Telecom Service Contracts

Most things in this world require cooperation; and telecommunications services are no exception. A long chain of providers makes up the network of modern telecommunications service; each link of the chain tied to the other with legal glue. Telecom service contracts are the intangible framework fixing the terms of agreements among teleport providers, satellite operators, installers, system integrators, data centers, local facility suppliers, and others.

The “weakest link in the chain” analogy is all too real in this business where quality of service can make or break a company. This article discusses the importance of properly negotiating telecom service contracts to ensure maximum protection for customers across any one of the links encompassing service delivery.

Telecom service contracts are typically composed of several documents; including a master service agreement (MSA), service specific schedules and exhibits, service level agreements (SLA), and use policies. Keeping these documents in order is a task in itself, because, as contract negotiations get underway, multiple versions of each document naturally proliferate. Hence, keeping a file naming convention for each document is critical to maintaining the order of precedence in case of contradictions among documents.

Since we all turn to the pricing section first, let us begin by discussing it. How are the services priced: fixed or based on a discount from the vendor’s published prices? From a customer perspective, fixed pricing is preferred when the vendor has the discretion to change published prices unilaterally.

When there is a variable price component (e.g., per minute or per megabyte), it is important to determine exactly how the service is measured. Capping variable rates could be an option, but don’t forget to closely look at set-up charges while maintaining a perspective on the duration of the contract.

Let’s now turn to the contract term. Of primary concern are the early termination fees. Are these charges simply what would be owed for the remainder of the term, or are they a percentage of the remaining commitment? Are early termination fees simply a fixed amount? Anything can be negotiated.

Invoicing and billing are important procedures. What are the payment terms? In a billing dispute, are undisputed amounts required to be paid or can they be deposited in escrow? Is there a clear billing dispute resolution procedure outlined? Is there a requirement to escalate to executive management before filing a formal billing dispute?

Your reputation is on the line, so service guarantees cannot be overemphasized. The SLA should be specific and measurable. Are there alternate routes or services offered in case of critical failure? And, is the price for such alternate service different from the agreed service price? What is the trouble resolution process? What is the termination provision in case of an extended service failure? Are credits offered?

Assignment clauses cannot be overlooked. Can the provider assign the contract to another party without your consent? Choice of law and venue clauses are vital. Are you agreeing to a law you don’t understand or to a grossly inconvenient place for litigation? Is arbitration mandatory? If so, where and under what laws?

Is there a limitation of liability clause? As a general rule, consequential damages should be excluded. Direct damages typically should be limited to the value of the contract (breaches of confidentiality being one exception).

What are the indemnities for property and personal injury damages? Are there indemnities for intellectual property infringements? What constitutes a breach of the agreement and can the breach be cured? What is a material breach?

The above issues are only a sample of the things that should be scrutinized and weighed in the negotiation of any telecommunications service agreement. Since these agreements typically span multiple years, it is only logical to invest the proper time and effort to ensure a fair deal is reached. Getting the appropriate leverage in each agreement will warrant that each link in the service delivery chain is kept under control; and as a consequence, customers receive the intended quality of service.

Raul Magallanes runs a Houston-based law firm focusing on telecommunications law. He may be reached at +1 (281) 317-1397 or by email at raul@ rmtelecomlaw.com.