This is the second in a two-part article on procurement issues in SIP trunking, authored by the leading attorneys and consultants in the field, Levine, Blaszak, Block & Boothby and their associates, TechCaliber Consulting. Part One can be found here.
SIP trunking's key value proposition is that it gives enterprises the ability to replace existing local and long distance TDM voice services with a consolidated IP-based voice solution that leverages existing data network infrastructure at lower cost. But the migration can create problems under existing contracts because it involves moving services and spend away from your current voice agreements/suppliers/commitments to a data network agreement that may be with different suppliers and, even if it is with the same supplier, may have separate commitments. Here's a look at the issues this presents, and some things to keep in mind as you negotiate your SIP trunking agreement/attachment.
Problems with Your Existing Contracts
Enterprises use SIP trunking to replace TDM on-net and off-net local and long distance (intrastate, interstate and international) voice services. Legacy long distance voice services are usually purchased under arrangements in which customers have committed to spend a certain amount with their vendor(s) in return for lower prices or periodic credits, and the commitment or credit tier is based on long distance spend. Moreover, few enterprises buy local services (e.g., PRIs) on a month-to-month basis, which is very expensive; instead, they commit to buy a certain number of PRIs for a year, or three, or five. Such commercial arrangements can create barriers to realizing lower costs from implementing SIP trunking.
Unless your enterprise plans to switch to SIP trunking only after fulfilling all of its existing long distance voice commitments and PRI term commitments (which creates problems of its own, as prices can soar when an agreement expires), the savings you expected to realize may be delayed or diminished. That's because the reduction in overall spend may cause you to fail to meet two kinds of current commitment(s). One is your overall commitments, or sub-commitments for a specific service or set of services. Miss one of these, and you incur a shortfall charge. The other is your commitments for individual service elements--what AT&T calls MPPs. If you disconnect PRIs that you don't need in a SIP trunking environment, your enterprise may be presented with a big bill from its local services provider in the form of early termination charges for failing to keep each PRI in place until the end of its individual term (which could be 3 years or more).
Shortfalls and early termination charges are typically 50-100%, and can take a significant bite out of expected savings. But there are things that you can do to mitigate the problem.
First, shortfall and early termination problems can be avoided if your existing voice contracts have robust technology change and service upgrade clauses. These clauses come in many flavors, and only the good ones will protect you.
A robust technology change clause provides an automatic, dollar-for-dollar reduction to your revenue commitment equal to the difference between spend when your enterprise replaces an existing service (TDM voice) with a new service (SIP trunking), and it waives any early termination charges for the existing service. The best of these clauses (although this is rare) grants such a waiver even if you purchase the new service from another vendor. A robust technology change clause does not require you to "use your best efforts" to avoid a shortfall or keep a service in place until the end of its term, and does not require that the vendor agree to reduce the affected commitments in the event of a technology change.
A strong service upgrade clause will provide that early termination or other liability does not apply if you replace a port or access connection with a higher capacity port or access connection. Vendor service upgrade clauses, by contrast, offer protection only for port changes, not access lines, and access is the most costly telecom service in data networks. Second, if you do not have a robust technology change clause (and frankly most contracts don’t) or a strong service upgrade clause, you can negotiate with the SIP trunking vendor to forgive the shortfall (if it's the vendor that is providing the TDM services to be replaced) or cover some or all of the early termination or shortfall charges (if it's a different vendor).
These issues are much more manageable when you are planning to purchase SIP trunking from the same vendor that supplies your TDM voice, as that vendor is far more likely to work with you to resolve them by reducing or restructuring commitments or providing a credit to offset PRI early termination charges. Even in that case, the likelihood of success on the PRI front depends on the time remaining in the "term" for each PRI--shorter is better. If a vendor is facing a pure revenue reduction, there will be less room to maneuver--in that case, commitment shortfall charges and early termination liabilities will need to be factored into your business case. If your PRI term commitments have less than 12 months remaining, you can also plan around them by implementing SIP trunking on a schedule that coincides with the expiration of the PRI terms.
Discount or Credit Tiers--What Should You Expect?
Many enterprise contracts include discount tiers and periodic credits that lower the net effective prices for services. Discount tiers yield prices inversely related to the amount spent (lower prices for greater spend), while periodic credits offset charges in an amount that is directly related to the amount spent (greater spend generates higher credits). Moving to SIP trunking is intended to reduce your enterprise's spend. If your existing contracts include these pricing mechanisms, you may find yourself paying higher prices for remaining services and/or receiving smaller periodic credits.
The good news is that higher effective prices and lower credits are not inevitable. The bad news comes in the form of the likelihood of these increases with the move to SIP trunking, unless your existing contract has a robust technology change clause that reduces both commitments and credit bands when spend declines because of a technology change. If it does not have such a clause, be prepared to negotiate with the SIP trunking vendors to mitigate the effect. As noted above, if your SIP trunking and current TDM voice providers are one and the same, there’s a reasonably good chance of success. If not, the SIP trunking vendor is likely to resist offering substantial "help" unless it is winning huge amounts of new business, a factor which puts a premium on knowing your liability and properly staging the transition.
Getting Into (and Out of) Your "New" SIP Trunking Contract--How's It Different?
We've led you through problems you should inquire about in the RFP, and others that arise under existing contracts. Simply inquiring and thinking about these things is not enough. All of them need to be worked into your SIP trunking contract, whether it's entirely new or an amendment to an existing agreement.
Proof of Concept in A "Live" Environment
You successfully tested the SIP trunking service, so you are ready to sign on the bottom line, right? Maybe not. The pilot was likely quite limited--perhaps only at a single site--so you weren’t able to "test" parts of the SIP trunking solution, including (in all likelihood) on-net call completion and/or international off-net call completion, two major sources of SIP trunking savings. A proof of concept clause gives you this opportunity. It provides for a limited implementation of SIP Trunking service at a few key locations, after which the customer is allowed to use the SIP Trunking service for a period of 60-90 days. You should expect to pay during this period. If the customer is not reasonably satisfied with the performance of the SIP Trunking service (a tough standard to get, but possible) or the service doesn't meet the Service Levels (easier to get, but note that SLAs must include call quality), the customer is allowed to terminate the SIP trunking service and, at customer's option, related services (such as Internet access or upgraded local access and MPLS ports) without liability. If you have a robust commitment adjustment clause, you’ll also get a reduction in your commitment.
Interoperability On a Going Forward Basis
Your SIP trunking pilot test and proof of concept should comfort you on the interoperability of the SIP trunking vendor's service with your equipment, but it's only a snapshot in time. After you sign, the SIP trunking vendor may decide to no longer support certain equipment or you may want it to support a newer release of equipment. Devising ways to work with these decisions is important.
Telecom transport--including SIP trunking--is basically a commodity service, and vendors are not willing to allow a customer to drive the evolution of commodity services. That said, the customer should not be left holding the bag if that evolution means its equipment (or desired upgrades thereto) is no longer supported. There are no perfect solutions to this problem, but a couple of steps can reduce the impact.
First, if changes in the service render equipment inoperable, ask the SIP trunking vendor to either absorb the cost of replacing it with compatible equipment (or upgrading it to be compatible), or allow you to terminate SIP trunking and related services (such as Internet access or upgraded local access and MPLS ports) without liability and with a corresponding reduction in your commitment. If upgrades to your equipment render it inoperable with the service, consider waiting to install the upgrade until it has been tested and certified by the SIP trunking vendor, but require the vendor to do so promptly after introduction of significant upgrades to the underlying equipment.
Second, swapping out and upgrading equipment takes time--a lot of time if there are hundreds of locations, or locations outside the U.S. A vendor evolving its SIP trunking service should know well in advance if an evolution in its service is likely to result in incompatibility of equipment previously certified as compatible, and should be willing to give you plenty of advance notice--180 or more days--of these kinds of changes. It should also reasonably (and at no charge) cooperate and support your installation of new equipment or upgrade, and your migration of the service to the new or upgraded equipment.
Termination Rights
SIP trunking services are typically (though not always) added on to existing data networks. SIP trunking vendors, when asked to offer termination rights in the event of a failure of the SIP trunking service, often respond by giving the customer the right to terminate the entire contract. The theory is that the threat of such a substantial loss of business will force the vendor to remedy the failure. In fact, such offers are a snare and a delusion--the cost and disruption to a customer of transitioning its entire data network on an accelerated basis makes these termination rights meaningless.
You can get around this in several ways, and vendor resistance to any or all of them will just confirm the accuracy of the previous paragraph. All termination rights should give you the option to terminate just the services affected by poor performance--in this case SIP trunking and intrinsically related services (such as Internet access, upgraded local access, and MPLS ports) and should be accompanied by a corresponding reduction to your commitment. Terminating SIP trunking does not guarantee you the savings you may have realized by placing voice over your MPLS network (particularly for on-net calls); but it will allow you to revert to TDM voice or move to another SIP trunking provider without replacing your entire data network.
* * *
There's much more to be said and done--SIP trunking SLAs, for example, are not the same as "traditional" voice or data SLAs, and the fact that SIP trunking makes voice a "data app" has implications for account team support and transition periods. But there's only so much that we can cover in one (or two) articles (Part 1 can be found here).
The bottom line is that SIP trunking can offer compelling benefits and is increasingly being adopted by enterprise customers. Evaluating vendors' offers and contracting for these services is complex. Before leaving TDM voice behind, make sure to vet different vendors' offers through a robust RFP and detailed assessment of responses, and make sure that your requirements and the key risks are addressed in a comprehensive, well drafted contract.
Deb Boehling ([email protected]) and Hank Levine ([email protected]) are partners at Levine, Blaszak, Block & Boothby ("LB3"), the premier law firm representing enterprise customers in connection with telecom and IT agreements. Ben Fox ([email protected]chcaliber.com) and David Lee ([email protected]David Lee) are consultants with TechCaliber Consulting, LLC ("TC2"), a global technology and telecom consultancy that advises enterprises seeking to reduce their telecom and technology costs as they upgrade their services.
