Carriers often offer a “technology upgrade” clause in their contracts as an inducement for companies to award business to, or remain with, that carrier. The argument for the upgrade clause is that, either at a set interval, or at any time during a long term contract period, the carrier will offer to upgrade all or part of the customer’s service or equipment to the fastest circuits or the most modern equipment available. Unfortunately, most technology upgrade clauses in contracts written by telecom carriers are of little or no value to the customer.
One typical carrier contract provides as follows for a cellphone equipment upgrade:
12.3.5 Wireless Data Equipment Upgrade Solution.Customer’s CRUs [Corporate Responsibility Unit–i.e., cellphone billed to a corporate account, as distinguished from a cellphone billed to an individual’s account] may purchase Equipment at the prices and CRU Terms set forth above in this… in connection with CRUs upgrading their wireless Data Equipment (the “Wireless Data Equipment Upgrade Solution”.). The Wireless Data Equipment Upgrade Solution is only available for CRUs’ Wireless Data Equipment that has been active on a Carrier Wireless Data Service Plan(s) for at least twenty one (21) months prior to upgrading and may not be combined with any other available Equipment promotions or offers…
This provision is essentially worthless. Since most wireless plans call for a 24- month term, this provision only hastens the time when new equipment would be available by 3 months, and then causes those that take advantage of the new equipment to lock into a new 24-month agreement without the benefit of a new rate negotiation. We would recommend that rather than taking advantage of the new “free” equipment in month 21, that in the 90 days prior to expiration, new rates and equipment pricing (free or reduced cost equipment) are negotiated.
A sample carrier provision for upgrade of data networks is as follows:
…”Customers may upgrade their CIR [Committed Information Rate] to a higher speed without incurring Termination Charges, if such increases do not require physical changes to Carrier’s equipment or connections at Customer Site(s). In addition, customers may upgrade their Grade of Service without incurring Termination Charges provided the upgrade does not include any reduction in the customer’s existing CIR.”
This is better “technology upgrade” clause, since both the carrier and the customer benefit from it. The carrier gets the higher fee for whatever upgraded service the customer chooses; the customer gets a faster service without incurring the termination charges that could otherwise be charged; and both parties implicitly agree that if any new equipment is required, the customer will pay for it, thus making the monetary terms clear. The potential problems with this provision relate to other contract provisions, for example, minimum revenue commitments, and how the new circuit will count toward the commitment, any automatic extension of the circuit term, etc. Thus, it is necessary to carefully consider a “good” technical upgrade provision in the context of its impact on the entire agreement.
Brad Buxton:
In reading Richard’s summation on “technology upgrades” I found Richard’s perspective to be very interesting. His approach to the subject areas takes into account an entirely different context than mine, which is based on a slightly differently worded subject, which relates to “technology change” clauses, not “technology upgrade” clauses.
Both of the perspectives are relevant and both need to be cared for in a client contract in order to assure that as they evolve and change, they do not run afoul of an inflexible and punitive carrier driven contract. Basically, the problem is that the carrier will offer an illusory term that says “don’t worry that we have you on a sub-MARC (or sub-minimum) for a certain type of service (let’s call it legacy TDM Voice for example) because, if you decide to change technology, our technology change clause will come into play and it will allow you to swap the sub-MARC for TDM voice to SIP Trunking, thus you will still be able to meet your minimum.”
But here’s the big trick you need to be aware of, one of the key reasons customers migrate or change technology is TO SAVE MONEY! In other words, if someone were to abandon legacy TDM voice for SIP based voice; their costs would be expected to fall by an average 50%. However, the customer in this case would not be able to take advantage of the cost cut which resulted from the technology change, because they would still be obliged to pay the same or more (as illustrated in the type technology upgrade clause in Richard’s summary) for the SIP that they used to pay for the TDM in order to change technologies during the contract. Hence, if the SIP were to be deployed at a 50% cost reduction; the customer would be required to pay double the resulting cost of their actual consumption. As a result, all economic incentive to change technology is removed because the client is deprived the economic benefit of it.
This is but one example of how carriers use slight of hand (or in this case, slight of contract clause) on their customers to keep them in line, and to assure that the carrier gets the economic benefit of new technologies rather than the customer who invests in them.
Another recent example of such illusion, is when a carrier had the audacity to advise our client during a presentation that while they had reduced their mobility cost per unit by 25% (plus we anticipated an additional 15% savings due to optimization) that the carrier was “going to leave their MARC unchanged.” As if that were a GOOD thing! The new reality would be that with this customer’s previous 65% annual commitment, once the new 40% cost reductions were applied; the customer would immediately fall short of their obligation to the carrier. Absurd! In the instance above, the annual commitment would have to be reduced proportionate to the new found (and hard won) savings. Fortunately, we were able to advise our client (and the carrier) that the offer that was being positioned by the carrier as a benefit, was actually designed to put them into an agreement in which they would default during the term and the client would have subsequently fallen victim to having to pay for services, again, at a rate that was higher than what they had agreed to, simply because of an illusion.
This is not an isolated anomaly. This kind of behavior is typical of what we have found over our 30-year history of helping clients both negotiate new agreements, and remediate bad agreements that they are currently trapped in.
AIQ can help customers avoid tricks like these by carefully reviewing their existing in-place contracts, along with the contracts proposed by their carriers. These terms can be fixed, if the totality of the consequences are understood by the client and appropriately remedied BEFORE they are signed.