Size not the be-all, end-all in carrier negotiations

By Johna Till Johnson
Network World, 12/17/01

A few weeks ago, I got a great letter from a reader who said that he'd recently renegotiated his frame relay contract (good) and gotten favorable rates (better). But he'd been unable to obtain the service-level agreements I had recommended in a previous column.

He was wondering: Was this because his company is too small to obtain the results I'd written about?

He's partially correct. As most readers know, a big variable in the rate equation is the dollar volume of traffic a company is willing to guarantee to the carrier (called the minimum annual revenue commitment, or MARC). The MARC is almost always less than the company's overall traffic volume, because a company would be foolish to commit to delivering its entire traffic volume. But in general, the MARC is a good measure of the size of a company's network.

Carriers prefer large MARCs because they help make revenue predictable. Typically, the larger the MARC, the lower the rates, and the better the contract terms and conditions, including SLAs.

So is bigger always better? Not necessarily. Companies with large ($10 million to $50 million) and extralarge ($50 million to $500 million) MARCs are most likely to garner the best deals, and it doesn't hurt that these folks can usually afford a world-class team of lawyers and professional negotiators.

As a consultant, I get the greatest satisfaction helping companies with small ($1 million to $5 million) and midsized ($5 million to $10 million) MARCs negotiate their contracts. That's because, at these sizes, the overall quality of a deal depends greatly on the negotiation strategy: The harder you negotiate, the more you can get. Most small and midsize companies simply don't realize they could be doing better, so they walk away from the table too soon. Some of the best rates and SLAs I've ever seen are in small contracts.

This reader happened to have a traffic volume of less than $1 million annually, so there was less leverage with the service provider. But that wasn't the reason he didn't get the SLAs. More important than the size of the deal was that the carrier was the incumbent - and the reader's company was generally satisfied with the provider's service. Latency was low, availability high, and all the corporate applications ran fine across the WAN.

So while the reader had solicited bids from alternate providers, he wasn't really serious about switching, and the incumbent could sense that his heart wasn't really in the negotiations. Bottom line: A bigger MARC helps, but aggressive negotiations can be almost as effective.