Photo of Douglas Jarrett

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.

2.  A Fresh Look at Minimum Revenue Commitments.  One of the more contentious issues in negotiating Wireline services agreements is the minimum revenue commitment  (“MRC”) which typically is expressed as a fixed dollar amount, reflecting an agreed-upon percentage of the Customer’s projected expenditures.  The MRC may be an annual amount or set for the term of the agreement.  Subject to “changed circumstances” clauses, the MRC creates a “take or pay” obligation; if customer fails to meet the MRC, it pays the carrier the difference.

There are three points to keep in mind with regard to MRCs.  (For purposes of discussion, we assume the customer has negotiated aggressive, fixed-rate pricing and rates are subject to the typical negotiated adjustments.)  First, experienced consultants and some studies (based on previously published AT&T “Tariff 12” customer-specific tariffs) confirm that higher MRCs do not necessarily result in better rates.

Second, the lower the MRC (as a percentage of projected expenditures), the greater the customer’s flexibility and leverage.  A relatively modest MRC allows the customer, in the absence of an express right in the agreement, to migrate to a different service offering that has improved performance or service qualities or to another service provider, perhaps in response to improved pricing, subpar customer support, or recurring billing disputes.

Third, the business case for MRCs is diminished when a customer migrates to MPLS service. Absent serious service issues and assuming rates are and remain competitive, a customer has  little incentive to migrate to another MPLS network during the term of the agreement.  The virtues of MPLS, discussed above, are undermined as customer locations are removed from the MPLS network.  By contrast, private line and inbound toll-free services are largely standalone offerings that can be transitioned or ported to successor carriers with virtually no disruption and  relative ease.  In these instances, the MRC reinforces the customer’s ties to the carrier.

For MPLS service customers, if there is an MRC, it should be based on a modest percentage of projected expenditures for high speed Internet access service, interexchange voice services (not provided over MPLS), any managed services, and other services being procured.

3.  Focus on the Transition Game.  All agreements end at some point.  A basic consideration in negotiating Wireline and Wireless services agreements is providing a realistic period for the customer to migrate to a successor provider upon the expiration or any earlier termination of the agreement.  Without adequate time to migrate to the services of a successor carrier, any right or option to terminate the agreement or discontinue service is significantly undermined.  The carriers’ insistence on very low caps on damages elevates the importance of a meaningful transition period.  The right to terminate or discontinue service is often the only real remedy.

Over and above planning and procuring services from a successor carrier, the migration process involves connecting physical circuits, establishing virtual connectivity, and, for some time, operating the incumbent’s and successor’s services in parallel.  This is particularly challenging for Wireline service customers having several hundred or several thousand sites.

To provide sufficient time for service migrations, Wireline services agreements should provide the customer a minimum six-month transition period upon the expiration or any earlier termination of an agreement or the discontinuance of service for cause.  For very large customers, a nine-month transition period is more than warranted.  For Wireless services agreements, ninety days is the bare minimum.  During the transition, the incumbent carrier should continue to provide and support the service per the rates in the agreement and assist the migration to the successor carrier; revenue commitments should not apply.