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A fundamental expectation of clients in any commercial transaction is that counsel understand the business deal.  When procuring Wireline voice and data communications services,  major businesses, institutions and state governments make five fundamental business decisions.  The first four apply to Wireless services procurements.
              1. Service
              2. Choice of Carriers
              3. Pricing
              4. Minimum Purchase Commitments
              5. Wireline Service for Enterprise Data Communications

1.       Services

The major domestic Wireline carriers are AT&T, Verizon, Sprint and Qwest/CenturyTel .  The core services these carriers offer to enterprise customers include long distance, VoIP, audio conferencing and various data services—high-speed Internet access, frame relay, private line (TDM and Ethernet), and Multi-Protocol Label Switching (“MPLS”) services.   As a rule, local exchange service remains regulated and is not included in these deals.  These carriers offer related services, such as network (router) management , data center (collocation) and network security services, but are not yet substantial providers of cloud computing or content delivery services.   Customer premises equipment  (routers and switches) typically are not bundled with these services.

All of these carriers offer international services ( i.e., services between the US and other countries).   Multinational enterprises also are interested in Rest-of- World (“ROW”) services (i.e., services between and sometimes within foreign countries).  Several domestic carriers and foreign carriers such as Telefonica and BT offer ROW services.

The Wireless voice and data services available to enterprise customers are largely the same as those offered to consumers, although pricing options are different.  Handsets are bundled with Wireless services.  The principal domestic providers are AT&T, Verizon Wireless, Sprint and T-Mobile.  Available handset options, in-country coverage, Wireless data options  and the extent to which domestic carriers coordinate or manage wireless services in other countries are among the critical decision points.  Wireless service offerings tend to be country-centric.

2.         Choice of Carriers

Wireline and Wireless services are highly commoditized offerings with high  market entry barriers.  Enterprise customers typically utilize RFPs and consultants specializing in procuring these services.   Properly crafted RFPs include substantial information regarding enterprise traffic and bandwidth requirements and service preferences.  As discussed below,  the real-world prices paid by enterprise customers are not publicly available.

Enterprise customers have a strong interest in limiting the number of Wireline and Wireless carriers, respectively, from which they obtain service, principally to clarify responsibility for service quality, provisioning and trouble resolution, maximize bargaining leverage, and develop a mutually beneficial business relationship.  Typically, Wireline and Wireless carrier selection decisions are made independent of each other.

3.       Pricing

 The rates for Wireless and Wireline services  are not tariffed or regulated in the United States or in most developed countries.  The “rack rates” charged to  enterprise customers for these services are prohibitively expensive.  Not surprisingly, the rates actually being paid for these services are not publicly available.  The RFP process and use of telecom consultants are best practices for securing competitively priced services, a central objective of these procurements.

Volume discounts of one type or another are common.   The distinction between fixed rates and fixed discounts of the Wireline carrier’s on-line rate tables is important.  Carriers reserve the right to adjust these tables at their discretion.  Rates based on fixed discounts  can change as the carrier adjusts its on-line rate tables.

4.       Minimum Purchase Commitments

The minimum purchase commitment is often subject to significant negotiation.   For Wireline services, the amount is expressed as a fixed dollar amount; typically per year, sometimes for the term of the agreement.  The point of contention is the percentage of projected expenditures that the dollar amount represents.  Failure to meet the commitment triggers a shortfall payment.

For Wireless services, the commitment may be expressed as an annual expenditure requirement or in terms of the number of lines, among other approaches.  Individual line commitments tied to minimum use periods for wireless handsets are often part of Wireless deals.

The carriers prefer high minimum commitments because of their strong interest in revenue assurance.   A lower commitment better positions the customer to handle business cycles and downsizing while maintaining competitive rates, as most Wireline Services have a term of three years with at least a single, one-year renewal option. The terms for Wireless deals can track the familiar consumer two-year cycle.   While the volume of services being purchased influences  pricing, a higher commitment level does not necessarily mean better rates.

5.       Wireline Service for Enterprise Data Communications

 A noticeable majority of enterprise customers select data services such as MPLS or frame relay as the principal service to meet their internal data communications requirements.   Private line services are also widely used. Data services may also support a substantial portion of  a customer’s long distance voice calling requirements.  As compared to the public Internet, these services pose less significant security risks and are supported by multiple Service Level Agreements (“SLAs”).

Virtually all enterprises purchase Wireline high-speed Internet access service for Internet search and e-commerce applications, but some rely on the public Internet  as the transport service for some or all of  their internal data communications requirements.  Internet service pricing tends to be more favorable though the cost savings are offset to some extent by expenditures for additional security measures.

A less obvious benefit of  utilizing Wireline Internet access service as the corporate data service is that many of the taxes and the Universal Service Fund (“USF”) charges assessed on the rates paid by customers for other data and voice services do not apply.  This is a substantial savings.  The proposed USF assessment for the 2nd quarter of 2011 is 14.9%.