Is It Time To Renegotiate Your Company's Voice And Data Agreements?

Saturday, January 1, 2005 - 01:00

By some reports. nearly 70 percent of large enterprise voice and data agreements are set to expire in 2005. Carriers such as AT&T, BellSouth, MCI, SBC, Sprint, Qwest and Verizon are all considered to be "tier-one" carriers. If you are considering allowing your service agreements with these carriers to renew automatically for another term - don't. The competition for large business customers, which is the bread and butter of the telecommunications industry, will force these carriers to offer better pricing. enhanced service offerings, flexible service plans, and more reasonable terms. Here are some considerations to help your company get a good deal on voice and data services in 2005.

Start Early

Companies with large telecommunications and data requirements must get an early start when renegotiating these services. The truth is that if your company is in the large user category, you are already a captured customer to your existing carrier. It can be extremely difficult for captured customers to move to a new carrier and to adopt new services and technology if they get a late start. It could take your organization as much as six months or longer to transition to new, better and cheaper services.

There are a lot of reasons for this lag time. The first reason is that there are many technical processes to be undertaken to migrate your services from one carrier to the next. This migration of services often takes a significant period of time, and you may find that it is not possible to get the services switched over before the agreement with your current carrier expires. Other reasons include minimum service commitments owed to your previous carrier and sometimes termination payments related to equipment employed so that the carrier you are leaving could provide services.

Another delaying factor is that negotiating your new telecommunications contract could take anywhere from several weeks to many months. You should always exact promises from the carrier that you are switching to that they will reasonably and rapidly negotiate the terms of the service agreement and that the carrier will apply the appropriate business, technical and legal resources to complete the agreement in a timely manner. Remember, no matter how many times the new provider's salesperson tells you they want to win your business, to the contract specialist or the in-house attorney at the carrier that must approve your agreement, it is just one of many others that need to be reviewed. Note that we are not suggesting that the carriers or their lawyers are villains in this scenario. All are motivated to make sales, but there may be some slow-going when the customer pushes for the very best deal. Make it clear upfront that you expect the carrier to work with you to meet your unique requirements and time tables and the carriers will comply.

A further reason to start early is that the bigger your order, the longer it takes to understand what your requirements are. Do not miss an opportunity to get a better deal by not starting the process soon enough. Step One is understanding when your current service agreements expire; and Step Two is inducing your IT people to focus on what services your entity needs. Both of these steps are relatively painless.

Shop Your Business

The last Thursday of the month is not the ideal time to find out that your IT department and the service provider want to sign a new service agreement before the end of the month. If you have ever had your company's IT department e-mail you a .pdf or locked version of an agreement for renewal on the Thursday afternoon before the end of the month with a note urging immediate legal review because if it is signed by COB tomorrow, the company will receive massive discounts on existing services starting in the very next month, then you know that this is a bad way to start. Pressure is building and, if the fantastic pricing is lost because the Legal department had the audacity to attempt to negotiate, then it becomes Legal's fault that the company is not enjoying significant savings on telecommunications services. The appropriate approach to the IT department is to ask them how long the company has been overpaying for these and other services (a fact proven by the new pricing), and how can the company be confident that this pricing is competitive today. This example may seem harsh and a little unfair to the IT department, but the point - that someone needs to understand whether the pricing (with the terms) is appropriate and reasonable as compared to other carriers - should ring plain and true.

Make The Carriers Compete

Consider utilizing an RFP process. The best way to ensure competitive pricing and terms is through the issuance of a request for proposal ("RFP") to potential providers. The RFP offers several important benefits. First, the RFP permits the company to evaluate the services it needs, including type, volume and quality. A keen understanding by the company of its requirements will lead to greater satisfaction with the services and potential savings if your company is currently overbuying. Another advantage of the RFP is that you choose the format of the proposals from the various carriers which allows you to actually compare apples-to-apples.

If you don't have time to conduct a full RFP process, solicit bids from multiple carriers. This, of course, should be obvious. We mention it because sometimes your carrier's sales representative will seek an early renewal of the services agreement by offering reduced pricing. This can be a good thing, but for those who are skeptical, there is always that nagging question as to whether the new pricing is actually market competitive. It never hurts to find out. and the only way to know is by shopping around.

Technology Refresh

Service agreement renewal time is not only a great time to assess whether your service requirements have changed, but is also a great opportunity to consider whether the technology used to provide those services could benefit from upgrading, VoIP, in-building or on campus WiFi networks, wireless bandwidth, and cable company offerings, could prove to be viable alternatives to the technology currently employed by your company. We expect that in 2005, VoIP-based services will likely become extremely attractive for many business applications. Every large business already has broadband Internet access, so expanding its use to voice can save large sums in many cases.

Get Help If You Need It

If you need help weeding through pricing, technology options, or just negotiating the transaction, consultants and telecommunications attorneys can steer you in the right direction. Their assistance is most effective when started at the proposal preparation stage, but is also valuable when analyzing proposals and negotiating the service agreements.

Pricing And Quality

When it comes to what a large or medium-sized customer should expect from it services agreement, pricing (as in the past) is still the major factor to be considered when choosing services and a carrier. Competition has driven down pricing in many service areas and customers should still be in a position to reap the benefits. In addition, once you have selected your carrier or carriers, make sure that your service agreement contains some sort of automatic price protection mechanism whereby you are automatically provided the benefit of market price reductions. While these provisions can be difficult to monitor or enforce, they are still worth having.

Quality of services is always important, particularly to the IT department. Virtually every carrier provides a set of service level guarantees sometimes called SLGs or SLAs in which they promise their services and network will perform at specific speeds or that their services will not experience downtime for more than a certain number of minutes per month. You can be sure that if the carrier is offering a standard service guarantee, the carrier can meet it. Although carriers often offer credits for failure to met SLAs, make sure that if the failure to meet the SLAs becomes a chronic problem, for instance three times in a year or two months in a row, you have the right to terminate the service agreement without penalty. And, to be meaningful, any right to terminate must include proper transition time and assistance for the reasons mentioned above.

For certain applications, greater SLAs will be needed than the standard SLA and the quality standards can be negotiated. Keep in mind that greater service guarantees may translate to more expensive services. Two things to remember: If your company has been sold the carrier's services on the basis of quality, push back if it suddenly becomes more expensive to obtain the quality of services that were marketed. Second, if your company is going to pay more for higher quality services, do not let the carrier disclaim all its promises with respect to those services in the warranty and other provisions of the services agreement. Get what you are paying for.

Finally, with respect to quality of service, consider the problem resolution aspect of the relationship between you and the provider. We often review existing contracts for our clients to determine whether they may be terminated early because the carrier has failed to respond when a problem occurred. In this instance, the client does not want to terminate because the services are not working properly; they want to terminate because they cannot find anyone to respond to their problems at the carrier. Our suggestion is to integrate a problem resolution process/termination right process in the agreement that quickly escalates to appropriate management level personnel who will ensure that the problem is resolved.

Conclusions

If your telecommunications and technology services agreements expire in 2005, you have a great opportunity to negotiate a better deal. A better deal could achieve better pricing, better services, service and technology upgrades and potentially higher quality services for the benefit of your company. We anticipate that the carriers will act aggressively to retain existing customers and to win new customers. By starting early, evaluating your needs, and making service providers compete to win your business, you have the opportunity to obtain more sophisticated and more reliable services at significant cost savings.

Danny E. Adams is a partner in the Tysons Corner office of Kelley Drye & Warren LLP where his practice focuses on telecommunications transactional matters, technology and online gaming. Paul G. Madison is a partner in the Tysons Corner office of Kelley Drye & Warren LLP. where he negotiates service agreements for providers and customers in the telecommunications and technology arena.

Please email the authors at dadams@kelleydrye.com or pmadison@kelleydrye.com with questions about this article.