What are construction costs in enterprise telecommunication projects?
Many telecom services depend on a carrier’s ability to extend cabling of their network into your building and ultimately into your suite. If the network is not already existing in your building then the fees that it takes to get the network extended out to your building and into your suite are often referred to as “construction costs”.
These costs include everything from equipment costs, labor costs, permitting costs, and whatever other costs will be incurred by the telecom provider to get the network to you.
Your telecom sales rep might say something along the lines of, “We don’t have service in the building today, it looks like we would have roughly $30,000 in construction costs to get there.”
This can cause a lot of confusion for IT departments. A natural reaction to hearing a sales rep say that might be “$30k! Are you expecting us to pay that?”
Who pays for telecom construction costs, the carrier or the customer?
Sometimes the carrier will cover all of the costs and if they can’t cover them alone the customer can choose to pitch in. This typically happens if a customer is highly motivated to get that network into their building.
Whether or not the carrier is able to cover the cost by themselves comes down to basic business principles. Telecom companies are evaluating whether or not the costs involved are worth the expected value of services sold by building the network out.
Two Main Variables to Consider with Enterprise Construction Projects
#1 Estimated Amount of the Construction Job – This is the estimated cost that it will take a telecom company to get their network from where it is today to where you need it.
#2 Total Contract Value (TCV) – What is the total contracted value of services that you as the customer are looking to purchase. Total Contract Value can be calculated by multiplying the monthly amount of the services you are looking to purchase by the number of months on the contract term.
Common Types of Site Surveys
In order to determine the estimated construction costs the telecom company will likely need to perform a site survey. These surveys are typically done in 1 of 2 ways.
#1 The Virtual Survey
- A virtual site survey is all done from behind a computer.
- Based on your site’s address and a network map it is estimated how much the project would cost.
#2 The Walk Out Survey
- An engineer will visit the site and find the pick up point where the network exists today. They then walk the path to the new building.
- They can identify the best possible route and any potential obstacles along the way.
- These tend to be more accurate than virtual surveys.
Basic Project Examples
#1 Project Given The Go-Ahead at No Cost to Customer
- Estimated Construction Costs: $5,000
- Total Contract Value: $50,000
Likely Result: The telecom company would realize this is a profitable deal for them and they would cover all of the construction costs on a project like this.
# 2 A Project That Needs Some Help
- Site Survey Amount = $100,000
- Total Contract Value = $50,000.
Likely Result: The telecom company would realize that if they were to take this project on, they would lose money. The rep might come back and provide you with two common options:
- You can make a one time payment to cover the amount needed to make this project make financial sense for the telecom provider.
- We need to find a deal that would increase the monthly service rate to a point where this deal makes sense.
Another common result is that the construction cost is too high and the amount of money needed for it to make sense is not feasible for the customer and the customer will need to find another viable solution.
Other than directly paying the construction cost, what are your other options?
#1. Extend the term
One simple way to increase the Total Contract Value and to get some deals to work is by extending the term. So if you were looking for a 1 or 2 year term, ask to have the deal evaluated on a 3 or 5 year term.
#2. Look For Other Services To Add
See if there are any other services being offered by the telecom company that you could potentially add and benefit from. Common examples are switching your phone service to the new telecom company, getting managed network services, cloud services or WAN services. Any of these would add to the TCV.
#3. Get Your Neighbors Involved
If you are in a multi-tenant building and know that there are neighbors who would also benefit from getting a new provider to the building. Talk to your neighbors and see if they would be interested in signing up for service too. This is a great way to swing the revenue to costs ratio into your favor with the telecom company.
#4. Add Other Sites Into The Deal
If your company has multiple locations, you can share that list of sites with your telecom sales rep. Ask them to check serviceability at the other sites. Look for other sites where they are on-net and you could use service. Even though the money isn’t being spent at the exact building where the construction project is taking place the telecom company should see it as increasing the TCV for the deal and will take it into consideration.
#5 Increase The Tier Of Service
Here is a common mistake. A company in the market to buy a particular product, let’s say it’s a 50 Mbps Dedicated Internet Service, is told that the price they were offered of $600 will not cover the construction cost. So instead they are offered that same 50 Mbps service at a price of $800. The better move is to ask for a higher tier of service that aligns with that higher price range. In this example that might be a 100 Mbps Dedicated Internet Service
Telecom construction costs can create a lot of confusion. Knowing your options can be the difference of getting a project to work and having to pass on it.
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