VoIP and your telecom contract

Many users are testing and evaluating VoIP options. As you consider items that could affect the cost of transitioning to VoIP, don’t overlook a critical factor right in front of you – your telecom contract. Before you invest in VoIP, make sure that moving your traditional voice traffic to VoIP will not increase your costs in ways you might not have anticipated.

First, does your contract specify a minimum commitment? Many agreements have monthly, annual or term minimum purchase commitments. If moving your voice traffic results in falling short of these commitments, you could be subject to a number of unanticipated costs. Many commitment clauses are versions of take-or-pay, meaning that if you don’t use the services, the carrier could come after you for all (or most) of the shortfall amount.

Some contracts are written so that in addition to a shortfall penalty, you lose discounts, theoretically letting the vendor raise your rates on both current and previous usage. Ouch.

Second, find out if you have any traffic ratio commitments or monitoring conditions.Do you have a commitment that a certain amount of your traffic be international or interstate? If you move legacy voice traffic to VoIP, you could upset those balances and not meet your requirements, with potentially catastrophic results. Similarly, check to see if your contract has requirements about duration of average call. Some contracts make rates (especially inbound rates) contingent on an average call duration of a certain number of minutes. Again, if you move certain traffic to VoIP, you could fall below this average and lose your discounts.

You might be able to get around these and similar problems if you negotiate specific protections into your telecom agreements or limit your VoIP rollout. So if you’re in the process of negotiating a new telecom agreement and are considering a move to VoIP, make sure you take these steps:

• Build a sufficient buffer in your commitment to let you move traffic without putting you in jeopardy of missing the commitment.

• Make sure you can meet any jurisdictional or duration commitments once you move your traffic.

• Ask for and invest time in negotiating a good technology change/transfer clause. The carriers’ clauses are worthless – they commit the carriers to nothing more than a conversation. A well-written technology migration clause can help you minimize or avoid liability for shortfall if you move to a new technology.

• Don’t overlook clauses that apply only to data services – remember, VoIP looks like a data service. If you’re going to send voice traffic over a managed Internet service or Multi-protocol Label Switching, determine whether the vendor’s acceptable use policy applies to your voice traffic. If so, determine whether it is overly broad and lets the vendor shut you down for seemingly minor violations.

By thinking ahead, you can avoid some nasty surprises. You want your new VoIP service to work and be cost-effective. Advanced planning can help on both fronts.

McDonald and Levine are partners at Levine, Blaszak, Block & Boothby, LLP, a law firm that specializes in negotiating telecom and technology agreements for enterprise customers. They can be reached at lmcdonald@lb3law.com and hlevine@lb3law.com, respectively.