Beware of the Tipping Point. Telecommunications services procurements do not always yield the targeted results. This typically arises when a non-incumbent carrier concludes the incumbent is going to retain the business. This can and does occur when the customer signals—intentionally or not—that the RFP process is just a formality.
It can also arise in connection
In an earlier entry, we outlined the importance of counsel understanding the critical elements of the business deal in order “to provide relevant advice” to enterprise customers negotiating telecommunications services agreements. This entry focuses on carriers’ standard services agreements (“Carrier Agreements”), highlighting how these agreements remain highly problematic.
1. Above All, Carrier Agreements Are Drafted to Maintain Projected Revenue Streams
Minimum revenue commitments and early termination liability provisions are standard in Carrier Agreements, vestiges of the 20th Century when interexchange (Wireline) services were offered under tariff. Regulators either required or tolerated revenue shortfall protection for discounted rates. Today, the economic justification for early termination liability is tenuous, at best, as (1) the services are no longer regulated and the carriers vigorously maintain the markets for their services are competitive; (2) carriers’ costs consist largely of fixed, sunk network investments; and (3), from the customers’ perspective, the logistics and transaction costs in migrating enterprise- wide data services to successor carriers negates the option of readily switching carriers to optimize rates.
Billing for telecommunications services have been the carriers’ Achilles Heel for decades. A cottage industry of telecom expense management firms thrive because of challenged carrier billing systems. Despite this reality, standard billing dispute clauses call for payment of disputed amounts after the carrier reaches its conclusion regarding the dispute.
Unrealistically low caps on direct damages is another 20th Century vestige. While problematic, the more significant concern is that Carrier Agreements do not provide meaningful resolution procedures for chronic service issues, as discussed in an earlier entry. Site-specific or network-based Service Level Agreements are not adequate as the impact of chronic service issues on the enterprise go far beyond generally accepted notions of direct damages.Continue Reading The Persistent One-Sidedness of Carrier Agreements