Ins and Outs of Telecommunications Services Agreements: Part 1-Overview
This is the first of three entries analyzing telecommunications services agreements. This entry—Overview—highlights the structure and basic components of telecommunications services agreements. The second entry—Revenue Assurance—will focus on the carriers’ interest of locking-in projected revenues. The third entry—Risk Mitigation—will take a closer look at the carriers’views on damages, termination rights and customer indemnities.
Wireline and Wireless services agreements include general terms and conditions, typically set out in a “Master Agreement.” Negotiated service-specific rates or, for Wireless services, plans and pooling arrangements are set out in attachments or schedules. Wireless and Wireline services are generally procured separately, having separate agreements, although one carrier opts for a single master agreement covering both service categories. The benefits of consolidation are limited, in our view, if the customer’s total spend does not result in improved overall pricing or other tangible benefits.
Wireline Agreements. Customers and carriers typically negotiate an overall minimum revenue commitment that may be an annual or term commitment. Customer expenditures for most services typically “contribute” to satisfying the minimum commitment with the possible exception of local exchange services which, in many cases, are still subject to tariffs. Tariffs take precedence over contracts. Whether local services “contribute” to the overall commitment is a point of negotiation. A more recent twist is the offer of a major credit based on an actual expenditures over a given period, typically a year.
In addition to domestic services, Wireline agreements may include international and “rest of world” services. The latter denotes services that do not originate or terminate in the United States. International services originate or terminate in the United States. The services in these agreements include dedicated internet access services, voice and data services, such as MPLS, high capacity access services and managed services—carrier monitoring of customer premises equipment—typically routers and sometimes PBXs—enabling more rapid identification of service/equipment troubles and resolution Firewall and other security services are offered, as well.
Wireless Agreements. Wireless agreements tend to be domestic-focused with options for business customers whose employees travel internationally. Various volume-based incentives and disincentives are common in these agreements. The carriers continue to push for “preferred provider” status.
Minimum line commitments exist to recover the cost of discounted handsets. As a practical matter, each carrier offers its own portfolio of handsets, tablets and wireless cards, in part, to ensure these devices have “backward compatibility” over its respective spectrum bands. Thus, carrier assertions that customers must look exclusively to handset manufacturers in connection with equipment issues strain credibility. The devices generally are not portable to other carriers’ networks. Adverse customer impacts of IP litigation among handset technology owners is an emerging issue.
Another feature of Wireless deals is the availability of corporate liable and individual liable service arrangements. Under the latter, individual employees enter into individual agreements with the carriers, assuming responsibility for paying for their own services and handsets, but at the discounted rates negotiated in the enterprise’s agreement with the carrier. Individually liable arrangements are part of the growing IT management challenges triggered by employees using their own remote devices to access corporate networks and data resources, often referred to as the Bring Your Own Device (“BYOD”) trend.
Agreements Are Drafted for the Carriers’ Benefit. Standard carrier agreements are as one-sided today as when introduced 20+ years ago. A “standard” Verizon Business agreement highlights this point. With the exception of Service Level Agreements (“SLAs”), the terms and conditions in carriers’ standard agreements largely prescribe customer obligations and requirements such as site preparation, terms of payment and limitations on assignment, and may impose extensive customer indemnities. Careful review is warranted. While carriers are receptive to customer counterproposals, the customer must request the modifications. Carriers volunteer very little toward achieving a more reasonable, balanced agreements.
Format of Agreements. Schedules and attachments identify the services and describe the negotiated rates for the services being provided. SLAs for Wireline data services such as MPLS and dedicated Internet access service are either provided as attachments or incorporated by reference, available on the carriers’ designated web sites, as are carriers’ Authorized User Policies (“AUPs”). Service descriptions and the carriers’ “rack rates” are also set out in these online documents. Some carrier web sites are among the worst on the Internet. Useful indexing or navigational aids are lacking.
Wireless services agreements are more self-contained. Sometimes there are no cross-references to online documents. Service descriptions and standard SLAs are largely nonexistent, perhaps because the Wireless carriers deliver the same services and offer the same handsets to business and individual customers. The emerging exception is M2M service that is geared solely to business customers. Wireless carriers do not warrant and, in fact, explicitly disclaim any notion that coverage or service will be available or continuous throughout a service territory.
Precedence Clauses—Trying to Tie Loose Ends. The order of precedence in services agreements is relatively straightforward: (1) the pricing schedules and attachments, (2) the general terms and conditions, and (3) online service provisions with some exceptions. For Wireline agreements, tariffs for local and some interexchange services apply and take precedence over all other documents.
The challenge is that the carriers reserve the right to modify their online documents at their discretion, providing customers the option to discontinue the affected service if the impact is adverse and material so long as the customer provides timely notice of termination of the affected service. One topic for negotiation is the date on which the customer is deemed to have knowledge of the change to the online documents.
A subtle aspect of the carrier changes to online documents encompasses modifications to the general terms and conditions for specific services. For example, one carrier imposes service-specific indemnities or insurance obligations in their online documents. Standard precedence clauses do not conclusively establish that a service-specific provision “conflicts” with a provision on the same subject in the general terms and conditions. The precedence clause should be expanded to ensure that generally applicable terms and conditions, which may be negotiated at length, cannot be added to or supplemented by provisions in online documents.