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This entry provides an overview of how enterprise customers shape the underlying business deals in telecommunications services agreements. In the previous entry, we discussed the primary objectives enterprise customers look to achieve in negotiating telecommunications services agreements.  In our initial entry in this series, we discussed the challenge counsel for enterprise customers face in confining telecommunications services agreements to the four corners of the customer contract.

Overview. There are two basic approaches for putting these deals together. The first is the default or “seat of the pants” approach in which the customer (telecom manager) limits discussions to the current provider(s), typically 3 to 6 months prior to expiration of the current contract and, based on informal discussions with consultants or other customers, asks for a “market-based” reduction in rates for a new three-year deal, maybe remembering to request pricing for replacement IP services. The second is to initiate a more structured process 9 to 14 months prior to the expiration of the current agreement by engaging an experienced consultant to develop a demand set for an RFP to issue to both incumbent and potential successor carriers and to advise on trends in carrier services and pricing, particularly the transition to IP-based services offerings. This entry focuses on the second approach.

Caveat: The incumbent often prevails even under a systematic, well-planned procurement. Transitioning to successor providers is resource-intensive and, for some period, entails the payment of services to the incumbent and the successor provider during the transition process. Hot cuts are not the rule for major enterprises, particularly at critical locations. Caveat to the Caveat. If there is insufficient time to initiate a transition to a successor provider (and avoid a substantial increase in service pricing per the rates in the incumbent’s price guide), both the incumbent provider and its competitive providers likely will not propose market-based pricing and terms and conditions. Thus, the RFP should be issued in a timely manner to allow for competitive, responsive bids and for a doable transition to the successor provider(s).

Value of Telecom Consultants. There are several reasons for engaging a competent consultant. First, there are no published lists of market-based rates; carrier guide rates are rarely accepted by customers. There is no equivalent of published commodity prices (crude oil, corn or pork bellies) or web sites such as Edmunds or TrueCar for enterprise telecommunications service pricing. Even the “best of the best” telecom managers have a limited knowledge base of current market pricing; unless they have changed jobs (frequently), these persons’ pricing knowledge is limited to the company’s last agreement or competitive pricing review of 12 to 18 months ago. Experienced consultants have more insights into current market pricing.

Consultants offer two other value-added services. The first is the development of the enterprise’s demand set for its RFP. Telecom service pricing is based largely on volume, customer locations, and service mix. Two aspects of developing a demand set are determining current usage of existing services at current and planned locations (or anticipating a reduction in locations) and selecting the services (type and capacity) that the customer is looking to acquire. This entails a review of bills and invoices, existing network design, current services, expected growth or contraction of the enterprise’s requirements, and desired services. The two latter considerations are driven by the customer with input from the procurement consultants.

The second value-added is the consultant’s RFP templates. In addition to setting out the demand set and desired services, the RFP elicits information on pricing, other business considerations and legal terms and conditions. The RFP is the starting point for negotiations. The consultant’s RFP should be reviewed within the enterprise by the telecom/IT department, procurement group, legal, and, perhaps, risk management. A company may wish to incorporate the consultant’s RFP into its standard RFP documents or modify the consultant’s RFP. A related consideration to be determined upfront is the extent to which the consultant is the principal contact and whether the consultant will take the lead in discussions with the carriers.

Revenue Commitments and Pricing Reviews. Several other economic considerations are central to the business deal in addition to rates (recurring charges, non-recurring charges, waivers and credits). The first is the minimum revenue commitment which the customer commits to spend either annually or over the term of the agreement. Exclusive purchase commitments are rare. The minimum commitment level is based on projected expenditures at the proposed rates. Currently, term commitments with annual commitments for each renewal period are more common. The minimum commitment is increasingly supplemented by “incentive credits.” The best pricing or highest discount under the agreement is achieved only when expenditures exceed some dollar amount above the minimum commitment level, qualifying for the incentive credits.

Agreements also include a so-called “business downturn/downsizing” provision. This clause is triggered when unexpected reductions in projected expenditures occur due to downturns, divestitures or downsizing in the customer’s business. This clause addresses the risk of paying a hefty sum that is the difference between the minimum commitment and the actual (reduced) level of expenditures. The typical quid pro quo is an increase in rates or an increase in the term of the agreement or both.

The second major economic consideration is the competitive pricing review. These reviews are typically conducted annually or every 18 months. Involvement with consultants are often essential for the customer to have some insight into current market trends. For enterprises with stable or growing expenditures and general satisfaction with the incumbent’s services, services agreements may be extended based on the price negotiations that follow the path of competitive pricing reviews.

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This entry discusses the primary objectives that enterprise customers look to achieve in negotiating telecommunications services agreements. In a recent entry, we discussed the challenge counsel for enterprise customers face in confining telecommunications services agreements to the four corners of the customer contract. In a future entry, we will look at how the underlying business deal is put together.

Invariably, the customer’s objectives include the following:

  1. Improved pricing
  2. Desired, reliable services (core transport services and non-core services)
  3. Sufficient capacity for services at customer locations
  4. Timely provisioning
  5. Meaningful service level agreements (SLAs)
  6. Customer support

These objectives are not static; rather, the intention is that these objectives be met for the duration of an agreement that typically includes an initial term for 3 years, at least a single, one-year renewal option for the customer and a transition period.

Improved Pricing. The constant underlying interest is that the customer wants to finalize the agreement “yesterday” because in almost all cases the new agreement provides improved pricing. This is often coupled with the deployment of new services and, sometimes, the transition to a successor carrier’s services. Carriers leverage this customer interest in negotiations, not offering the optimum terms; obligating the customer to request or forego requests for better terms and conditions, subject to commitments made in its response to the customer’s RFP.

Customers often request a competitive pricing review clause that calls for one or more reviews of current rates. The purpose of this clause is to “refresh” the pricing to secure “market-based” rates. Because there is no public repository of current pricing for enterprise services agreements, customers often look to telecom consultants to assist in pricing reviews

Services. There are five core services:

  • Voice services, either TDM, VoIP or both as carriers are transitioning their networks from TDM to VoIP (Call center services are often included as a subset of voice services)
  • Special access service
  • An MPLS-based data service
  • Private line service
  • High speed Internet access service

These services are provided in the United States and to varying degrees within its territories and possessions. Depending on customer requirements, voice services, private line services and MPLS-based data services connect U.S. locations to and from foreign destinations and between foreign points. Special access services are acquired in other countries, but pricing for these services are not always included in the enterprise services agreement.

Customers often request a technology upgrade clause, the purpose of which is to allow a customer to secure a more advanced service (a problematic definition) in lieu of an existing service provided under its current agreement. The advanced service may be offered by the current provider or another services provider. This clause is invoked far less than competitive pricing review clauses.

The primary non-core services include network management (router management), firewall and encryption (security), data center (collocation) and content delivery services.

Sufficient Capacity. In both fast and slow growing organizations, the demand for services is increasing; it is not a matter of whether, but by how much. Services agreements often include pricing schedules for higher capacity MPLS-based service ports, special access and private line services.

Provisioning. Whether IP-based or TDM wireline services are being provided, physical circuits must be extended from a services provider’s network (its closest point of presence (POP)) to customer locations. A local services provider—sometimes an affiliate of the customer’s carrier—provides the special access circuits connecting customer locations to its services provider’s network. Services agreements include specific procedures for ordering, testing and accepting new circuit/service installations and discontinuing services.

Provisioning is a resource-intensive process for carriers and customers. It is one of, if not the most significant, hurdle for switching from the incumbent provider to a successor carrier.

Service Level Agreements (SLAs). These are carrier commitments that a given service will meet performance metrics, such as jitter, latency, availability, and mean time to repair (MTTR).  Some SLAs apply to service between carrier endpoints; others apply to service between customer locations. SLAs are also offered for provisioning. SLAs are not always published in the carrier’s Service Guide; if not, the SLAs will be attached to the agreement. One criticism of carrier SLAs is that chronic or recurring issues are either ignored or inadequately addressed. Some customers look to negotiate “custom” SLAs that more fully reflect the adverse impact of significant service issues on the customer’s business.

Many SLAs provide credits for non-compliance that extend beyond a minimum period. As a rule, customers must report the trouble and submit a separate request for a credit.

Customer Support. Carrier processes for ordering, provisioning and testing circuits and services, and acting upon service termination requests are well-established and work most of the time. Recurring problems in either service ordering, provisioning, testing or significant SLA violations can arise and, from the customer’s perspective, cannot be addressed soon enough. In addition, there is a likelihood of hiccups as carriers transition from TDM to IP-based services, as this can entail service/circuit transitions at every customer location.

The customer is not necessarily looking for credits, but assurances that these issues are addressed as they arise and procedures implemented to minimize their recurrence. These concerns are often addressed by adding provisions to the services agreement calling for scheduled discussions pertaining to one or several of these areas between knowledgeable carrier staff and the customer.

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A guiding principle for attorneys and their clients when negotiating telecommunications services agreements is the four corners defense.  No, not the end-of-game defensive strategy devised by the legendary Dean Smith for his UNC basketball team, but the straightforward strategy of keeping the terms and conditions of telecommunications services agreements within the four corners of an agreement.

Due to deregulation and migration to IP-based services, telecommunications tariffs have largely disappeared.  The process started over twenty years ago.  In the United States, local exchange TDM voice services, DS-1 and DS-3 special access services and some intrastate interexchange voice and private line services remain tariffed.  Consistent with FCC decisions dating back to the 1990s, the major wireline and wireless carriers and the MSOs have replaced tariffs for telecommunications services with a combination of end-user (consumer, small business and enterprise) agreements and online service guides.  Broadband services have always been offered through some combination of end-user agreements and online terms and conditions.

These service guides were initially required by the agency to disclose standard prices for de-tariffed services and to be made available to the public at the carriers’ principal offices or online.  The scope of the terms and conditions in online services guides has expanded substantially and, in many cases, replicates the one-sidedness of tariffs.  For enterprise customers, service guides currently offer the services providers’ service descriptions, service level agreements (SLAs) (sometimes), standard rates and charges, and policies such as the Authorized User Policy (AUP) for Internet access service.  Several services providers also post a comprehensive set of general legal terms and conditions and related definitions.

Several online service guides are almost impossible to search.  URLs in customer agreements related to potentially relevant online web pages often prove to be dead-ends.  However unfriendly the online design and integration of service guides, the overarching concern is that services providers reserve the right to modify unilaterally all aspects of their service guides including service descriptions, SLAs, pricing schedules, privacy and authorized user policies (AUPs) and, as applicable, the provider’s online general terms and conditions.  Some services providers insist on an indemnity from customers for violations of the provider’s AUP for which the provider reserves the right to modify at any time.  In some instances, the general terms and conditions in the services guide not only conflict with the terms and conditions in the executed agreement, but may impose additional or supplemental customer obligations and conditions that are not readily trumped (excuse the pun) by a standard precedence clause in the executed agreement.

Some services providers push the envelope even further, asserting that the customer’s sole remedy for services providers’ unilateral changes to the service guides that are “material and adverse” to the customer is the customer’s right to discontinue the affected service on sixty (60) days-notice.  Apart from excluding the customer’s right to damages, replacement services to multiple customer locations (sometimes a hundred or more sites) cannot be sourced, provisioned, and tested and the customer’s traffic cannot be reliably migrated to replacement services in sixty (60) days.

This brings us back to the four corners defense.  The agreement executed by the customer and the services provider should provide for fixed rates, as opposed to percentage discounts of the rates in the online services agreements; services providers invariably reserve the right to change the rack rates in their service guides with virtually no notice.  The written agreement should also exclude “shadow” general terms and conditions in the service guide as opposed to relying on a precedence clause.  The minimum response to the services providers’ provision authorizing changes to the service guide that are “material and adverse” to the customer is to secure a six-to-twelve-month transition period to migrate to replacement services, not sixty (60) days.

There is one caveat on changes in wireline services. The major telecommunications carriers are now transitioning their networks from TDM technology to IP-based services.  (The MSOs’ networks are largely IP-based.)  The FCC is accommodating the carriers’ efforts to minimize regulatory delays and burdens on ILECs in implementing this transition and in replacing copper loops with fiber or fixed wireless technologies.  The core networks of the major services providers are well along in this transition, but the transition in special access services varies considerably in terms of location and the ILEC provider.

Enterprise customers should press their wireline services providers on (i) the status and projections for completing their IP-transitions, and (ii) the transition plans for the ILECs from which the services provider will be acquiring special access services.

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The manner in which many enterprises procure wireless services needs to be reassessed.  For those interested in deploying M2M networks or experiencing in-building wireless reception challenges (or concerned such challenges may arise), the standard procurement approach is no longer viable.

Wireless procurements typically focus on service and device pricing (with two-year refresh cycles) for generally-available service plans (and some custom pricing options) and smartphones and tablets.  Transition periods and renewal term options are atypical and often not demanded. Substantive SLAs are not offered.  The carriers determine network upgrades.  Reliable coverage varies. International service support is a decisional factor in some instances.  Service pricing, device discounts or accelerated refresh options, and customer experience (or concerns) regarding service coverage and reliability drive wireless procurement decisions.  

M2M.  Companies and government agencies considering a major commitment to M2M are challenged by the two-year procurement cycle.  A meaningful ramp-up period is needed to install the hundreds or thousands of devices associated with an M2M deployment. (Many M2M configurations utilize a combination of licensed or unlicensed frequencies to transmit data from devices being monitored to the aggregation points at which a cellular modem is located.)   M2M devices are not subsidized.  M2M networking remains a challenge.  Because M2M deployments provide essential inputs to company-specific data processing/data analytics resources, a stable, highly reliable wireless service is essential. 

Specialized MVNOs have been successful in offering end-to-end M2M solutions.  For companies looking to manage M2M networks and data flows internally, wireless service procurements should be geared to secure agreements that more closely resemble wireline WAN agreements. 

The term of agreements should be three years with two one-year renewal options; service metrics based on reliability and coverage with partial discontinuance and termination rights are warranted; pricing should be scaled downward to reflect the substantially lower data rates/usage per line for M2M services and that devices are not subsidized; and unified discounts for utilizing the carriers’ wireline services (MPLS or private line) for backhaul should be sought.    

In-Building Wireless Reception Challenges.  Enterprise customers face substantial uncertainty if and when their wireless carrier or carriers will address the enterprise’s in-building wireless reception challenges. These challenges will remain constant, at best, and likely increase over the next several years.  

Carriers continue to experience network capacity shortfalls as the demand for wireless broadband in high traffic areas continues to accelerate, including major urban areas.  Coverage is also impacted by materials and design practices used to achieve LEEDs status for new buildings. (Much like inside wiring, enterprise investment in one-premise distributed antenna systems (DAS) and, possibly, carrier-provided and managed small cells should be anticipated.)  

At least one wireless carrier publicly states it wants one-year’s advance notice from property owners for the carrier to install facilities to connect to a planned DAS and typically demands design approval with regard to the DAS.  It is no small irony that in a recent blog post AT&T calls upon the FCC to streamline the environmental review process to quicken the deployment of small cells and DAS installations, but is part of the wireless industry that struggles to support in-building wireless solutions.

Rather than hope for a favorable and timely resolution, customers should address these concerns by beginning their next wireless procurement much sooner to address wireless reception challenges.  

In the next wireless RFP, the enterprise should reserve the right to disqualify a respondent that declines to commit to support in-building reception solutions in a timely manner, and, among requested contract provisions, include the right to terminate the agreement if the carrier does not meet the commitment.  This approach is warranted until wireless carriers allocate the resources to deal with in-building wireless reception challenges in a more responsive manner. 

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Wireless carriers’ networks are subject to recurring capacity constraints, particularly in high density, urban environments.  Owners of buildings and developments in urban areas and operators of major venues—stadiums, arenas and airports, are increasingly dealing with in-building wireless reception challenges.  The same is true for many corporate and college campuses, buildings constructed to LEEDs standards, and properties located in wireless dead zones.

The consistent growth in wireless data requirements and the displacement of wireline service by wireless for voice communications underlie persistent wireless network capacity challenges.  Small cells and heterogeneous networks (“HetNets”) (integrated Wi-Fi and wireless carrier networks) are viewed as technologies potentially capable of alleviating these capacity constraints, as noted in a series of articles in the March 2014 edition of Small Cell Magazine.

For major venue operators, enterprise customers, government agencies, colleges and universities, and owners of MDUs and multitenant commercial buildings (collectively “Property Owners”), “the future is now” for dealing with wireless reception challenges.  Consumer signal boosters recently approved by the FCC do not provide building, venue, or campus-wide solutions.  Wireless carrier engagement and consent are required to implement property-wide solutions.

The principal technologies for addressing in-building coverage gaps are outlined in recent articles by the HetNet Forum and David Chambers, respectively.  A potential game changer is the standalone Wi-Fi networks of the major cable operators which rely on Wi-Fi hotspots.  The Wall Street Journal’s “Heard on the Street” column reports that Sprint is positing the success of Time Warner and Comcast in rolling out Wi-Fi networks as evidence that the wireless broadband market is sufficiently competitive, mitigating antitrust concerns regarding its coveted merger with T-Mobile.  Smaller companies are focused on delivering Wi-Fi solutions to MDUs.  The popularity of Wi-Fi-only iPads, tablets and e-readers underscores the potential for Wi-Fi-enabled, property-wide solutions.

Addressing In-Building Wireless Capacity/Coverage Challenges

Major venue operators tend to secure desired solutions in a timely manner.  Apparently, the desire to avoid negative publicity associated with reports of bad coverage at major sporting events motivates carriers to address coverage and capacity challenges at these venues.  However, the demand for wireless connectivity and personal safety considerations indicate that in-building wireless reception challenges should be addressed in all environments.

Prior to investing in a wireless reception solution, Property Owners typically retain an experienced consultant or systems integrator to conduct a wireless coverage assessment for their property or campus.  In addition to signal strength studies, experienced consultants bring knowledge of the wireless carriers’ local networks and build-out plans and relationships with carrier network engineers.  Occasionally, these assessments result in carriers funding a portion of a project because the in-building solution offloads traffic from capacity-constrained macro networks.

Carriers and consultants typically suggest that property owners or their contractors reach out to the carriers up to one year in advance of planned construction.  This advance notice/discussion period is a non-starter for Property Owners of existing premises experiencing wireless reception challenges.

The top-of-the-line, capex intensive in-building solution is an active DAS system.  These DAS systems can accommodate multiple carriers and, with some exceptions, all wireless carrier frequency bands, Public Safety frequencies, required by a growing number of local ordinances, and the unlicensed frequencies used in Wi-Fi networks.

Over and above the cost and technology considerations, the most daunting challenge for Property Owners can be obtaining the “buy-in” from the wireless carrier(s).  Perhaps due to a lack of resources or skepticism that non-carriers can design effective solutions, wireless carriers often view working with Property Owners on in-building solutions as something to avoid, if possible.

When we review the standard agreements carriers offer Property Owners in order to support or consent to an in-building solution, several points jump out:

  1. The customer-friendly terms and conditions previously provided in signal booster attachments to wireless services agreements have vanished.
  2. The standard wireless macro-site lease provision of a 5-year term with up to four 5-year renewal terms solely at the carrier’s option is a constant carrier demand. This puts Property Owners’ investment in its solution at risk and ignores the reality that Property Owners are “involuntary aggregators” of the carriers’ customers trying to implement a solution benefitting the carriers’ customers.
  3. Wireless carriers reserve the right to decline to approve a proposed solution for any reason and some demand the right to terminate their consent at any time upon 30 days notice.
  4. Carriers’ demands for open-ended indemnities in connection with in-building solutions.

Hopefully, the wireless carriers will reassess current approaches and work with Property Owners as partners in developing and deploying in-building wireless solutions for their common subscribers, tenants, and residents.

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At the end of March, Intel, IBM, AT&T, GE and Cisco announced the formation of “the Industrial Internet Consortium (IIC), a nonprofit organization dedicated to the Internet of Things, to ‘improve the integration of the physical and digital worlds.’ ”

The Industrial Internet means different things to different people, but most would agree the concept encompasses wireless connectivity supporting the transfer of data from machines to software applications on a real time or near-real time basis and, possibly, directing operation of the machines; and, potentially, the analysis of this data to determine useful correlations, trends and anomalies (“big data analytics”).  Operators of the electric transmission and distribution networks and oil and gas companies operating SCADA networks are longstanding members of the Industrial Internet.

The threshold business question for all M2M applications is whether the various elements deliver the desired end-to-end service in a reliable, secure and economic manner.  These elements include the wireless access option(s) and wireline backhaul arrangement to the data processing resource; the purchase, installation, and management of the remote RF devices; the smartphone, tablet or iPad app (if applicable); the application software or software suite; the data processing resources (cloud-based or maintained by the M2M user); and, the rights in the collected data.

The collection and analysis of the data and metadata generated by the Industrial Internet raise competitive and privacy concerns.  Suppliers and operators of Industrial Internet remote RF equipment and applications must address cyber security broadly, including cyber-related supply chain breaches.  These concerns will be discussed in a later entry in this series.

Another basic question is whether the end-user will act as its M2M systems integrator or look to an end-to-end services provider that offers a complete or near turn-key solution.  Many M2M services pioneers—that continue to maintain a strong market presence, such as Silver Spring Networks and Aeris—provide near turn-key solutions, typically acquiring the commercial wireless services to provide the wireless access component, sometimes in combination with other spectrum resources.

The purchase, installation and management of the RF devices and wireless access component options are closely linked.

RF Device Considerations.  All devices must have an FCC equipment approval to transmit on the proposed frequencies.  RF devices transmitting on commercial wireless services must be approved by the carrier or its authorized agents, as well.  Unlike smartphones and tablets, M2M RF devices operating on wireless carrier spectrum are rarely subsidized by the wireless carriers.

Related considerations are RF device warranties and software licenses, and the installation, management and repair of the devices.  Approaches for assessing supply chain cyber integrity are being implemented.  The time required to deploy or replace thousands of RF devices is a major consideration for large scale M2M deployments.  Another consideration is whether the particular devices have reached or are approaching end-of-life status, such as devices designed to operate on Sprint’s discontinued IDEN network or AT&T’s 2G network.

Wireless Access Component Options.  There are three broad categories of spectrum for M2M applications:

  • Spectrum licensed to the end user;
  • Unlicensed spectrum;
  • Commercial wireless carrier spectrum;
  • Combinations thereof.

Interestingly, many Industrial Internet applications may never traverse commercial wireless networks or the public Internet.

Two primary considerations associated with the wireless access component are availability and reliability.  As a rule, commercial wireless carriers do not offer service level agreements pertaining to availability or priority access; wireless coverage is not guaranteed.  Part 15 of the FCC’s rules explicitly state that devices transmitting on unlicensed spectrum are not protected from harmful interference.  From the perspectives of reliability and availability, licensed spectrum options with adequate bandwidth to support IP-based services or hybrid licensing options such as those currently applicable to 3.65 GHz assignments are often preferable.

Another consideration is cost.  Commercial wireless service pricing may prove too expensive for a large-scale deployment or drive a wireless access solution that consists of some combination of commercial wireless service and unlicensed spectrum or licensed spectrum.  The wireless carriers’ 2-3 year contract term, pricing structures, and early service termination liability service that apply to generally available wireless service are poor fits for many Industrial Internet applications.

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This is the first in a series of entries on Machine-to-Machine (“M2M”) communications.  One definition for M2M is “RF devices associated with/connected to physical assets, communicating information to or from the physical assets and, potentially, directing or controlling operation of the physical assets or processing a transaction.”  Leading M2M consultants include ABI Research and Yankee Group.

Google’s Nest thermostat, utility smart grids, E-readers, residential security services, the GM OnStar service, DOT/ITS Connected Vehicle technology, e-medicine devices, wireless point of sale devices such as Square, some ATM arrangements, and wireless asset tracking services are all examples of Machine-to-Machine (“M2M”) communications

M2M is sometimes used interchangeably with the phrases “Internet of Things” or “Internet of Everything.”  A convenient but imprecise distinction is that M2M relates to communications associated with business (non-consumer transactions and data) and that Internet of Things is more typically associated with consumer devices.  E-medicine and connected vehicle technologies straddle this line.

M2M is the more inclusive term: “Internet of Things” and “Internet of Everything” suggests incorrectly that M2M communications necessarily transit the public Internet.  The major wireless carriers offer customers the choice of routing M2M communications from the carriers’ wireless access networks to the customer’s data center via the customer’s MPLS or private line service, as well as the public Internet.

While M2M is often associated with commercial wireless service, this is not always the case.  Many smart grid and pipeline telemetry networks utilize privately licensed or unlicensed spectrum due to concerns over commercial wireless service reliability and availability. Satellite-based M2M offerings have a noticeable market presence, as well.

The major elements of M2M arrangements may be summarized as follows:

  1. RF devices attached to physical assets/devices;
  2. Device management (provisioning and monitoring of devices).  If transmitting over a wireless carrier’s network, the RF devices are certified but rarely subsidized by the carrier;
  3. Wireless connectivity to the remote RF device via a (i) wireless carrier, possibly through a mobile app (on a smartphone, iPad or tablet), (ii) unlicensed spectrum, or (iii) licensed spectrum, or (iv) a combination of spectrum resources;
  4. Wireline backhaul service (from a wireless aggregation point to the data processing center);
  5. Cloud-based or customer managed data processing that manages the M2M data, generates reports or other outputs, processes the POS transaction, or causes or directs the physical asset (via its associated RF device) to act;i.      The M2M provider (including self-providers) may employ data analytics to derive other trends or information from the data collected from M2M devices.
  6. Security for wireless and wireline transmission (encryption); and,
  7. Intellectual property rights associated with M2M service (wireless technology, data processing software, and devices), privacy rights in and security of the data, and applicable restrictions on the transfer of data, including location-based information, to 3rd parties for behavioral advertising or other uses.

A single provider may offer an end-to-end M2M service, including approved RF devices and data processing software.  This is common among critical infrastructure companies such as utilities and oil and gas pipeline operators and for some consumer-based verticals.

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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 (arbitration or adjudication (with or without mediation)) should apply to disputes under telecom agreements.  Carriers’ standard approach for resolving disputes, procedure and venues, such as adjudication in courts located in New York City, are often non-starters.  We previously highlighted the pros and cons for arbitrating disputes arising under these agreements.  The AAA commercial arbitration rules were recently updated, effective October 1, 2013.  Some carriers prefer the arbitration procedures established for consumers (to avoid class action litigation).

Termination Rights.  Limited termination rights are artifacts of the pre-Internet era when private lines (connecting discrete points) were the only “data” service, and e-commerce was conducted solely at inbound call centers.  The carriers’ position that terminations be limited to the “affected service” is a non-starter, as customers increasingly rely on any-to-any services such as MPLS and VPLS.

Service issues at major locations impact enterprise-wide communications and operations and should be addressed from the perspective of adverse customer impact.  As previously noted, without sufficient time to migrate to a replacement carrier/services, a termination right can easily become “a cure worse than the disease.”

In addition, chronic billing issues deprive customers of an essential element of the agreement: agreed upon pricing (savings) for the entire agreement, not just a particular service.  Thus, the agreement should be reviewed carefully to ensure that chronic billing issues are not excluded from the termination provision.

Limitations on Damages.  The standard exclusion of consequential, special and incidental damages should apply to each party.  Customers should secure the same cap on damages as the carriers, however that number is calculated.  The preferred approach for termination of the entire agreement or partial discontinuances for cause should provide for damages equal to the difference between the replacement service and the discontinued service.  In addition, the agreed upon commitment level should be reduced in proportion to the lost revenue attributable to any partial termination.

Indemnities.  Our basic position is that indemnities should be limited (for both customer and carriers).  A 2012 entry outlined our reservations over carriers demanding a series of new indemnities.  The indemnities that customers should demand are those associated with data security breaches arising under data center and cloud computing services offered by the carriers, particularly those breaches that trigger reporting and notification obligations, fines, or penalties under either state laws or industry-specific data security requirements.

Precedence Clauses and URL Provisions.  Telecommunications services agreements can include a number of attachments and schedules, as well as multiple on-line documents (“service guides”), the provisions of which are incorporated into the services agreements.  The standard “precedence clause” does not adequately address the ability of carriers to “add” new provisions to their online terms and conditions and, in turn, the agreement.  Thus, a more comprehensive approach is warranted in drafting the precedence clause to insulate the agreement from these changes.

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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 start-ups that understand data security is central to the value of these non-transport offerings.

Carriers’ Longstanding Positions on Customer Data.  The carriers have systematically rejected responsibility for customer data in connection with their transport services, maintaining customers can address these concerns by encrypting their communications. In regard to toll fraud, the carriers’ persistent position is that toll fraud is the customer’s problem.  On customer proprietary network information, the carriers strive to extract the customer’s consent allowing the carrier to share CPNI with affiliates and agents and require the customer to affirmatively revoke the consent after contract signing, contrary to the spirit and intent of 47 USC § 222. The confidentiality provision in carrier agreements exists principally to limit disclosure of the terms and conditions in the agreement.

The Challenge for Carriers in Non-Transport Services.  This aversion to reasonable commitments regarding the integrity of customer communications is a challenge for carriers looking to upsell firewall, intrusion detection and other network security offerings and data center and cloud computing services for which customer data and network security are paramount concerns.  The carriers’ longstanding position on customer data security is not responsive in the current legal environment in which enterprises find themselves.  Companies must comply with state laws and foreign directives on data privacy and breach notification obligations, industry-specific laws and regulations, such as the HIPPA Privacy, Security and Breach Notification rules, and industry-specific standards, such as the Payment Card Industry standards (collectively referred to as “Data Privacy Laws and Standards”).

The value proposition for data center services requires providers to assume control and responsibility for the integrity and security of their data center operations.  Specific provisions obligating the site operator to deploy fire suppression technologies, electrical power back-up systems, physically diverse paths for connectivity to and from the facility, temperature controls and physical security are standard provisions.  If the operation of the data center implicates customers’ obligations under Data Privacy Laws and Standards, the customer reasonably expects the data center provider to indemnify the customer for the costs, expenses and fines triggered by the services providers’ actions.  Similarly, customers reasonably expect that their data reside in designated data centers and not re-located or transferred to physical facilities in other areas that trigger additional obligations under Data Privacy Laws and Standards.

These and related considerations over the loss of trade secrets and proprietary information are even more compelling in connection with cloud computing services.  Customers reasonably expect that providers of network security services and data center and cloud computing services will conduct SOC 2 and SOC 3 reviews and even share the results of the service organization’s SOC 3 audits.

The major so-called “public cloud providers” may well resist provisions on data privacy and security, maintaining their offerings are highly standardized and available only under standard terms and conditions.  On the other hand, other cloud services providers including those partnering with the major carriers are among those expected to respond in a reasonable fashion to the data security interests of enterprise customers.  Telecommunications carriers would be well-served to abandon their intransience regarding customer expectations on data security and integrity if they expect to compete in the rapidly growing markets for these services.

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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).

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