Key Issues in Negotiating The Ever-Expanding Scope of
Telecommunications Services Agreements Presented by
C. Douglas Jarrett, Partner Keller and Heckman LLP
Washington, D.C.
Jarrett@khlaw.com
Conference on
Negotiating Telecommunications Deals User Deals
October 11-12, 2001 Atlanta, Georgia
Overview of Presentation
Characteristics of Early AgreementsCharacteristics of Early Agreements
Core Transport ServicesCore Transport Services
Scope of AgreementsScope of Agreements----2001 2001
Two Major Regulatory DevelopmentsTwo Major Regulatory Developments
Data Communications Reshape Services AgreementsData Communications Reshape Services Agreements
Increased Complexity in Telecommunications Services Increased Complexity in Telecommunications Services
Agreements Agreements
Characteristics of Early Agreements
3-3-Year TermYear Term----StandardStandard
Bundled/Not Customized Offerings Bundled/Not Customized Offerings
Minimum Annual Charge (MAC)/Minimum Monthly Minimum Annual Charge (MAC)/Minimum Monthly
Revenue Commitment (MMRC) in almost all deals Revenue Commitment (MMRC) in almost all deals
Significant economic penalties for Customer’s early Significant economic penalties for Customer’s early
discontinuance or failure to meet the MAC or MMRC discontinuance or failure to meet the MAC or MMRC
Negotiations Focused on Economic MattersNegotiations Focused on Economic Matters
Core Transport Services
Domestic and International Inbound & Outbound
Domestic and International Inbound & Outbound
Interexchange Switched Voice Services
Interexchange Switched Voice Services
Dedicated Access Services
Dedicated Access Services
Frame Relay Services
Frame Relay Services
Private Line Services
Private Line Services
ATM Services
ATM Services
Scope of Services --2001
Core Transport
Core Transport
Services
Services
Internat’l & Domestic Internat’l & Domestic
Voice, Frame Relay, Voice, Frame Relay, P/L and Dedicated P/L and Dedicated Access Services Access Services
ATM ServiceATM Service
IPIP--Enabled Frame Enabled Frame
Relay and ATM Relay and ATM Services
Services
Wireless (Mobile)
Additional Services
Additional Services
Global Voice, Frame Global Voice, Frame
Relay, ATM, P/L and Relay, ATM, P/L and Ded. Access Services Ded. Access Services
IXC-IXC-Provided Provided
Domestic and Global Domestic and Global Local and Access
Local and Access Services
Services
Managed Services Managed Services
Internet Based ServicesInternet Based Services
Scope of Services --2001
Internet
Internet
-
-
Based Services
Based Services
Remote Access Service
Remote Access Service
IP
IP
-
-
VPNs
VPNs
Internet Access Services
Internet Access Services
Hosting Services
Hosting Services
Two Major Regulatory Developments
Detariffing
Detariffing
of Interstate and International
of Interstate and International
Telecommunications Services
Telecommunications Services
Tariffs Replaced with Price Lists and Service
Tariffs Replaced with Price Lists and Service
Guides
Guides
Local and Intrastate Services Still Tariffed
Local and Intrastate Services Still
Tariffed
Bundling of Enhanced Services and CPE with
Bundling of Enhanced Services and CPE with
Telecommunications Services
Telecommunications Services
Data Communications Reshape Services
Agreements
Margins on Voice Services DeclineMargins on Voice Services Decline
Mixture of Myth and RealityMixture of Myth and Reality
•
• Access charges have declined dramaticallyAccess charges have declined dramatically
Other Services Offer Improved Margins for Carriers Other Services Offer Improved Margins for Carriers
Data Communications Data Communications
Managed ServicesManaged Services
Global Services Global Services
Local ServicesLocal Services
Data Communications Reshape Services
Agreements
Until Recently, Data Services Characterized By:
Until Recently, Data Services Characterized By:
Bandwidth as principal differentiator
Bandwidth as principal differentiator
Customers received the same quality of service
Customers received the same quality of service
per service and carrier
per service and carrier
Purchase decisions based on price and comfort
Purchase decisions based on price and comfort
level with carrier
level with carrier
Purchase decisions not influenced by SLAs or
Purchase decisions not influenced by SLAs or
technology assessments
technology assessments
Data Communications Reshape Services
Agreements
Today’s Market for Data Communications
Today’s Market for Data Communications
Services is Characterized by Choices
Services is Characterized by Choices
IP Services v. Basic Services
IP Services v. Basic Services
Internet-
Internet
-
Based v. Dedicated Networks
Based v. Dedicated Networks
Managed Environment v. Transport Only
Managed Environment v. Transport Only
Domestic and Internat’l v. Global Services
Domestic and Internat’l v. Global Services
Increased Complexity in Telecommunications
Services Agreements
More Options and Service DependenciesMore Options and Service Dependencies
Integration of Core Transport Services w/Internet-Integration of Core Transport Services w/Internet
-Based Services and Diversity of Enterprise Based Services and Diversity of Enterprise Communications and E
Communications and E--Commerce Requirements Commerce Requirements
Managed Services and Internet-Managed Services and Internet-Based Services have Based Services have
Multiple Customer
Multiple Customer--Determined ElementsDetermined Elements
Router configuration, financing, management, and Router configuration, financing, management, and
maintenance maintenance
Options in firewall and intrusion detection servicesOptions in firewall and intrusion detection services
Ascendancy of Service Level Agreements
SLAs Define Service Quality
SLAs Define Service Quality
SLAs Describe How Service Quality is Measured
SLAs Describe How Service Quality is Measured
SLAs Set Operational Expectations
SLAs Set Operational Expectations
Multi-Track Negotiations
Operational IssuesOperational Issues
Help Desk, Notification Processes and ReportsHelp Desk, Notification Processes and Reports
Network Architecture /Variable ComponentsNetwork Architecture /Variable Components
SLAsSLAs
Quality of Service/Operational ExpectationsQuality of Service/Operational Expectations
Administrative IssuesAdministrative Issues
PricingPricing
Business TermsBusiness Terms
Risks Inherent in Comprehensive Agreements
More customerMore customer--determined options and more interrelated determined options and more interrelated
services create a multi
services create a multi--faceted relationship between faceted relationship between carriers and customers
carriers and customers
Managed Services environment increases the complexity Managed Services environment increases the complexity
of agreement and service dependencies of agreement and service dependencies
More extensive discussions and planning between counsel More extensive discussions and planning between counsel
and client and client
Identify key service and operational dependenciesIdentify key service and operational dependencies
Address financial commitment demands of carrier Address financial commitment demands of carrier
Risks Inherent in Comprehensive Agreements
Migration to IP-Migration to IP-Based Services and Internet-Based Services and Internet-Based Based
Services warrants use of meaningful acceptance tests Services warrants use of meaningful acceptance tests
Single service provider w/ subcontractors v. independent Single service provider w/ subcontractors v. independent
business partners having separate agreements business partners having separate agreements
A major issue w/ Global ServicesA major issue w/ Global Services
Competitive Pricing Reviews for Regulated and NonCompetitive Pricing Reviews for Regulated and Non-
-Regulated Services Regulated Services
Risks Inherent in Comprehensive Agreements
Contract StructureContract Structure
One comprehensive agreement v. multiple agreementsOne comprehensive agreement v. multiple agreements
Ease of administration Ease of administration
Single set of legal terms and conditions Single set of legal terms and conditions
Service Dependencies and Aggregate MACService Dependencies and Aggregate MAC
Risks of Industry ConsolidationRisks of Industry Consolidation
Dealing w/ the implications of Section 271 in Services Dealing w/ the implications of Section 271 in Services
Agreements Agreements