November 12, 2012

How to Best Manage Telecommunications Services Procurements

Procuring Wireless and Wireline services at competitive rates and managing relationships with services providers are ongoing responsibilities for IT departments in major enterprises, including Federal and state governments. This TechNote looks at the realities in procuring these services and best practices for managing the business relationships.

Asymmetrical Market Knowledge and One-Sided Contracts

Market rates and carrier pricing strategies, including discounts, incentives and minimum purchase commitments, are not publicly available, with the exception of some government contracts. Enterprise staff cannot acquire current data and trends when procurements are initiated every two to five years, at best. Tariffs now apply to a limited set of services and the rates in carriers' online service guides are not the rates typically negotiated. Enterprises bridge this gap by retaining experienced telecom procurement consultants.These consultants maintain RFP templates and tools for defining demand sets and analyzing carrier responses, and support negotiations and competitive pricing reviews. Many offer telecommunications expense management services, as well.

Wireline and Wireless carriers have drafted their services agreements as contractual straightjackets. These one-sided contracts ensure anticipated revenues are paid, carriers' legal and business risks are minimized, and carriers have total control of the business relationship. Unwarranted indemnity obligations are often imposed on customers. These standard contracts do not reflect generally-accepted compromise provisions or frequently-agreed-upon additional clauses. If those provisions and clauses are not requested, they are not offered.

Distinct Wireless and Wireline Procurements

Wireless and Wireline services typically are purchased under separate agreements, subject to distinct pricing structures and terms and conditions. (Even when offered under the same "Master Agreement," the Wireless and Wireline addenda and associated attachments vary significantly.) Minimum purchase commitments are expressed differently in these agreements, but the impact of business downturns or divestitures on meeting these minimums should be addressed in all instances.

Wireline agreements often encompass a broad range of services and can include domestic, international and rest-of-world offerings. Wireless agreements tend to be country-specific and include services and handsets generally available to consumers, though priced and packaged differently.

A broad range of services can be aggregated under Wireline services agreements such as router management and firewall services, as well as transport services, including multiprotocol label switching (MPLS) and dedicated Internet Access services. Service-level agreements (SLAs) for Wireline data services are keyed to meaningful metrics and provide exceedance-based credits, but generally do not address adequately, if at all, the risks or consequences of chronic service problems, e.g., recurring SLA exceedances at critical customer locations.

Enterprises should strive to maintain maximum flexibility for agreements that may extend three to five years. This is achieved by negotiating more meaningful remedies, provisions that preserve options to refresh pricing and migrate to new services, and reasonable (as low as possible) minimum purchase commitments.

Wireless Agreements May Be Too Straightforward

Wireless services negotiations focus almost exclusively on pricing and related economic considerations. The services (voice, data and texting) and handset technologies are largely the same for consumers and enterprises, with M2M offerings being a noticeable exception. However, enterprise-driven handsets may be on the horizon, as noted recently by Michael Finneran. Under Wireless agreements, some handsets are subject to more aggressive discounts than those offered to consumers; others are not. Wireless services are offered largely on a "service as available" basis, that is, there are no SLAs that approximate those available for Wireline data services.

Responsibility for network security, device management, and BYOD concerns falls to the enterprise. The risks posed by IP handset infringement litigation to enterprises--for handsets acquired from the carrier--are not addressed in standard Wireless agreements. As widely reported, the smart phone and tablet IP infringement litigation will impact the Wireless industry for some time.

Telecommunications Services Procurements Are Really Ongoing Processes

Most services agreements include provisions stipulating that the rates for services in use at contract expiration, or after any agreed upon transition period, revert to budget-busting, "rack rates" posted in the carriers' on-line pricing guides. Line commitments come into play in Wireless agreements. These provisions dovetail with the reality--which the carriers leverage to the hilt--that transitioning to successor carriers is a challenging, time-consuming process for most IT departments, particularly for Wireline services.

So unless a customer initiates contract negotiations or a new procurement cycle well in advance of contract expiration--in order to be in a position to effectively implement a carrier transition--the customer loses negotiating leverage with its current provider(s), typically resulting in a renewal agreement or extension having less than optimum pricing.

CDouglasJarrett.JPGDouglas Jarrett specializes in telecommunications, focusing on domestic telecommunications regulation, Wireless regulation and spectrum transactions, and in representing enterprise customers in negotiating Wireline and Wireless services agreements. He is a partner in the law firm Keller and Heckman, LLP, resident in its Washington, D.C. office, and editor of Beyond Telecom Law Blog.


Your TechNote mentions a window of three to five years for agreements. Wireline services are relatively stable, and this seems reasonable. But isn't this a bit long for a commitment for wireless services given the rapid changes coming down the road?

Wireless deals are typically 2-3 years, accommodating handset refreshes which will be important as LTE is rolled out over the next several years. Line term commitments of 1-2 years, with Early Termination Fees (ETFs), even with some forgiveness credits, makes migrating to a successor carrier more challengeing because many users remain subject to Line Term commitments on the incumbent carrier's network.

This is a good topic and one that could be given several segments. The thing that is missed on SLAs is that if the downtime is due to the "local access" portion of the circuit the carrier is not liable since they cannot control the LEC.

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