranets, and extranets has placed increased demands on network bandwidth and availability. Enterprises are upgrading voice and data infrastructure to enable Customer Relationship Management (CRM) solutions, E-business, and other strategic initiatives.

Customers expect a prompt response, whether they are purchasing by telephone or the Internet. If Web-enabled transactions slow to a crawl, customers will buy from a competitor's site. CRM technology investments are unsuccessful if the most profitable customers get busy signals from the contact center or encounter an auto-attendant nightmare. The enterprise will most likely lose the sale — and possibly the customer.

Companies competing for mind share with today's sophisticated consumer must continue to improve the quality of the customer's experience with the contact center. Today, the customer's attention span is shorter than ever. Customers have more choices, easier access to information, and higher expectations of service and availability.

In response to these concerns, companies traditionally increase bandwidth without appropriate consideration of costs. That is, they may hurriedly throw excess bandwidth at the problem rather than taking the time to adjust in proportion to actual need. The need for more capacity, more services, and more fault tolerance capabilities must be balanced with the need to control costs. Too much capacity leads to excessive costs. In a recent audit, one enterprise added more than a dozen long-distance T1s as a contingency for Y2K; six months after the millennium change, the excess T1s were still in place.

Adding services without appropriate capacity planning can result in paying for unused circuits and services. Asset management systems that inventory line, circuit, and hardware assets, coupled with real-time monitoring of network and trunk utilization call accounting reports, will help control over- and undertrunking.

Capturing loose traffic

If you have loose traffic, immediately inform your local carrier and your long-distance carrier. To get rid of loose traffic, the following steps, listed in order of urgency, should be followed:

- Change your PIC code. Make your local carrier change the PIC code on your lines, both in its billing system and at the central office. Then have the company put a PIC freeze on all lines.

- Add the lines to your long-distance account. Ensure that your longdistance carrier is aware of the line numbers. Make sure it adds the line numbers to your main account.

- Dispute the charges. Dispute the charges with your local carrier. You have the option of withholding payment for these charges. The local carrier will not disconnect your local lines for nonpayment of another carrier’s charges.

- Negotiate a refund. Negotiate a refund of the overcharges with the carrier that charged you. If the loose traffic is due to a carrier error, insist that it issue an invoice credit equal to 100% of the charges. The carrier will probably refuse to issue a full refund, but it will agree to rerate the traffic and issue a partial refund.

Although these are simple steps, many things can go wrong when trying to eliminate loose traffic. It has been my experience that a business with 10 or more locations will have loose traffic almost every month. A wise customer checks his bills every month for discrepancies, especially loose traffic errors.

Loose traffic rerate credits
Ift a customer has had his long distance billed as loose traffic, he is usually entitled to a refund. Unless the problem is the customer’s fault, customers should not be required to pay more than they would have normally paid if the long-distance calls had been billed correctly. Loose traffic happens for a variety of reasons, and it may be impossible to figure out how it happened and who is at fault. If you cannot convince the carrier that it is the company’s fault that you were overbilled, the carrier will resist giving a refund. The customer should steer the negotiation away from faultfinding and concentrate on the fact that the rates paid were too high and unfair.

Loose traffic may only involve two carriers: your local carrier and your authorized long-distance carrier. At other times, however, three carriers may be involved: the local carrier, your authorized long-distance carrier, and another long-distance carrier. If you have been slammed, however, it is likely that a fourth company has joined the party—a billing company. Billing companies such as USBI and Enhanced Services Billing (ESBI) are legitimate companies that handle the billing for fraudulent companies such as NOS and Hold. What follows is an example of how carriers operate using Luigi’s Automotive Supply, a fictional Los Angeles company.

Luigi’s local carrier is SBC Communications. Sprint is his long-distance carrier. A representative from Scamco Long Distance places an order with SBC to switch Luigi’s long distance to Scamco. Because Scamco is a small new company with no billing agreement with SBC, Scamco has USBI process the billing. USBI represents hundreds of small telecom carriers and has a shared-billing arrangement with SBC. SBC is happy to make the change because it keeps a portion of the billing. In this fictional, but nonetheless realistic, example Luigi has four phone companies to deal with: SBC, Sprint, USBI, and Scamco. Table 8.2 shows how Luigi’s long distance cost has drastically increased as a result of the slam.

The full recourse option
If the customer cannot negotiate a refund, a full recourse of the charges can be requested with the local carrier. Explain to your local carrier that you are disputing the full amount of the charges billed by the fraudulent company. Be sure to exclude that amount from payment of your local carrier’s bill.

The local carrier then notifies the fraudulent carrier that the charges are being disputed, and the fraudulent carrier has a limited time (usually 60 days) to respond. Fraudulent carriers usually do not respond, and the local carrier credits the customer’s bill in the full amount.

Unethical phone companies rarely fight these disputes. In fact, many fraudulent companies are so eager to avoid customer complaints to the FCC that could result in stiff fines that they readily offer refund credits. Their phone greeting is practically “Thanks for calling Scamco, would you like a refund?”

Collect calls
Collect calls are handled by AT&T, WorldCom, Sprint, and a host of collect call niche providers. The charges for these calls usually appear in the last pages of the local bill.

Collect calls are fairly straightforward: You call collect and the person you called is charged. Encourage your employees to use 800 numbers or calling cards instead of calling collect. You can also block collect calls with the local phone company. This forces the caller to use another method to complete the call. But this is not a solution for everybody. Organizations such as law enforcement, hospitals, bail bondsmen, and lawyers regularly receive important collect calls.

900 calls
900 calls are expensive because the caller is paying for the information given by the 900 provider in addition to the long-distance charges associated with the call. Almost all 900 calling is billed on the local bill. In this way, the call is handled much the same as collect calls. 900 services are usually provided by the big long-distance companies. If you call a 900 number, you will probably see a charge from AT&T on your local bill.

900 calling has a well-earned stigma, but some of the calling is legitimate, such as technical support centers that use 900 numbers. If you have determined that your business does not need 900 calling, call your local phone company and have it block all 900 and 976 calling. 976 numbers function like 900 numbers but are based in your local market.

The block is ineffective against some 900 numbers, however, because they are accessed by dialing an 800 number first. 900 service providers are aware that most businesses block 900 dialing through their PBX or through the local carrier’s central office, so they have invented a way to get past this obstacle. A caller dials an 800 number to get past the PBX, and then the call is transferred to the 900 number.

Miscellaneous monthly fees
If loose traffic, slamming, collect calls, and 900 calls are not bad enough, local bills are now fair game for a whole host of miscellaneous fees. The charges already described are all usage-based, but fees are a fixed expense each month. I have seen businesses waste thousands of dollars a year on fees that should have been canceled.

Some fees are legitimate, such as charges for voice mail, Internet access, and Web site hosting. Vendors that supply these services choose to do their billing through the local phone company because it makes collecting their money easier. As long as the customer verifies the charges on the bills each month, misbilling should be minimal.

A big problem for customers is that phone companies charge fees as a part of almost every service. Customers moving their loose traffic from their local bill to their main long-distance account will still be billed a monthly service fee of $5 to $20 just to maintain an account with the old carrier. Some carriers bill a monthly fee for each individual line on the account. Not only is it important to move the traffic, it is also necessary to inform the carrier to cancel the account.

Cramming
Cramming is the process of adding services or fees to a customer’s phone bill without permission. The services are often legitimate, but the customer does not want them. A local phone company representative may have added them intentionally or accidentally. Customer service representatives are often paid a commission on each additional service they sell a customer.

Another way to accumulate fees is to make collect calls or 900 calls. Some 900 numbers, when called just one time, will enroll the caller into a monthly “membership” program. If one of your employees calls a psychic line one time, you may be enrolled as a member. Your local bill will then include a $50 membership fee each month.

Many unethical companies add monthly fees to your local bill and provide nothing in return. They deceptively give the fee a legitimate sounding name, such as “network management” or “call reporting.” When the average accounts payable clerk sees the charge, she simply pays the bill rather than question the charges.

The key to avoiding or reducing the risk of cramming, slamming, collect calls, and 900 calls is to spend a few minutes each month scanning your local bills. Large companies should consider hiring an outside consulting firm for a telecom audit once a year. Discrepancies should be corrected immediately. Be firm with carriers and insist on refunds.

Telecom: Why all the loose traffic?

Loose traffic occurs for a number of reasons. Sometimes it is the customer’s fault; but usually it is the fault of one of the phone companies. Regardless of who is at fault, customers pay double or triple what they would normally pay for these long-distance calls. The problem should be corrected immediately.

New lines added by the customer
Because of the recent explosion in the use of computer modems and fax machines, customers regularly add additional phone lines to connect to these devices. When you order a new phone line from your LEC, the company always asks which long-distance carrier you want assigned to the new line. If you fail to notify your long-distance carrier you will have loose traffic. The line will not bill on your master long-distance account; instead, the calls on this line will bill on your local bill at high nondiscounted rates.

In the sample local bill in Figure 4.2, Acme Manufacturing needed two new phone lines to facilitate its new computerized part ordering system. When ordering the phone lines from Telephone Company A, Acme specified that both lines should have Telephone Company B as the long-distance carrier. Because it never informed Telephone Company B of the new lines, the long-distance calls on these lines are billed on the last few pages of the Telephone Company A local bill.

PIC code errors
Another reason loose traffic may appear has to do with phone company errors. The local carrier controls which long-distance company is a customer’s PIC. Each long-distance carrier has its own PIC code, which is entered into the local carrier’s central office and into its billing computers.

If an overworked phone company billing representative accidentally enters the wrong PIC code for your lines, your long-distance calls will be handled by the wrong carrier. These calls will be billed on your local bill. Many carriers have multiple PIC codes, and you must ensure that the correct one is in place. Certain AT&T customers use 732 as their PIC code, but if the more common AT&T PIC code of 228 is used, the calls still might bill on the local bill.

Mismatch at the central office
Even if the PIC code is correct in your local telephone company’s billing system, it may be incorrect at its central office. Since the billing computers and central office computers are usually separate systems, mismatches frequently occur. In this case, loose traffic might appear on your bill. This problem is especially prevalent when you switch long-distance carriers. Local carriers are notorious for changing the PIC in the billing system but failing to do so at the central office. Of course, the end result is that the customer pays the old rates for another month or two until somebody figures out why the change never occurred.

PIC freeze
Once a customer is satisfied that his lines have the correct PIC code, it is a good idea to request a PIC freeze with your local carrier. This “freezes” the PIC choice and prevents anyone from changing your long-distance carrier again unless the company has written permission from you.

Slamming
Slamming is the fraudulent practice of changing someone else’s long-distance carrier without that person’s permission. This is a common practice in the industry, especially among entrepreneurial start-up long-distance companies and multilevel marketing long-distance companies. If your long distance suddenly starts to appear on your local bill and you do not recognize the carrier, you have been slammed.

Slamming methods
The latest slamming techniques are becoming increasingly creative. Fraudulent carriers create sweepstakes with a free car or a cruise as the grand prize. To enroll in the sweepstakes, you fill out a small card from a countertop display found in convenience stores and restaurants. If you read the fine print on the card, you will find that you have just agreed to switch your long-distance carrier. (Do not count on taking that free cruise anytime soon.)

One of the most creative techniques has to do with the name of the long-distance carrier, as in the case of long-distance companies called “I Don’t Care” and “I Don’t Know.” When a new customer orders lines from a local carrier, the local carrier’s representative asks, “Who do you want as your long distance provider?” If the customer replies, “I don’t care,” then he gets his long-distance from the I Don’t Care Long-Distance Company.

Another company that is successful in securing new customers fraudulently is Hold, Inc. That company’s telemarketer calls you for an innocent-sounding survey, then suddenly asks “May I put you on hold?” If the person says “yes,” then his long distance is switched to Hold, Inc. If a customer denies choosing Hold as her carrier, the Hold customer service representative plays back the recorded conversation to prove the customer did say “yes” when asked “May I put you on Hold?”

Slamming rights
If you have been slammed, you should not pay the charges for the first 30 days. The new FCC rules effectively give you a free month of long-distance service. According to FCC ruling 00-135, released in May 2000, you do not have to pay anyone for the first 30 days of calling. After 30 days, you must pay for the calls, but you are only responsible to pay your original carrier according to its rates. This is true even if the slamming company is still the carrier for the calls. If you have already paid the bill, the slamming company must pay your authorized carrier 150% of the charges. Your carrier is then supposed to issue a credit to your account.

Miscellaneous recurring charges billed by the LEC

In addition to line charges, local calling, and intralata calling, the local phone bill will include additional charges. Most of these items are optional but some are almost always mandatory, such as the FCC charge and touch-tone service. Optional services are normally nonregulated, so charges will vary from market to market. One thing these services have in common is that they are services of convenience. For example, the average business can usually live without call forwarding or voice mail, but these services certainly make doing business more convenient.

Optional services are usually listed in the first pages of your local phone book. Carriers change their service offerings frequently, so you may want to call the carrier to find out exactly what is being offered today.

Does the money for the “FCC Charge” really go to the FCC?
In addition to the charge for the actual phone line, local carriers also charge a fee with each line. During the negotiations associated with the breakup of AT&T in the early 1980s, the Bell companies argued that AT&T would get more money because long-distance service has higher profit margins than local service. They also complained that they had to bear the high cost of maintaining the local lines from the central office all the way to the business or residence. This was a legitimate concern, so the government allowed the LECs to subsidize their costs by charging each customer a fee per line.

On the phone bill, this fee usually reads “FCC Approved Line Charge” or “Interstate Access Fee.” The fee is usually around $8 per line. The money does not actually go to the FCC—that organization is funded by our taxes. Instead, this money goes directly to the local carrier as additional revenue. Over the years, this fee has steadily increased, like most other charges on the local phone bill.

This fee is not negotiable, so the chances of saving any money here are slim. The only way to cut this cost is to order your customer service records from the local phone company and ensure that the number of fees charged does not exceed the number of lines charged.

The local bill

Items on a local bill fall into one of four categories: regulated charges, nonregulated charges, taxes and fees, and charges from other carriers.

Regulated charges
Tariffs are filed with the state Public Utility Commission (PUC). Tariffs define the rules and pricing of telecom services. The prices for regulated charges are nonnegotiable, although the carriers often file additional tariffs to be used to offer special pricing to large customers. Line charges and calling rates are regulated charges.

Nonregulated charges
Carriers are not required to file tariffs for these services. Prices on nontariffed items are set based on current business and competitive conditions for the area. These charges are often “nonessential” services such as calling features and voice mail.

Taxes and fees
There are typically four types of taxes and fees that appear on local phone bills:

Service fees and charges, such as the 911 surcharge and PUC funding fees;

Franchise tax—usually a local item like a municipal charge;

Sales, use, or special taxes—usually written as “state and local taxes” on the bill;

Federal excise tax—this 3% tax was originally a World War II emergency tax.

Charges from other carriers
Charges from companies other than your own local carrier sometimes appear at the back of your local telephone bill. Because local carriers keep a small portion of the money, they are always happy to provide this service to other companies. Some of the charges that may appear are collect calls, 900 calls, voice mail, long distance, and Internet access.