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Contract Games: How Verizon Rapid Delivery Turns Contracting on its Head

Verizon wants enterprise customers to move to its "optimized" Verizon Rapid Delivery (VRD) platform. In fact, it is openly enticing customers to do so by offering (slightly) lower pricing and promotions to get them to move. Verizon suggests that VRD will streamline processes and make ordering and installation quicker. Sounds good -- everyone wants lower prices and quicker delivery.

So should you jump on the VRD bus? No. As your mother always told you, if it sounds too good to be true, then it probably is.

The key is that when you sign up for VRD, you allow Verizon's online VRD terms to trump your negotiated contract. If you negotiated two years to contest an improper invoice, you have now agreed that you only have six months to dispute an invoice. If you negotiated service-level agreements (SLAs) and remedies for Verizon's failure to meet them, you have just agreed to allow Verizon to determine whether it has met the SLAs (based solely on its own records) and that your only remedy for any claim relating to poor service is the standard credits. Even the lower rates may be illusory; for voice services, Verizon may change its rates and charges at any time upon seven days' notice. So, if you rely on the VRD rates posted online without adding them to your contract, you are at risk of those changing as well. And our favorite -- under VRD, if you dispute a bill Verizon serves as the judge and jury and decides the dispute.

VRD is not new -- Verizon introduced it a couple of years ago, and we warned business customers about it then (read "Verizon Rapid Delivery – Not So Fast"). As noted above, Verizon claimed the VRD structure would speed the ordering process by relying on "standardized contracts and SLAs" where "customers can order for themselves." Today, Verizon increasingly is using this approach to gut account teams, negotiated terms, and the pricing and ordering structure relied upon by many businesses.

To avoid Verizon's effort to undermine negotiated terms, business customers need to understand the risks presented by VRD, Verizon's strategy, and how to address them. Verizon's "Rapid Delivery PIP & IP Business Bundle Upsell Promotion v2.0") and "Rapid Delivery VSA AVC Promotion v2.0" ) show Verizon's tactics. The "promotions" entice businesses by promising to waive otherwise applicable underutilization and early termination charges if the customer moves to a non-TDM service, such as Verizon MPLS/VoIP. If the term "upsell" doesn't raise red flags, the requirements should give you pause. You must sign "Verizon's form of Replacement Agreement used for Optimized Services" and commit to buy the services for the agreement term at average monthly charges that are equal to or greater than those committed for the legacy services under the customer's existing agreement. We don't see the savings (or logic) to this promotion, although naïve (or desperate) customers may.

What does this mean and how did we get here? In the remainder of this article we look at Verizon's strategy, how VRD has grown into the threat to negotiated deals it is today, and how you can level the field when playing the VRD game.

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Page 2 - The Trajectory of VRD Contracts for Business Customers
Page 3 - Three Steps for Resisting -- and Surviving -- VRD
Page 4 - Chart: Verizon's Services Platform

Continued from Page 1

The Trajectory of VRD Contracts for Business Customers
In January 2014, as part of Verizon Enterprise Solutions, Verizon promoted its automated delivery platform, Verizon Rapid Delivery. Verizon invested hundreds of millions of dollars in VRD. Why?

First, standardized terms and lack of customization (and pushing many things the account teams used to do to the customer) allows Verizon to provide services using smaller or no account teams, and in fact although Verizon's overall employee numbers have remained relatively consistent since the introduction of VRD, large business customers report declines in account team staffing. Second, Verizon's standard terms are typically much more favorable to Verizon than to its customers, so anything that "discourages" customers from negotiating those terms is good for the carrier. Third, VRD allows it to standardize back-office processes in a way that generates cost savings for Verizon. In short, Verizon wanted VRD to reduce its costs, improve efficiency, and thereby improve its margins.

Having come up with VRD, Verizon appears to be following a careful path to push its adoption: first channel partners, then small and midsized business customers, then the migration to existing enterprise customers through "new" services, and universal application to all services provided to all enterprise customers.

Phase 1 – Tackle the Small and Midsized Business Customers
Verizon first introduced VRD to the small and midsized business (SMB) customer and wholesale markets where it would likely encounter the least resistance due to the lowest leverage. It did so indirectly, through its channel partners serving these markets. Verizon claimed VRD would save channel partners time and money by streamlining Verizon's back-end processes, shortening the time from quote to contract to delivery. It also integrated in VRD, "making life easier for master agents, VARs and their end users," as reported by Channel Partners.

For SMBs and the smaller wholesale carriers, price is king. Lower annual telecoms spend and dealing with a competitor for a required input means less negotiating leverage, making it difficult to get terms that vary from the Verizon "form." Accordingly, these customers primarily focus on price, which can vary. Since price is king, Verizon offered lower prices through promotions to move these customers to VRD. Verizon also implemented certain service features -- such as interconnection gateways and secure cloud interconnect to cloud services like Microsoft Azure -- only for services on the VRD platform. While large business customers hesitated to move to the cloud, SMB customers needed these features.

Phase 2 – Verizon's Push to Extend VRD to Existing Large Business Customers
Large enterprise customers typically do not sign "standardized" contracts. They spend months negotiating rates and terms, and before VRD Verizon would creatively resolve concerns of its existing and new large business customers. Resolution was occasionally "unique," but more often within a range of alternatives with which Verizon was comfortable and with which the customers were reasonably satisfied. After signing a customized contract, an enterprise customer does not expect to revert to "standard terms," which is a problem for a carrier seeking standardization and improved terms for itself. But Verizon figured out a way.

Over the last two years, Verizon added more services and features to its VRD platform as large business customers became more willing to use the cloud for certain applications. Like the SMB customers, large business customers needed features offered only on Verizon's "optimized" VRD platform; these features include secure cloud interconnection gateways to reach cloud services from Amazon, Microsoft, Google, and others. And for those under existing customized contracts, moving to the cloud often created a need for higher-bandwidth services than they anticipated when they set prices and signed those contracts.

After the initial introduction, Verizon kept adding more common services to its VRD platform (see list below of "optimized" services). Verizon used these changes and the increased needs mentioned to shift leverage in its favor. Existing customers are wed to Verizon via revenue commitments or transition difficulties, but they need the VRD platform's exclusive service features as well as its better prices, which may not have been available when they signed their contracts. And they need Verizon to process their orders for high-capacity circuits -- which can have very long lead times (read related articles, "Why Ethernet Access is a Critical Part of Enterprise Wireline Telecom" and "The 2020 WAN takes shape – SDN, virtualization, and hybrid WANs").

If asked, Verizon would offer to implement the VRD contract structure into a customized contract only for the limited set of VRD services needed at the time -- new orders for Verizon "optimized" services (like Private IP+) and features offered only under Verizon's VRD platform (like interconnected gateways). In our experience, when and whether Verizon's large business customers agreed to Verizon's "limited" VRD approach depended on whether it had options. Some that agreed to the "limited" VRD approach have been surprised to receive letters after the fact saying their existing non-optimized services (e.g., Private IP) will be moved to the VRD platform.

Phase 3 – Force VRD on New Business "Wins"
In 2016, Verizon craftily pushed the introduction of the VRD contract structure into the large business market. Sophisticated large business customers putting their services out for bid received the "new" VRD terms only late in the process. These customers did not expect "standardized contracts and SLAs" from respondents but rather demanded that bidders accept key contract terms and expected those customized terms to be in their agreements. Verizon negotiated contracts reflecting the required terms, introducing the VRD approach only when the contract was almost complete.

Timing is everything. Had Verizon introduced VRD early in the negotiations, the customers might have chosen a different provider. But, by the time VRD appeared the customer was virtually committed to Verizon, and to get the savings it had (by now) built into its budget it had to sign and do so quickly. Suddenly custom agreements and terms were supplanted by form terms and the unwritten promises of quick delivery -- promises that have yet to be demonstrated.

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Page 3 - Three Steps for Resisting -- and Surviving -- VRD
Page 4 - Chart: Verizon's Services Platform

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Resisting – and Surviving – VRD
Large customers do not have to give up customized terms for the (possibly illusory) promise of savings. You can preserve non-service specific contract terms and sometimes-customized SLAs if you know what's coming and prepare for it. While customers may benefit from the VRD platform if Verizon gets services up and running faster, the VRD platform and the VRD contract structure are not inextricably linked. Standardizing back-end processes does not require standardization of all contract terms and SLAs. Here are some steps large business customers can take to mitigate their risks:

1. Use an RFP and Anticipate the Late VRD "Offer"
Potential new Verizon large business customers and existing Verizon large business customers willing and able to use another provider are in the best position to resist the worst of Verizon's VRD contract structure. But if they don't anticipate and prepare, Verizon will spring VRD on them late in the game.

Use (and be smart about) a request for proposal (RFP) that includes not a full-blown contract (telecom deals are rarely written on user paper) but the key terms that the provider must meet. These can range from general provisions (e.g., payment deadlines, order placement, dispute resolution procedures, rate reviews, the service-level credit process, confidentiality and data security, limits of liability, and order of precedence among the contract documents) to service-specific terms (e.g., SLAs and termination rights for availability, quality of service, and/or timely delivery of service).

Require bidders to provide copies of all draft contract documents that they expect to apply to your services. Do not expect these documents to reflect the terms bid; vendors put the burden on the customer to do this. Read the documents prior to awarding business or down-selecting vendors. Make it clear that you will not accept "standard terms" (such as those contained in the VRD) that are inconsistent with reasonable core provisions identified in your RFP.

Contract structure and terms are key to lawyers; business people focus more on price and service. With this in mind, determine which bidders' services meet your core business needs. Unless your business is unique, there should be at least two bidders (and often more) that will do this. At this point, look closely at the vendor contract documents to determine whether they will meet your needs. Again, do this before awarding the business to Verizon, or boxing yourself in by eliminating other bidders.

2. Beware of Online Terms
Verizon, like most vendors, avails itself of "online terms" -- this is where you will find the VRD provisions. To find them, watch for references to URLs -- most vendors seek to incorporate their online terms by references to URLs. A short vendor contract is a good tipoff. U.S.-based global telecom companies require lots of terms, and the only way to cover everything in a short printed contract is to incorporate scores (sometimes hundreds) of pages of online terms. The vendors may change online terms at will, and if they are not overridden in the core contract the customer has essentially no ability to object. (Vendors typically offer the customer a right to terminate the affected service if the change is material and adverse to the customer, but that is a high bar. Even when customers can clear that bar, few can terminate when the affected service is installed and integrated with others).

3. Establish an Order of Precedence
Even if you have tremendous leverage, bypassing all of the online terms is basically impossible. But there's another way.

It involves specifying how the contract documents stack up. In legal speak, this is the "order of precedence." Before VRD, when a customer asked, the vendors -- including Verizon -- generally agreed that the express terms in the contract would trump -- i.e., take precedence over -- conflicting or inconsistent online terms. Typically, the full stack in order of precedence would then comprise the service-specific documents (like pricing schedules), then the general terms and conditions, and at the bottom the online documents.

There's a lot we don't like about VRD. But the absolute worst thing about the VRD contract structure is that it flips this. The VRD services attachment has few express terms and an order of precedence provision that says the VRD Web-based terms apply instead of express terms in other parts of the contract. Since the order of precedence places the service-specific document above the general terms and conditions, the VRD services attachment deprives customers of the benefit of the other negotiated terms -- many of which are not service specific (e.g., payment due date, late payment fees, and ordering requirements).

Large businesses can combat this by taking the following steps. First, require Verizon to "limit" the VRD attachment only to those new services or new features that it does not offer on its standard platform. This can be difficult where the new service feature (e.g., secure cloud interconnect) is related to a service already covered under customized contract terms (e.g., Private IP). In those cases, Verizon will want all existing old platform services (e.g., Private IP) to be moved to the new VRD platform (e.g., Private IP+), and new orders for the "old" service that's been optimized will be subject to the VRD terms instead of the negotiated contract terms.

Second, compare the VRD terms carefully against your customized contract terms. Where the customized contract terms are better, push hard for the reasonable expectation that the previously negotiated terms and prices will apply. Verizon will push back using "system" limitations, so be prepared to specify areas in which the negotiated terms must stand, and to negotiate others.

You should resolve this issue before down-selecting to Verizon. Once the other bidders are gone, Verizon will have much more leverage to insist that the online terms apply, and the negotiated contract terms -- other than the few prices that appear in the VRD attachment -- do not. If Verizon does not agree, reconsider the other bidders' responses. If the incumbent provider's response was better than Verizon's on the order of precedence and it was willing to improve unsatisfactory terms in the current contract, consider whether the benefits of sticking with the incumbent outweigh the downsides of Verizon's VRD one-size-fits-all approach.

In short, Verizon is pressuring large business customers to accept its VRD approach to contracting, under which Verizon sets -- and can change at will -- contract terms and possibly rates. Unless they are prepared to push back hard on this, large business customers are unlikely to get the reasonable terms that they are used to from Verizon. With leverage and preparation, large business customers can, however, get service-specific rates for Verizon's "optimized" VRD services, may get some customized service-specific terms, and should get all general terms to apply to all of Verizon's services for the life of the contract.

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Page 4 - Chart: Verizon's Services Platform

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Deb Boehling and Laura McDonald have over 50 years of combined experience in the telecom and IT arena and are partners at Levine, Blaszak, Block & Boothby, LLP (LB3), a leading law firm representing the enterprise market in technology and telecom matters. They can be reached at [email protected] and [email protected].