Your Trail Guide to Telecom Contracts - Part Four
Protect Your FREEDOM.
Part Four: Protect Your FREEDOM.
About This Blog Series:
Business telecom vendors want to protect their own interests and get you to follow a pre-determined trail in the rigid map of their standard contract. That’s a pretty big problem when your business needs to pioneer, explore, and grow.
If you can form a negotiation strategy that addresses three criteria: Fit, Flexibility, and Freedom, you’ll be able to avoid getting trapped in an unfavorable agreement and instead get a flexible and fair contract that protects you as the maker of your own map for your business.
Your Freedom Is All Too Easy to Lose in a Business Telecom Contract
Imagine you’ve completed an epic quest, one that comes at considerable sacrifice to find both the time and money to take it. You reach the top of Mt. Everest or finish your kayak journey through the Grand Canyon. Exhausted, you start to pack up and head home, and your guide says, “Great. When you catch your breath, we’ll just do that again.”
We’re made for new adventures and change, and so are our businesses, but once you have finished the journey through the trail map of their three-year contract, a business telecom vendor is more than happy to take you on the exact same journey again.
In fact, this scenario can be hard to avoid, and it’s more common than you think.
There are some serious and substantial obstacles that can threaten your freedom to change your contract or move on to a new vendor at the end of your term. That’s why this one issue, protecting the back end of your contract term, stands as the third pillar of a sound negotiation.
Once you sign your first contract for voice, data, internet or cloud services, your vendor has a couple of powerful advantages.
They provide something you simply can’t live without.
It’s something that happens to be very hard to change once it’s in place.
To add to the vendor’s advantage, telecom contracts are designed to keep moving like a freight train straight towards a renewal. There are “trap door” clauses which most busy companies don’t have time to track, and they often set your business on course for an automatic renewal. Other elements of your contract are meant to make it hard to even consider the option of walking away.
It’s Not Three Years at Stake, It’s SIX (Or Longer)
On a standard, three-year contract, an automatic renewal threatens to leave your company stuck with static terms on a fast-changing technological service for a total of six years, if not more. That’s a lifetime in terms of potential change in voice, data, and internet services and rates.
This, by the way, is one of the many services Serviam’s Backoffice Support Team offers to clients. Serviam offers ongoing support to clients long after a contract is signed, including tracking vital milestones like this.
Far too many companies lose track of the crucial period they have available to renegotiate the next three years of telecom service and end up with money lost and an infrastructure that’s insufficient for the road ahead.
However, in addition to being vigilant, you're going to want a little extra insurance, something different from a standard auto-renewal, and here's why...
The losses incurred from an auto-renewal can be substantial.
One loss is almost guaranteed, as rates on telecom services tend to go down over time. Rates on older services or technologies may have fallen sharply already during your first contract, and now your company will be stuck with higher, outdated charges for another three years.
Other losses from an auto-renewal can occur from changes that have happened in your business. In a growth phase, you may be in a position to negotiate better terms and rates, but under an auto-renewal, your opportunity for savings will evaporate. The opposite could also be true where you need to scale back but could be stuck for an additional three years at the larger, three-year-old commitment levels.
The losses from trying to AVOID an auto-renewal can be even worse.
One of the biggest potential losses looms large when it comes time to:
Assess other options
Switch to a different telecom vendor
As you may well know, any of these options take time, and the odds are slim that your company’s timing and readiness will match the small window at the end of your contract for giving notice. That's the trap door in your contract - timing.
You may find yourself in a position where the negotiated rates of your current contract are about to expire at a time when you are unwilling or unprepared to commit to another three-year contract with your current provider.
There could be months left to resolve the questions at hand, and you could be left vulnerable when the terms of your current contract expire.
Most notably, you could be forced to revert to “rack rates” when your contract term has ended.
Here's what life looks like on "the rack".
The word “rack rate” should send much more than a tingle up your spine. This term could refer to a telecom vendor’s standard “Rate and Service Schedule” attached to your contract, or it could refer to less common but equally punitive “tariff” rates filed with the state regulatory authorities for more localized services.
Whatever their origin, rack rates are listed as high as possible, primarily to allow carriers to respond to competitive offers by presenting substantial discounts off of their supposed, regular rates. Very few companies are actually paying these inflated rates unless they are caught without contractual protection.
It’s not unthinkable or impossible that your current rate is discounted by 50, 60, or even 90% off of the listed rack rates, and the price hike following the end of your contract term can be absolutely punitive, if not debilitating.
Tactics for Protecting Your Freedom in Your Business Telecom Contract
Here are two examples of ways you can start to combat that scenario in a business telecom contract. There are many tactics you can deploy to protect your freedom, but these two come up frequently and are very effective.
Example #1 - MONTH TO MONTH Auto Renewal.
Protection from scenarios like rack rate charges comes in the form of an MTM (Month-to-Month) Auto Renewal clause. It provides a mechanism where, after your three-year term expires, you have the temporary option to go month-to-month at the same rates as your previous, three-year commitment.
For example, an MTM clause could cover up to twelve months, leaving you the flexibility to negotiate, re-evaluate, or to migrate to a new provider without being unreasonably punished on rates or early termination fees as you do so.
An MTM clause boards up one of the biggest trap doors in your contract. It protects the critical flexibility your company needs to make decisions that are in your best interest. In any scenario, it eliminates a small, rigid window that exists in a standard contract and gives you ample time to figure out what’s best for your business. It also has the added benefit of motivating your current provider to earn your business throughout the term of your contract.
Example #2 – Ramp Down or Transition Clauses
This is another approach to protecting your freedom and your ability to migrate to another voice, data, internet or cloud provider.
The Ramp Down clause provides protection for your company in case you decide to leave your current provider anywhere near the end of a contract.
A migration for most companies could last 6-12 months. During that time, outside the protection of your previous contract, you could be subject to rack rates and various, punitive actions from the provider you are leaving, but a proper Ramp Down clause preserves the option for you to migrate under the same terms and conditions as your existing contract.
Without this, leaving your current provider could be prohibitively costly if not outright impossible. And you won’t find this clause in the standard, “off-the-rack” contract.
You deserve the right to determine whether a vendor is a good fit or a worthy partner for your company, and with forward-thinking strategy, it’s possible to protect that freedom.
Don’t Forget YOUR Advantage!
In part two of this series, we discussed the Strategic Assessment process which can kick off a successful negotiation strategy. A primary goal of that assessment was to discover your Leverage Story.
Your accounts matter. As much as you have high stakes decisions to make in vendor selection and contract negotiations, the vendor has a lot at risk by failing to secure or renew your contract. You have leverage, and understanding the specifics of it in your Leverage Story only makes you more formidable.
If you can take the time to form a comprehensive strategy around the pillars of Fit, Flexibility, and Freedom, you have every chance of winning a business telecom contract that will work fairly and help you reach your business goals for the next three years.
Be sure to revisit the previous installments in this series to have an understanding of the full strategy you need to implement around your upcoming negotiations, and if you would like help that is uniquely qualified to guide you to a telecom contract that puts your needs first, we’ll be here, ready to serve.
How Can We Serve You?
If you'd like help reviewing your telecom contracts and infrastructure for improvements in rates, contract terms, and tech, you can contact us here.
Once a contract is signed, we continue to guide clients and actively manage their vendor relationships. You can discover a long-term partner who becomes an extension of your existing IT teams, allowing your company to focus on its core competencies.
Our availability to take on new clients is limited, but we'd love to hear from you to see if we can be of service. Learn more about Serviam and its unique approach to serving business telecom clients at www.serviamco.com.
The telecom industry expects you to find your own way
through a complex landscape of vendors, options, and risks.
We guide you through those risks
to the right voice, data, and internet solutions
for your business.
Then, we serve as your partner,
managing those solutions
So you can focus on the trail ahead.