Don't let currency risk problems be an international deal-killer

As I write this, it takes $1.43 to buy 1 Euro, or put another way, the dollar is worth 0.69 euros. So tell me: Will the value of the dollar strengthen later this year, or weaken further?

That's okay, I don't know either.

But here's what I do know: If you have any global business, somebody in your company does care what the answer is. Or, more precisely, somebody cares whether the answer is going to have a material impact on your company's results, particularly if your stock is publicly traded.

Like the value of everything else -- stocks, bonds, real estate, oil, you name it -- the value of currencies has swung wildly and is likely to continue doing so. And if this prospect creates a material risk of variable results, then it's something that your financial shop has to make known in its disclosures.

That's why you, as a telecom professional, have to be keenly aware of the way your suppliers view this issue. I'm not talking so much about who's going to "profit" in terms of speculation about currencies going up or down. I'm talking about who's going to take the risk in the first place. Depending on how international carrier services are structured, the carrier could be taking the risk of currency fluctuation (and thus, in theory, the potential reward). Or it could be pushing the risk off on you.

Example: If you're a U.S.-based multinational corporation, and you negotiate a cost in U.S. dollars for international rate elements (such as ports and class-of-service packages for MPLS services), then you have a predictable dollar cost for the monthly recurring charge (MRC) of that element for the life of the contract. In theory, if the dollar strengthens and you could have paid the same rate element in a cheaper local currency, you could have "made money." But you don't know whether that's what your company wants. They may not want the risk of such variability, either as a matter of corporate philosophy or because of disclosure issues.

Now here's the kicker: The actual service you buy may not give you this choice, at least not easily. MPLS and its evolving platforms over the past few years, especially at AT&T, provide a great example of this.

You could pair up competing MPLS services from AT&T and Verizon Business in a competitive procurement and find that the default billers for the two are in conflict -- one wants to bill everything back to the U.S. in USD, and one wants to bill most of the foreign rate elements locally in local currency. Even odder, two MPLS service platforms at the same carrier may approach this issue from two completely opposite default billing assumptions -- you know, due to "product house" issues, as we've seen forever in the telecom industry.

Wrestling with this issue so that two competing offers you receive carry the same characteristic -- USD billing throughout or local billing in local currency wherever possible -- is a technical matter that may be subject to negotiation. But the far more important factor is what happens at the front end in your procurement planning. In our experience, currency issues are a critical, almost emotional, factor in the surrounding "baggage" that enterprises bring to the procurement process. When senior management finds that a supplier who's been down-selected cannot comply with the currency-risk requirements that they believed would be taken care of in a purchasing process, it can be one of those "oh boy" last-minute issues that scuttles a good deal, wastes all your invested time, and gives your shop a reputation for inability to move away from incumbent carriers and services. In short, a real leverage-killer.

It doesn't have to be this way. If currency matters are crucial, they should be described qualitatively and teed up quantitatively from the beginning in your RFP or other procurement process. Then, even if account teams think their default billing systems aren't geared correctly, they're the ones motivated to take the risk to "work the issue" to win the deal. When it comes to all the items that you should review with senior management at the beginning of your procurement process, this one is just about at the top of the list, so make sure to put it there.