Are You Paying Undetected Telecom Overcharges?

David Cram | July 06, 2016

Much has been reported on the frequency of carrier billing errors, causing telecommunications vendors to inherit a reputation for having ineffective billings departments. And for good reason – it’s been reported that one in five telecom invoices have errors and that 85% of these errors happen to be in the carriers’ favor.

Despite these statistics, most law firms do not conduct a deep and thorough review of their telecom invoices on a monthly basis. According to a recent survey from Valicom, a Telecom Expense Management (TEM) firm, only 22% of organizations claim to do “line item” verification of invoices.

A separate Valicom study found 87% of these billing errors are small, making the errors difficult to identify in a traditional “red flag” review process. The “red flag” approach is common among organizations that do not have the expertise or dedicated resources to meticulously comb through invoices received each month. These little billing errors accumulate over time and can result in significant credits to customers who overpay. In fact, we’ve seen many of our clients collect upwards of $100K in credits by conducting ongoing verification and validation of all invoice charges.

Telecommunications carriers are aware of this problem and are taking increased steps to correct this error—in their favor. What is their solution? To limit the “look back” period in which customers can pursue credits for overpayment. Previously, it was possible to trace the discrepant charges back multiple years. Today, many carriers are trying to limit their exposure to six months. Any errors identified outside of that six-month window are ineligible to be credited back and instead are forfeited to the carrier.

To avoid overpayment, here are three common invoice errors to look for:

1 - Taxes and tariffs. Regulated telecommunications services are governed by a set of tariffs managed by the federal government, which sets the maximum allowable rates for each service1. In addition to these charges, there is a Federal Subscriber Line Charge (FSLC) that the FCC sets at a maximum of $6.50 for a single line, and any amount above this is actually against federal law. Many clients do not know how many lines they have, not to mention what the FSLC charges for each. Errors of this nature often extend past the shrinking Period of Limitations that carriers are closely monitoring.

2 - Failure to implement new contract pricing. Procurement and IT teams spend a lot of time negotiating new contracts when they are up for renewal. Unfortunately, neither are well positioned to do the line item audits discussed above. As a result, it is common for new contract pricing to be improperly or incompletely implemented. The failed or incomplete pricing implementation Passes the “red flag” review and becomes a grandfathered error, padding the profits of the telecom carriers after passing the “look back” period. Telecom audits based solely on prior period comparisons are built on the faulty assumption that the prior period was correct (which is often untrue). The lack of implementation and ongoing audits contributes significantly to lost value in telecom budgets.

3 - Delayed disconnect or early activation. All carriers are motivated to initiate new billings quickly. Unfortunately, those same carriers do not always wait for the services to be installed. In fact, the definition of “circuit readiness” does not include “customer ability to utilize the circuit” at several major service providers. Likewise, disconnects are also missed and in some instances never removed from billing. We have seen services continue to bill over three years after the disconnect date. Fortunately, customers are not subject to the shrinking Limitations Period (yet) for situations where the carrier has failed to disconnect and stop billing reasonably. Remember to save all correspondence with your telecom providers around service disconnects; they may become incredibly valuable at a later date.
A detailed invoice review can also uncover slamming2 and cramming3 charges, contract compliance errors and redundant or unnecessary services among other common cost savings findings. Telecommunications invoice reviews are a nuanced practice, requiring strict attention to detail and knowledge of potential exceptions (by state, by service, by carrier and more). The FCC and other groups are making efforts to close this gap, but carriers cannot be relied upon to police themselves.

What is the financial impact of telecom overcharges for your firm? Impossible to answer without completing a review, but the answer increasingly is significant. It all starts with line item verification, and 78% of firms are not even taking that first step. While it is an overwhelming task, you do not have to do it alone. Bringing in an expert to help identify errors and benchmark rates can reduce your telecommunications budget by 18%-30%.