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
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.
The broad acceptance of Multi-Protocol Label Switching (“MPLS”) service by enterprise customers warrants a “fresh look” in negotiating three important aspects of Wireline services agreements. The discussion on service provider transitions applies to Wireless services agreements, as well.
1. Addressing Chronic Service Issues. The principal benefits of MPLS service are “any-to-any” connectivity, scalability and ease in adding or deleting sites. Readily available CPE supports voice-over-MPLS. These benefits are maximized when MPLS is offered by a single carrier, although multi-national firms may maintain region-specific MPLS networks and some large enterprises maintain several MPLS networks (each provided by a different carrier) for redundancy purposes.
A glaring weakness in carriers’ standard services agreements is the failure to address reasonably the risk of chronic service problems in an MPLS environment. The carriers’ standard (and antiquated) “partial discontinuance” clauses are limited to problems associated with services to a single customer location; potentially relevant for high volume call centers utilizing inbound toll free services, but not an MPLS network. Even though Service Level Agreements (“SLAs”), such as mean time to repair and site availability are customer-oriented, the metrics remain largely site-specific.
If MPLS service to priority customer locations (data centers or corporate offices) are subject to chronic outages, the enterprise’s businesses and processes will be impacted severely and adversely. The standard carrier insurance policy (to be purchased by the customer) of redundant ports, access and routers is not the answer. The burden should not be shifted to the customer to insure that the carrier delivers the agreed-upon level of service. In light of the limitations on potential damages demanded by carriers and the risks associated with chronic service issues, a tailored remedy or escalating remedial responses are warranted to more equitably address the risks borne by MPLS customers.
Amazon’s analysis of its extended cloud computing outage, as summarized in Richi Jennings IT Blogwatch, raises an important question for counsel advising clients negotiating agreements to procure cloud computing, content delivery and data communications services: Should the agreement include a provision defining a service problem threshold and/or a series of problems threshold that triggers…