Justin Castillo
Justin G. Castillo is a partner in the law firm of Levine, Blaszak, Block & Boothby, LLP ("LB3"), where he...
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Justin Castillo | July 31, 2013 |


Three Troubling Trends in Wireless Contracting

Three Troubling Trends in Wireless Contracting Enterprises that expect to obtain competitive deals simply by virtue of being large companies will be disappointed. But savvy and aggressive customers can reap rewards.

Enterprises that expect to obtain competitive deals simply by virtue of being large companies will be disappointed. But savvy and aggressive customers can reap rewards.

The world of enterprise wireless contracting continues to evolve. Given that wireless now accounts for 40% or more of some enterprise telecom budgets, enterprise contracting practices must keep pace with industry trends. Consider these three recent developments:

1. Be Polite to Your Vendor--Or Else!
In the 19th and early 20th centuries, when kings and queens still ruled, laws protecting the dignity of the sovereign were common. Under these "lèse-majesté" (literally, "injured majesty") laws, those accused of insulting (or even criticizing) the monarch faced heavy fines and lengthy prison sentences. Now, of course, these laws are (largely) are a historical curiosity.

Or are they?

Surprisingly, lèse-majesté lives on in AT&T's on-line wireless terms. If a wireless subscriber uses "abusive, derogatory, insulting, threatening, vulgar or similarly unreasonable language or behavior directed at any of our employees or representatives whether it be in person, over the phone, or in writing," AT&T may "interrupt, suspend or cancel your Services and terminate your Agreement without advance notice." Nor is this provision limited to individual consumer agreements: a similar provision requires that enterprise customers mind their manners, too.

2. Surcharge Sprawl.
"Surcharge sprawl" continues to vex wireless customers trying to manage costs and calculate the total cost of their wireless services. AT&T recently announced a new administrative fee of 61 cents per month per line, ostensibly to "help defray certain expenses that AT&T incurs" in cell site rental/maintenance and carrier interconnection charges. But the carrier already has an overlapping Regulatory Cost Recovery Charge. Industry observers were quick to note that AT&T wasn't incurring any new charges; this was just another instance of surcharges as "revenue enhancement devices." Indeed, this new charge will yield an estimated $350-$500 million annually. While it applies thus far only to individual-liable devices, its spread to enterprises may be just a matter of time.

3. Limiting Customers' Leverage.
Finally, providers continue a steady process of making wireless agreements "stickier."

Historically, pricing formulas for enterprise wireless deals followed a relatively simple price/volume matrix. While customers seeking to move traffic had to manage early termination fees for handsets (through waiver pools and careful tracking), wireless lacked the complex network architectures and dedicated circuits that made switching wireline carriers difficult. As a result, enterprises could switch traffic between wireless vendors with (relative) ease.

That situation is changing. A recent No Jitter article described how providers are adding subcommitments and complex discount formulas and other provisions to increase the cost and complexity of switching to another carrier. Because of these new "gotchas," wireless deals increasingly are taking on many of the less appealing characteristics of traditional wireline deals.

What do these developments mean for enterprise customers, and how should you respond?

Lesson one is that Internet-based terms and conditions are creating increasing risks for unwary customers. I have written previously about these threats and about enterprises' relatively complacent response, but it bears repeating: the documents you sign represent just a fraction of the governing terms.

And the problem seems to be getting worse: not only are more terms moving to URLs, those terms are becoming more customer-unfriendly. While I can't be sure, the problem may be getting worse because the "consumerization of IT" is leading to "consumerization of risk." Historically, vendors offered very different terms and conditions to enterprises and consumers, but service providers may now be trying to water down some of those "enterprise grade" provisions.

AT&T's "termination for rudeness" provision illustrates the risks that lie buried in URLs. It's tempting just to discount this provision ("AT&T would never invoke this, would they?") or to write it off as an example of carrier overreaching ("How many other companies in other industries could stay in business if they treated their customers this way?"). Given the increasingly vital role of wireless in the enterprise, the wiser course is to eliminate this provision from your deal. After all, what enterprise wants to live with the risk--however remote--of the chaos that would result from a sudden termination of wireless services?

The "new" administrative surcharge underscores yet another danger of Internet-based agreements: turning contracts into moving targets. Customers generally assume that "a deal is a deal" when it comes to contracts. But that's not the case with Internet-based deals, where carriers claim the right to augment and change terms at will. There are ways to neutralize these threats using negotiated contract terms, but enterprises won't get the proper protections unless they make the effort to negotiate them.

These wireless contracting developments also suggest that some providers believe they can impose aggressive terms and conditions on enterprises because contract language is not a high priority for customers.

This attitude has deep roots: several years ago an attorney for an interexchange carrier explained to me why, even in an era of robust competition, his company's terms and conditions were notably one-sided and unreasonable: "Because 80% of customers sign our contracts without making a single edit." For such carriers, telecom contracting is a matter of "catch me if you can." Account teams may talk of "partnerships" with their customers, but caveat emptor remains the order of the day.

Collectively, these developments suggest that negotiating a favorable wireless deal is a growing challenge. Enterprises that believe that they can obtain competitive mobile deals simply by virtue of being large companies will be disappointed. But savvy and aggressive customers will discover that hard work and preparation can yield reduced risk and increased leverage in their wireless deals.


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