A Lawyer’s Guide to Enterprise Telecommunications Services Agreements—Part 2
This is the second entry in our series on enterprise telecommunications services agreements, providing a framework for addressing the customer’s interests and risks in enterprise telecommunications services agreements.
While each carrier’s standard agreement is different, these agreements have three core components:
The carrier’s standard policies and rules applicable to its services
The legal terms and conditions or master agreement
The business deal
Aspects of the business deal are distributed among these components.
Standard Policies and Rules
Carriers’ standard policies and rules governing customers’ use of its services primarily reside online and are incorporated by reference into services agreements. These include the carrier’s:
Acceptable Use Policy (AUP)
Network Security Policy
Service Level Agreements (SLAs) (sometimes SLAs are provided as attachments to the master agreement)
Service Pricing Schedules
Carriers reserve the right to modify these documents by posting revisions online with customer’s recourse for problematic changes limited to the right to terminate the service or the agreement—a non-starter for customers. As discussed below, changes to pricing schedules are intended to be less impactful.
The AUP sets out prohibited uses or abuses of its services that a carrier believes will damage its network, violate laws, or impair use of the service by others. The scope can be very broad, addressing such matters as copyright violations, interference with carrier network operations, and limitations on how the service may be used. To minimize uncertainty, the carrier may agree that the AUP, in effect on an agreement’s effective date, controls for the life of the agreement. For violations, carriers reserve the right to terminate service. This poses an untenable risk to enterprises that largely shares the carrier’s interest in stopping any abuse.
A customer-oriented approach is to add a provision to the agreement that states, in the event of an alleged or actual potential AUP violation, the carrier shall promptly notify the customer of the abuse, providing a brief period to remedy the offending conduct or demonstrate that there was no violation. The carrier may insist on the right to suspend the affected service until the violation ceases. This approach underscores the importance of inclusion of a thoughtful precedence clause so that an agreed modification to the AUP, and to any other online document, controls in the event of a conflict.
SLAs are service-specific and vary among carriers. Whether an SLA is sufficient is a business decision. SLAs specify latency, availability, Mean Time to Repair (MTTR) other technical performance requirements, and may include customer reporting obligations, escalation procedures, and billing credits for outages. Invariably, outage credits are nominal. As a rule, the substance of SLAs is not negotiable, but the consequences of recurring SLA violations may be addressed, as discussed below.
The rates in the service pricing schedules are the carriers’ “rack rates.” A key element of the business deal is the negotiated rates for the desired services. These are included in attachments to the master agreement. The carriers routinely agree that the negotiated rates take precedence over rates in their pricing schedules.
Terms and Conditions (Master Agreement)
The legal terms and conditions that the enterprise has adopted for its template agreements are an appropriate baseline for assessing the legal terms and conditions of the carriers’ standard agreements. Negotiated provisions in cloud services agreements or collocation agreements may be relevant as well.
The termination right in most agreements for material breach has limited value in telecommunications services agreements. Problems tend to be service- or location-specific. An unplanned transition of hundreds of locations to a replacement carrier is not an optimum outcome for many customers. However problematic the service, connectivity to enterprise locations must be maintained. Persistent, significant billing or provisioning issues may warrant termination.
On the other hand, a tiered set of remedies that include a partial termination right is likely more helpful. Recurring SLA violations could trigger a carrier to conduct a root cause analysis and provide a remediation plan or a reprovisioning obligation for the affected service or customer location(s). If the problem persists, the customer should have the option to terminate the affected service(s). The incumbent carrier should be obligated to continue to deliver the problematic service, including any access component, for at least 90 days without charge, and the incumbent should be obligated to support the transition to another carrier’s replacement service.
Carriers limit their damages to an amount equal to the affected services or the negotiated minimum commitment securing cover damages is a challenge. As with partial terminations, a realistic transition period for continued service and support in migrating to replacement services should be part of any remedy for the carrier’s material breach of the agreement.
Customer preferences on dispute resolution (litigation or arbitration) and venue should be negotiated. Mutual disclaimers on consequential damages are standard. Choice of law may be a greater concern for agreements with substantial international and foreign services. An informal billing dispute process that precedes formal dispute resolution is recommended, as carrier billing systems and processes are often problematic.
SLAs are the service warranties—implied warranties of fitness for a particular purpose and merchantability are disclaimed. An intellectual property warranty is not routinely offered to customers. The carriers’ agreements often do include an intellectual property indemnity and may include personal injury and property damage indemnities, all of which warrant review by enterprise counsel.
A confidential Information provision should encompass information relating to the customer’s traffic and usage levels, network design, and any consolidated list of enterprise locations, even if not marked “Confidential.” The customer information provided in RFPs to carriers should be included within the scope of this provision. The carrier will likely insist that the agreement and negotiated pricing be kept confidential.
A less-obvious consideration is what happens at contract expiration. For enterprises with hundreds of locations, transitions entail monetary costs and operational challenges. Existing services must remain until replacement services are provisioned to customer locations. Generally, installed services remain in use until orders to disconnect are placed with the lame-duck carrier, but negotiated rates routinely revert to that carrier’s standard pricing schedule rates—increasing 50% or more at contract expiration. Thus, a clause is warranted to ensure reasonable end-of-contract transition support and price stability (contract rates remain in effect) for a defined period.
The Business Deal
Negotiated rates and charges are lower than rates in carriers’ pricing schedules and, preferably, are expressed as fixed rates, rather than percentage discounts of rates in pricing schedules. Carriers acknowledged negotiated rates take precedence over rates in pricing schedules. Non-recurring charges, principally provisioning costs, are often waived if the services remain in place for a defined period.
Carriers do not push aggressively for “exclusive service provider status.” Customer preferences for an accountable service provider (or “one throat to choke”) and the integrated nature of enterprise voice and data services, coupled with the minimum expenditure commitment (either per year or for the contract term) often deliver a satisfactory outcome for a carrier. A customer’s failure to meet their minimum commitment typically triggers a shortfall payment obligation.
There are two other noteworthy pricing related provisions: (1) as noted above, a pricing review clause that requires at least one pricing review during a three-year term that allows the customer to call upon a reputable pricing consultant to assist in keeping rates at current market levels; and (2) a “business downturn” provision. This provision mitigates the risk of a substantial shortfall payment when a customer projects they are unlikely to meet their minimum expenditure commitment due to business slow-downs or a business unit sale or divestiture.
Other relevant non-pricing provisions are a customer option for one or two one-year renewal terms, as noted above; a technology review/upgrade clause, though drafting such a provision can be a challenge; and an account team support clause to ensure regular communications between enterprise staff and responsible carrier account team members.