Hold the phone �� costs, that is - telephone equipment and service for wineries

Are you confused about your telephone service? Most people are and you are probably paying too much for it, according to the telecommunication consultants interviewed for this article. The typical customer becomes impatient in the face of daunting complexity and confusion, pays too high a price, misses out on available discounts, and often buys more than needed, say our sources.

"You have to have a lot of knowledge to question your phone bill," says Susan Hayzlett. Hayzlett is founder and president of the Quadrant Company, an Orange County, Calif. firm that advises companies on how to save money on telephone service. Hayzlett maintains that only a person who works full time with the constantly changing rates, rules, and technology of telephone service can keep a system reasonably well-tuned. She adds that, for most companies, it doesn't make economic sense to put this burden on an employee when such advice is only needed at intervals.

Telephone service and equipment have indeed become increasingly complex subjects in recent years due to the emergence of competition after the breakup of A T & T in 1984, and the development of many new uses for telephone lines such as the facsimile machine, the computer modem, voice mail, and cellular telephones.

Telecommunications is an intricate subject, one that is constantly changing. From the customer's point of view, service is fragmented among dozens of companies with conflicting claims and overlapping areas of responsibility and competence. It is small wonder that most companies, according to our sources, have at an average of 15% outright waste in their monthly phone bills. This waste is not reserve capacity or "cushion," for peak times, they say, but rather it consists of services that are bought too expensively, or equipment that is simply not useful or appropriate to the job being done. Pilferage and fraud also inflate costs to an alarming degree, say the experts.

The key areas of concern, consultants say, are buying service at too high a price, renting equipment when purchasing is a better option, theft and piracy from "hackers," time lost due to inefficient handling of calls, and excessive personal use of telephones by employees. These are the modern day menaces of phone service, say the experts.

How significant is the cost of telephone service?

Telephone expenses fall into a category that Mike Fisher terms "subjective." Fisher is a partner and manager of the St. Helena, Calif., office of the accounting firm Motto, Kryla, Fisher. Fisher says that budget items such as travel and entertainment, promotions, and telephone use are highly elastic and open to interpretation as to what is prudent and useful. These budget items vary widely from one winery to another, he comments. Expenses such as packaging and vineyard operations tend to be much more consistent as a percentage of overall budget from one winery to another, according to Fisher.

Fisher gives examples of wineries in the 40,000 to 60,000 case-per-year production range showing telephone expenses varying from around $10,000 per year to $28,000. One 30,000 case winery he cites has an annual phone bill in the $44,000 range. At the other extreme, he notes a 100,000 case winery that sells all of its production to a national marketing company. Its phone bill is around $13,000 per year. Fisher explains that much of the variation is due to the method of distribution used by various wineries. Those who keep primary sales responsibility in-house tend to have higher phone bills, while those who appoint sales companies to represent them shift this expense from themselves, he explains.

The numbers relating to telecommunications expenses are more substantial at larger operations. Wine World spends in excess of $100,000 per year on telecommunications, according to Bruce Fallon, director of management information systems for the company. Wine World has a highly-sophisticated telecommunications system, thanks in part to parent company Nestle. Fallon says that Wine World buys long distance service under the umbrella of the parent company at about the same wholesale prices Sprint and MCI pay. Nestle buys carrier service under an arrangement called Tariff 12, which results in the best rates available. Wine World pays unusually low prices per minute due to the advantages of the buying power of the parent company.

Paying the local piper

Telephone rates vary geographically. On January 1, 1995 Pacific Bell monthly service charges increased about 35%, says Edwin Leard, a telecommunications consultant based in Orange County, Calif. GTE raised rates for their monthly service charges more than 80%. Leard points out that making a call on GTE lines from Huntington Beach to Irvine, a 15-minute drive, may cost more than a call from Huntington Beach to New York. Leard points out that many states, in contrast to California, offer users a choice of local telephone carrier, or LEC.

During emergencies, or long distance carrier network outages, Leard also points out that callers can get around "all circuits are busy" messages by accessing another carrier for long distance calls. "The message means that all circuits of that specific carrier are busy, not that the entire phone network is in use," says Leard. He recommends the use of alternate access codes in such situations.

Comparing cost is a challenge

The real test of telephone service is the true cost per minute. It is difficult to determine this number because it depends on the time of day, the place called, and whether the carrier bills in one-minute increments or six-second increments, says Leard. If you make numerous calls that last two minutes and ten seconds, and you are billed for three minutes, that is almost a 50% surcharge compared to paying in six-second increments, comments Leard.

Other factors complicate the transactions. Many discounts are offered only on minimum amounts of usage. A long-term contract can produce lower rates immediately, but it might prove less competitive in the long run as other carriers jockey for position by offering even better deals. For this reason, consultants recommend that a term contract be no longer than two years, and they prefer one year.

Fallen says he tracks 50 or 60 specific telephone lines at Wine World including alarms, PBX, fax lines, and modem lines. He also watches the in-house voice mail system closely. He estimates that moving the voice mail in-house reduced the company's costs for that service by 50%.

The telephone company, whatever that may mean in your locale, is usually not a source of good advice, according to the experts. The telephone companies respond to direct questions, but volunteer little that will save the customer money. Their advice is also limited to products and services they sell. The customer's lack of technical knowledge enables phone companies to sell you what they want to sell you. Hayzlett cites the example of a customer she found with four Sprint bills that Sprint was not combining for discounts. "Sprint does half the job, and that is true for every carrier," she says.

Smart equipment

"Newer phone systems are intelligent," says Hayzlett. "They will route calls so that you pay the lowest possible fees. They are programmed to take advantage of LCR, which is Least Cost Routing. Calls are theoretically charged according to the distance the call travels, but there is a hitch," says Hayzlett. The calculations are based on the distance between the phone company's switching equipment and the destination of the call. The distance from caller to destination is not a factor. This sort of eccentricity in billing logic makes it difficult, if not impossible, for the average telephone user to make sense of telephone options. The phone companies map the areas that are "local" to the caller. These maps are called Local Area Transport Area (LATA) maps, but they are hard to decipher, says Hayzlett.

Even though customers in states like California may not choose their local exchange carrier, they do have some options, according to Leard. By dialing a five-digit access code, customers can place their long distance calls on the carrier of their choice when using local lines. For example, by dialing 10288, the call, local plus long distance, is carried by AT&T. This is particularly advantageous when calling from a pay telephone because the rates charged by the owner of the pay telephone are an unknown, and many of them charge unusually high rates, says Leard.

Confusion results because it is, in Leard's words, "of the utmost importance to realize when a call is cheaper using your local exchange carrier over your long distance carrier, and vice versa." In the face of such confusion, people operating without help tend to take the path of least resistance, and spend too much, he says.

Hayzlett believes that Centrex equipment has been oversold. Using Centrex equipment is essentially renting services. The same services are built into equipment that can be purchased. Hay-zlett says an appropriate use for Centrex is when a company has multiple locations which would require purchasing switching equipment at each one.

Fraud, cyber-space stowaways, and shoulder-surfing

"Toll fraud is a multi-billion dollar industry, and one of the fastest growing forms of fraud," warns Leard. A daring form of fraud is when the caller dials in using a company's 800 number, hits a few buttons, and dials out at the company's expense.

Fallon says that AT&T scrutinizes the Wine World system periodically to check it for vulnerability to such fraud. Such attention from the vendor is rare, says Hayzlett. It is reserved for the largest users. Others need to watch out for their own interests.

The technology to pirate phone lines is disturbingly unsophisticated, says Leard. He speculates that most pirates are former telephone technicians who learned their tricks on the job. Vulnerability is partly a function of the equipment you use, says Leard. Even with the most modern equipment, it is important to change passwords frequently.

Another bold move is when a "stowaway" moves into a company's voice mail system. Hayzlett says that a knowledgeable hacker can create an electronic marl box inside a voice mail system, and then use it to store and retrieve messages with the same ease as a legitimate employee. The advantage to the hacker is that calls are charged to your 800 number. Periodic audits of your phone system are the only way to identify these stowaways.

Public places present a different type of risk. "Shoulder surfing" is a technique used to spy on telephone credit cards. "Watch out for that guy standing behind you at the airport, giving his wife a hug," warns Leard. "He may be spying on your credit card. A telephone credit card, unlike your VISA, has no credit limit." Fallon advises on the same subject. "A thief can run up a $2,000 bill for you in a weekend."

Another form of loss that consultants look for is excessive 800 number calls from a single source. "We often learn that an employee's spouse or friend is calling all the time and spending huge amounts of time on the phone," notes Leard. "If you have a couple of employees doing this, your productivity can easily decline 10% or more, so you hire another person to fill the gap. We spot that sort of problem when we audit phone bills."

Do you have a business reason to call Brazil or Sri Lanka? If not, recommends Leard, have your carriers, local and long distance, block your equipment from calling those places to prevent abuse. He suggests that business lines should be blocked from calling all "out of bounds" areas. He recommends that exceptional calls be made on a credit card. "The added expense of such an exceptional call is far better than the exposure to abuse by leaving your phone lines open to the world," he advises.

Catching up

Consultants suggest that telephone systems should be audited every 18 months, and adjustments made to accommodate changes in rates, technology, and the needs of growing companies. Not surprisingly, they recommend that companies hire outside specialists for thorough audits. They also suggest that routine telephone service matters be handled by MIS (management information services) personnel.

Resources: Susan Hayzlett, the Quadrant Company, 4141 Ball Road, #176, Cypress, Calif. 90630; Telephone (714) 828-6632.

Edwin Leard, Edwin Leard and Associates, 5942 Edinger, Suite 113, Huntington Beach, Calif. 92649; Telephone (714) 643-1044.

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