Insight Article: Should I Renegotiate My Existing Telecoms Contract to Save Money?

For most network and telecoms services, TNC has continued to see downward pressure on price points for several years with only the retirement of services or floors imposed by regulation preventing some services from being impacted. Whether it’s the cost of Ethernet circuits, SD-WAN overlay, mobile data, or traditional pence per minute voice costs, there is always an opportunity to reduce costs to align to the market, if you are not constrained by your contract.

For many businesses, the impact of the pandemic on revenues means the usual desire to reduce costs has become essential to the health, and indeed viability, of many businesses moving forward.

For these reasons, many organisations are considering renegotiating their existing network, telecoms, and mobile services contracts to save money. The question is – is this a good idea?

Put simply, renegotiating with your existing provider is generally considered a quick way to save some money. However, in TNC’s experience, renegotiation tends to save less money than a competitive procurement process, because it provides less leverage over your service provider. It also may constrain your solution options because your incumbent may not be the best fit service provider for the future.

In other words, the question really becomes whether a smaller saving now is better than a bigger saving later. Clearly, the answer to that question is going to come down to the unique commercial drivers affected your organisation.

However, it is also worth bearing in mind that your ability to complete a renegotiation will depend on your contractual position – the closer you are to the end of your contract, the greater your ability to renegotiate.

As the UK’s largest independent network and telecoms consultancy, TNC leads and supports more procurement processes for these types of services than any other consultancy. Based on our experience over the last 15 years, and hundreds of projects, TNC has identified a number of key actions you should take to secure the best results from these types of processes.

Based on this experience, TNC recommends the following steps to help you decide if renegotiation is the best approach for your organisation:

Understand your saving demands – This comes down to two key questions: How quickly you need to make savings e.g. ASAP, in-year, or beyond? Do you need to affect ongoing run rate, or are you looking at an immediate impact? If your priority is fast results, this will favour renegotiation, but if your objectives is highest possible savings, this favours a competitive procurement process
Review your contractual position and options – It is vital you understand your contractual position. For example, have you met your minimum term/spend commitments? If yes, or will be soon, your position is greatly enhanced allowing you to consider both renegotiation and/or re-tender. If no, your options may be more restricted. In these circumstances, we would recommend you take the following steps:

Calculate the scale of any penalty if you were to break your contract early. The level of potential savings from a tender exercise may be greater than the penalty but there is likely to be an early cash burn to support this that may be incompatible if early savings are a priority. Occasionally a new supplier may be willing to buy you out of an existing contract but bear in mind that funding has to come from somewhere and that may affect the level of savings they can offer. (TNC can support you in understanding the scale of expected savings from both a renegotiation and a procurement process)
Determine if you have any review/benchmarking clauses that could be enacted
If you find you’re still in contract with too large a penalty and no scope for contractual negotiation, then this does not mean all hope is lost. Existing suppliers may still be open to negotiations mid-contract especially if a contract extension and/or scope expansion offers them some value in exchange for cost reductions.

If you do decide to proceed with renegotiation, TNC would recommend you take the following key steps:

Determine what options are available to you and ensure you clearly articulate in writing your requirements to your supplier, including any additional opportunities to increase your leverage (contract extension, PR, other services you might be interested in buying), setting out timescales and implications of a poor response (e.g. will go to RFP at the earliest appropriate point, impact to future business)
Be cautious not to borrow too greatly from your future self – it's often easy to take savings now to the detriment of the future by, for example, extending your contract too far into the future on poor rates with no opportunity for future in-contract reviews
You should also bear in mind that renegotiation often takes much longer than expected. Many organisations go into these processes with the expectation that they can complete a renegotiation within a few weeks, however TNC’s experience is that this is unrealistic. In reality, your supplier will typically require 4-6 weeks to prepare their initial renewal proposal, and experience suggests that this initial offer will be underwhelming, therefore further weeks of negotiation will be required. At each stage, your supplier will require time to complete internal reviews and governance on updated proposals. Finally, it is well worth bearing in mind that most renegotiations are initially expected to only require a contract addendum to complete, but this is rarely the case. Given the rapid pace of change in the supplier market, with telecoms operators merging and acquiring each other, and changes in products and services, it is very likely that your supplier will require you to sign a new MSA to secure their latest pricing. You may well remember from last time you ran a tender, negotiating an MSA to the satisfaction of both your legal team and the supplier’s legal team can take many weeks. For these reasons, TNC would strongly recommend expecting a renegotiation with your supplier of a major network or telecoms service will take 18-20 weeks to complete

Hopefully the points above will help you assess whether renegotiation is the best approach for your organisation, and will help you gain the best possible results from the process.

How TNC can help you

Having the support of an independent market specialist with deep subject matter expertise, market insight, and market data, is critical to maximising your leverage in a renegotiation process to ensure you secure the best possible results, and can prove the quality of results to your stakeholders.

TNC has all these credentials and that is why we have helped more organisations successfully renegotiate their network, telecoms, and mobile services contracts that any other consultancy in the UK.

As always, we are delighted to talk to our customers about this knowledge and experience, so if you find yourself considering when and how to renegotiate your networks, telecoms, and/or mobility contracts, please do not hesitate to contact us. 

TNC’s unique market insight is underpinned by the largest independent database of network and telecoms information

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