Foolish Things We Do: Telecom Contracts

by Sorell Slaymaker

Stop signing 3 year Telecom contracts and paying a premium for Telecom services!  The enterprise Telecom industry is the last industry to get rid of 3-5 year contracts and move to “a pay as you consume” model.  I get better network rates and SLAs for my small consulting company than any Fortune 500 company.  Fact!  How you may ask?

Buy at Wholesale Rates – Network Service Providers (NSPs) such as AT&T, Verizon, and Centurylink sell their voice and network services two ways, retail to medium and large enterprises and wholesale to 3rd parties who manage the SMB market.  There is nothing stopping a large enterprise from going through a reseller and getting wholesale rates.  Large enterprises brag about how good a retail rate they are getting and how much they are saving from previous years, but their rates are still higher than wholesale.   For instance, Communication Services as a Platform (CPaas) vendors buy wholesale voice and SMS services.  Through a CPaaS vendor, I can get Toll Free for $0.006/minute.  Most large enterprises are paying $0.008 to $0.01/minute.  I know this because I saw the contracts while working at Gartner.  The same holds true for mobile/cellular services.  No contracts required.

Use Co-Location Facilities – Instead of bringing in 1-2 NSPs to your business, bring your enterprise to the over 1100 fiber providers located at carrier neutral colocation facility in every major and tier 2 city.  Data networking costs is all about network access costs.  If you need redundant 10Gbps network link to a large office or manufacturing plant, find out who has fiber in the area and use them directly.  NSPs buy access from 3rd party fiber providers when they do not have their own access in an area, and then they mark up the price.  NSPs only have contracts with about 1/3 of the fiber providers. Google, Facebook, Apple and all the large cloud companies do not use NSPs.  At home, I pay $80/month for a 100/20M Internet link plus another $20/month for LTE backup with 10GB of usage included.

Partner with a Cloud Aggregator – Instead of putting in network connectivity to every cloud service provider or building a lot of IPsec tunnels to cloud services, use a cloud aggregator.  Companies like Megaport give you high speed access, with near real-time provisioning, with a pay as you use model and full redundancy options.  No contracts required.

Offer Freemium Services – Video, web, and audio conferencing can be had for free.  As an enterprise, offer your users two tiers of services.  One that is a premium service for critical events such as investor relation calls, and one that is a freemium service that is 1/10th the rate of the premium solution but good enough for most meetings.  Freemium solutions do not require contracts and you pay for value added services as required, and this is still significantly less than a premium offering.  I use for video conferencing and find the quality better than when I use Webex.

Telecom contract SLAs are a joke.  If the NSP misses an SLA, an enterprise gets a percentage refund off of their service that they are paying for.  This is peanuts compared to the business impact of a network outage.  Most CPaaS vendors utilize multiple NSPs, so their actual reliability is greater than if you use just one NSP for your toll free, for instance.  Every major U.S. NSP has had major outages to their toll free networks in the past ten years.  How do I know – I have lived through them in my jobs and Gartner clients would call and complain.  Access is the #1 cause of network outages, so using two different fiber providers in a given area that have two different physical paths is the best way to ensure high network availability.  The type of service (VPLS, MPLS, Internet) that runs on top of the fiber does not have much influence on cost or reliability as the underlying access.

The only push back I hear from enterprises about this is the management effort required to work with multiple parties and to run the infrastructure.  As Network as a Service (NaaS) with security offerings take off, enterprises have many cloud options that do not require contracts and where provisioning is done in minutes. Through greater usage or over time, rates continue to go down without re-negotiation.  The cloud is about earning your business, not deserving it, so contracts are not required.