Negotiating Strategies

Photo of Douglas Jarrett

This is our closing entry on sustainable telecommunications agreements, highlighting basic points associated with “Legal Terms and Conditions,” referencing prior entries for more detailed explanation.  In the near future, we will supplement these six (6) entries with several dealing with Wireless services, including M2M services.

Dispute Resolution.  Customers’ standard practices on dispute resolution procedures

Photo of Douglas Jarrett

For years, the carriers have rejected commitments related to the security of customers’ voice and data communications traversing their networks.  This entry focuses on how this position undermines the carriers’ interests in offering or partnering in the provision of data center and cloud computing services in which carriers must compete with established players or tech-savvy

Photo of Douglas Jarrett

Wireline services providers should meet four basic service obligations:  provision services and circuits in a timely manner; meet or exceed service level commitments; timely and accurately bill for services; and, meet reasonable customer care expectations.  The services providers’ standard agreements do not always reasonably define these carrier obligations or address the consequences of failing to meet these obligations.

Provisioning.  Customers are focused on timely provisioning of services when either transitioning to a successor carrier or ordering additional services, looking to their carrier/ISP to manage access circuit provisioning.  Depending on the service and services provider, provisioning SLAs may be offered.

For significant MPLS or VPLS network migrations, an enterprise must maintain connectivity and minimize the period during which it pays both the successor and incumbent carriers for two versions of essentially the same service.  A major risk typically not addressed in provisioning SLAs is associated with the delay in provisioning very high capacity access connections.  If these installations are delayed for a significant period, as lower capacity DS-1 or Ethernet connections are provisioned, the duration and cost of operating two networks can extend well beyond the period reasonably considered in the business case supporting the decision to migrate to a successor carrier.

This financial risk can be mitigated by a credit schedule that obligates the successor carrier to issue credits for its services for the period that dual network operations must be maintained beyond a certain date.  Alternatively, assuming the high capacity access circuits are not installed by this date, billing for installed successor network access connections and ports should abate until all access services to major customer locations are provisioned and tested.  Terminating the successor carrier for cause (at some point) is an option, but at this juncture in the procurement cycle the customer has little negotiating leverage with the incumbent or any other carrier.

Service Level Agreements.  Service reliability and availability are customers’ continuing priorities.  Carriers offer a range of service-specific SLAs.  Some are lodged in carrier service guides; others provided as attachments to agreements.  In evaluating SLAs, certain considerations are paramount.  Credits are the standard remedy for SLA exceedances and are typically capped by the cost of service (to a particular location).  Except in managed environments, customers must call in the trouble ticket to trigger the carrier’s obligation to remedy the trouble.

The point at which SLA metrics, such as mean time to repair (MTTR), jitter/latency and availability, are measured is another basic consideration in assessing SLAs.  These points may be at the services provider’s network edge (its closest point of presence (POP) or data center) or at customer edge locations (the demarcation point at or its router or switch within the customer’s premises).  Another consideration is whether the SLA’s conditions and exceptions effectively negate the value of the SLA.

While negotiating custom SLAs with carriers can be a futile task, higher thresholds for a given metric, such as availability, are usually obtainable.  Carriers offer a menu of options, each at an incremental price or charge, to deliver a higher service level.  The options include multiple customer routers, managed router services, diverse access arrangements to a common or multiple carrier POPs or data centers.

For non-chronic service issues, credits are a reasonable remedy.  Carriers overreach, in our view, when adding language to the effect that credits are the customer’s sole remedy for SLA exceedances.  Also, at some point, credits are inadequate; chronic service troubles at a major customer location seriously can impact a customer’s business and operations.  This is particularly true for “any-to-any” services such as MPLS and VPLS and for high speed Internet access service for e-commerce sites.

While the concept of “chronic” may vary from customer to customer, customers should negotiate escalating remedies concluding with termination in order to address chronic service problems.  Escalations include root cause analyses, re-provisioning, or SLA upgrade measures (access diversity, carrier POP or switch diversity, or implementation of managed services) at no additional charge.  If the troubles continue, termination is the customer’s last option.  (We discuss termination rights and damages caps in a subsequent entry).


Continue Reading

Photo of Douglas Jarrett

The 2nd entry explained the sources of customer leverage.  This and the remaining entries offer insights into exercising this leverage to achieve balanced, sustainable agreements.  This entry focuses on the major pricing considerations in wireline services agreements.

Sustainable Agreements.  From the customer’s perspective, a sustainable agreement provides market pricing throughout the term,

Photo of Douglas Jarrett

Thumbnail image for Picture 16.pngTelecommunications services procurements are predictable recurring events.  The standard terms for wireline and wireless agreements are three and two years, respectively, often with one or two 1-year renewal terms. Enterprises may either engage in the process proactively or let the carriers’ dictate the rules of the game.  From any number of perspectives, proactive engagement is far preferable.

This is the second entry in a series on procuring telecommunications services. This entry focuses on the sources of customer leverage in negotiations with services providers.  

The content is tilted toward wireline procurements, but the major distinctions of wireless procurements are highlighted at the end. 

Establishing the Opportunity or the Threat of Loss

This past spring Rick Sigel of Silver Lining Telecom and I conducted several briefings on best practices in telecommunications services procurements.  Rick noted that enterprise customers possess two sources of leverage: (1) the ability to direct new business to a services provider or, for the incumbent carrier(s), establishing a credible threat of loss of business; and (2) conducting an organized, even-handed procurement.  The latter establishes the credible threat of loss.

The first leverage point is intuitive, but often overlooked.  Carrier account teams want new business from customers—organic growth from an existing customer, more data services, or replacing the incumbent carrier’s services.  If there is little change in current business and no threat of loss, contract renewal negotiations with the incumbent can drag-on interminably.  By contrast, if substantial new business is at hand, carrier account teams engage their product managers, offer managers and in-house counsel to get the deal done.

In order to make the internal business case, the hard and soft costs associated with a procurement should be quantified.  Hard costs include costs of services from both incumbent and successor carriers during some part of the transition process, new CPE or CPE modifications, and costs of consultants and outside counsel.  Soft costs include internal resources required to undertake the procurement and support the transition.

Be Prepared and Committed to the Procurement Process 

Timing.  The process must be initiated well prior to expiration of the customer’s existing contract to elicit serious responses.  Carriers know that customers (1) require substantial time and must devote limited internal resources to migrate services to successor carriers, and (2) want to avoid/minimize the sharp increase in pricing that occurs at contract expiration as the incumbent carrier’s rack rates come into effect.  Potential successor carriers will not participate or tender pro forma responses, if the RFP is constructed haphazardly or issued too close to current contract expiration.

Accurate Demand Sets and Thorough RFPs.  There is nothing virtual about demand sets and RFPs.  Services providers need to know customer locations, usage profiles/details for voice and wireless, number of users, bandwidth requirements (port sizes)—existing and proposed—to assess the opportunity, develop cost models, formulate proposed pricing and otherwise complete the responses to the RFPs.  The RFP should be structured to elicit a thorough and helpful response, and accommodate “apples to apples” comparisons of all bidders’ responses.  

Qualified Bidders.  Rick Sigel also noted that a customer should qualify the bidders to whom it wishes to issue an RFP.  Past experience, the carrier’s footprint, service offerings, and, its financial position are among the factors to consider in developing a bidder’s list.  Technology Companies may have more potentially qualified bidders because they typically do not maintain as many locations as other enterprise customers and their priority service tends to be high speed dedicated Internet access which is offered by almost all Tier 1 to Tier 3 carriers.  A related consideration is whether to structure the procurement to award business to a primary and secondary carrier.

Knowledgeable Consultants.  Most companies, except for some of the very largest enterprises, benefit by retaining experienced procurement consultants.  Few enterprises have staff experienced in developing demand sets and structuring RFPs relevant to telecommunications procurements.  Even if inclined to employ these individuals, enterprise staff are not regularly involved in procurements and challenged in determining current pricing trends and carrier strategies.

Current competitive pricing is not publicly available, except for some government contracts. While subject to strict confidentiality obligations, consultants are in a position to advise whether a customer’s current rates or carriers’ proposed rates are “at or near current market rates.” 


Continue Reading

Photo of Douglas Jarrett

This is the first in a series of entries on wireline and wireless procurements, from the perspective and for the benefit of today’s enterprise customers.  This entry highlights the distinctions between wireless and wireline procurements.  In subsequent entries, we identify the sources of customer leverage and explain the merits of negotiating the best possible agreements; review priority business and legal terms and conditions, including positioning the customer for its next procurement; and, conclude with an entry on customer-oriented remedies.

Introduction.  The customer base and demand sets for enterprise wireline services are undergoing a major transition.  E-commerce site operators, social networks and cloud computing entities (“Technology Companies”) have joined the Fortune 1000, state governments and the Federal government as major enterprise services customers.  Technology Companies tend to have noticeably fewer sites, but far higher bandwidth requirements.  High speed Internet access service, not circuit-switched voice, is the ubiquitous wireline service.  MPLS has displaced frame relay.    Customers are demanding  increased bandwidth  for all data services.

Commercial wireless service providers offer “one-size fits all” voice and data services for residential and business customers. The latest smart phones and tablets are offered to residential and business customers without distinction.  On the other hand, non-standard pricing plans and device refresh cycles are offered to business customers. The continued growth of wireless services, particularly the continuing demand for ever higher data rates, suggests undifferentiated services currently meet customer requirements.    The exception is M2M services. These offerings are geared to business customers.  M2M traffic can be routed to customer’s data services, as opposed to the public Internet—a selling point for many businesses.

Wireline and wireless services providers are similar in one major respect:  carriers’ facilities-based services footprints can and do vary widely.  Many companies obtain service from at least one other wireless and wireline carrier, respectively, in addition to their primary carriers.

The major carriers—AT&T and Verizon—market, provision and support wireline and wireless services through distinct organizations.  These providers do not bundle wireline and wireless offerings and have different contract templates for these respective offerings.  Sprint largely follows this practice.  The standard term for wireless agreements is two years, three years for wireline agreements.

Wireline Service Procurements.  Wireline carriers offer an expansive menu of data rates for high speed Internet access services, MPLS and VPLS offerings, high capacity private line Ethernet and TDM services, and multiple voice options (IP and circuit switched).  Wireline carriers consider and often respond to requests for special construction.  Wireline service account teams aggressively market managed services, such as network management, data center/colocation, firewall, and conferencing services, as well as voice and data transport services.  An experienced consultant recently noted  “[c]arriers are aggressively pursuing managed services business because margins are higher than traditional transport services and because the carriers are eager to move up the value chain and provide services that penetrate further into their customers’ premises.”

Wireline carriers offer domestic, international and rest-of-world services.  Many multinational enterprises often look to a primary MPLS carrier to connect the entities’ principal locations throughout the developed and developing regions of the world. Despite the substantial bundling of services, very little, if any, wireline CPE intended for enterprise customers is subsidized by wireline carriers and [mandatory] bundling of CPE with wireline services—enterprise or not—is rare.

Enterprise agreements typically include SLAs with multiple metrics for MPLS, VPLS, and private line offerings and a more limited set of SLAs for high speed Internet access services.  These metrics include site-specific availability and mean-time-to-repair, and latency. Wireline SLAs vary by services provider and region (US and Canada, Mexico, EMEA, South America, and Asia PAC).


Continue Reading

Photo of Douglas Jarrett

Several matters before the FCC could have substantial dollar and technology impacts for enterprise customers.  The FCC’s special access services and USF contribution reform proceedings could significantly affect pricing for enterprise services, beginning sometime in 2014.  A more open-ended proceeding focuses on whether the FCC will move aggressively in granting AT&T’s wish list included in its proposal to convert its local telephone networks to all-IP platforms.

One matter that should be addressed this year is the appeal of the FCC’s Open Internet Order currently pending before the D.C. Circuit.  Because this is such a prominent matter, we believe the non-prevailing parties likely will petition the Supreme Court for review.

FCC Taking a Fresh Look at Special Access Services.  In an earlier entry, we highlighted the FCC’s reassessment of the interstate special access services market.  Subsequently, the FCC released a Report and Order and Further Notice of Proposed Rulemaking, setting out a comprehensive data request to  price cap ILECs and other services providers to determine the extent of competition among providers of special access services, principally, DS-1, DS-3 and Ethernet special access services.  Ethernet service broadly is undergoing rapid growth.  The FCC is taking a direct approach to determine whether special access rates are competitively priced.

We propose to perform a one-time, multi-faceted market analysis of the special access market designed to determine where and when special access prices are just and reasonable, and whether our current special access regulations help or hinder this desired outcome. We do not propose to conduct a simple market share or market concentration analysis.  Rather, we will use the data we are collecting in this Report and Order to identify measures of actual and potential competition that are good predictors of competitive behavior, for example, by demonstrating that prices tend to decline with increases in the intensity of various competition measures, holding other things constant.  In undertaking that analysis we will consider evidence as to what leads firms, including competitive providers, to undertake infrastructure investments.

Clearly, a fresh look at the special access services market (data for years 2010 and 2012 are being requested) is warranted.

Two points merit further note.  First, the FCC is seeking comment on whether Internet access service is a competitive alternative to special access services.  Hopefully, the FCC will conclude the services are not substitutes.  Internet access service is not an “access service,” rather it is part and parcel of an end-to-end best efforts shared transport and information access and retrieval service.  Special access is basic transport between defined physical locations.  Second, the FCC is requesting comment on the “Petition to Reverse Forbearance Determinations,” filed late last year by an enterprise customer group, Sprint and several interexchange carriers that requests the FCC to reverse decisions issued prior to 2010 in which the FCC elected to forbear from (i) imposing certain Computer Inquiry requirements on the price cap ILECs, and (ii) regulating non-TDM based special access services offered by price cap ILECs, particularly Ethernet services.


Continue Reading

Photo of Douglas Jarrett

The reasons for the stunning success of Internet-based firms such as Facebook, Living Social, Groupon and countless others are multi-faceted. The intuition, smarts and hard work of the founders are undoubtedly the principal reasons. Other entrepreneurs will envision and implement new businesses that will become stunning successes; many will not be as fortunate.

In the

Photo of Douglas Jarrett

This is the third of three entries analyzing telecommunications services agreements. The first—Overview—highlighted the structure and basic components of telecommunications services agreements. The second—Revenue Assurance—focused on the carriers’ interest and mechanisms for locking-in projected revenues. This third entry—Risk Mitigation—looks at damage caps, termination rights and indemnity obligations in carriers’