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Key Issues in Negotiating The Ever-Expanding Scope of Telecommunications Services Agreements

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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

(2)

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

„

(3)

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

„

(4)

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

„

(5)

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

(6)

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

‹

(7)

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

(8)

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

(9)

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

(10)

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

‹

(11)

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

‹

(12)

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

„

(13)

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 ‹

(14)

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

(15)

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

„

(16)

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

References

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