December 12, 2017

December 11, 2017

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Objectives in Negotiating Telecommunications Services Agreements

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 business deal is put together.

Invariably, the customer’s objectives include the following:

  1. Improved pricing

  2. Desired, reliable services (core transport services and non-core services)

  3. Sufficient capacity for services at customer locations

  4. Timely provisioning

  5. Meaningful service level agreements (SLAs)

  6. Customer support

These objectives are not static; rather, the intention is that these objectives be met for the duration of an agreement that typically includes an initial term for 3 years, at least a single, one-year renewal option for the customer and a transition period.

Improved Pricing. The constant underlying interest is that the customer wants to finalize the agreement “yesterday” because in almost all cases the new agreement provides improved pricing. This is often coupled with the deployment of new services and, sometimes, the transition to a successor carrier’s services. Carriers leverage this customer interest in negotiations, not offering the optimum terms; obligating the customer to request or forego requests for better terms and conditions, subject to commitments made in its response to the customer’s RFP.

Customers often request a competitive pricing review clause that calls for one or more reviews of current rates. The purpose of this clause is to “refresh” the pricing to secure “market-based” rates. Because there is no public repository of current pricing for enterprise services agreements, customers often look to telecom consultants to assist in pricing reviews

Services. There are five core services:

  • Voice services, either TDM, VoIP or both as carriers are transitioning their networks from TDM to VoIP (Call center services are often included as a subset of voice services)

  • Special access service

  • An MPLS-based data service

  • Private line service

  • High speed Internet access service

These services are provided in the United States and to varying degrees within its territories and possessions. Depending on customer requirements, voice services, private line services and MPLS-based data services connect U.S. locations to and from foreign destinations and between foreign points. Special access services are acquired in other countries, but pricing for these services are not always included in the enterprise services agreement.

Customers often request a technology upgrade clause, the purpose of which is to allow a customer to secure a more advanced service (a problematic definition) in lieu of an existing service provided under its current agreement. The advanced service may be offered by the current provider or another services provider. This clause is invoked far less than competitive pricing review clauses.

The primary non-core services include network management (router management), firewall and encryption (security), data center (collocation) and content delivery services.

Sufficient Capacity. In both fast and slow growing organizations, the demand for services is increasing; it is not a matter of whether, but by how much. Services agreements often include pricing schedules for higher capacity MPLS-based service ports, special access and private line services.

Provisioning. Whether IP-based or TDM wireline services are being provided, physical circuits must be extended from a services provider’s network (its closest point of presence (POP)) to customer locations. A local services provider—sometimes an affiliate of the customer’s carrier—provides the special access circuits connecting customer locations to its services provider’s network. Services agreements include specific procedures for ordering, testing and accepting new circuit/service installations and discontinuing services.

Provisioning is a resource-intensive process for carriers and customers. It is one of, if not the most significant, hurdle for switching from the incumbent provider to a successor carrier.

Service Level Agreements (SLAs). These are carrier commitments that a given service will meet performance metrics, such as jitter, latency, availability, and mean time to repair (MTTR).  Some SLAs apply to service between carrier endpoints; others apply to service between customer locations. SLAs are also offered for provisioning. SLAs are not always published in the carrier’s Service Guide; if not, the SLAs will be attached to the agreement. One criticism of carrier SLAs is that chronic or recurring issues are either ignored or inadequately addressed. Some customers look to negotiate “custom” SLAs that more fully reflect the adverse impact of significant service issues on the customer’s business.

Many SLAs provide credits for non-compliance that extend beyond a minimum period. As a rule, customers must report the trouble and submit a separate request for a credit.

Customer Support. Carrier processes for ordering, provisioning and testing circuits and services, and acting upon service termination requests are well-established and work most of the time. Recurring problems in either service ordering, provisioning, testing or significant SLA violations can arise and, from the customer’s perspective, cannot be addressed soon enough. In addition, there is a likelihood of hiccups as carriers transition from TDM to IP-based services, as this can entail service/circuit transitions at every customer location.

The customer is not necessarily looking for credits, but assurances that these issues are addressed as they arise and procedures implemented to minimize their recurrence. These concerns are often addressed by adding provisions to the services agreement calling for scheduled discussions pertaining to one or several of these areas between knowledgeable carrier staff and the customer.

© 2017 Keller and Heckman LLP

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About this Author

C. Douglas Jarrett, Keller Heckman, telecommunications lawyer, procurement law
Partner

Douglas Jarrett joined Keller and Heckman in 1979. Mr. Jarrett specializes in telecommunications law, policy and procurement matters.

Mr. Jarrett is a recognized expert in representing enterprises in negotiating telecommunications services agreements with the major wireline and wireless carriers, domestically and globally.  He also advises enterprises on M2M services, cloud computing and IVR technology procurements. 

Mr. Jarrett represents technology companies in securing amendments to the FCC rules to enable the...

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