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The XT outages

The XT outages

What can corporates do when faced with events like the XT outages? Can they pull out of contracts or change them?

What can corporates do when faced with events like the XT outages? Can they pull out of contracts, for example, or change them? Many corporates will use XT services along with other Telecom/Gen-i services such as WANs, data hosting, and so on.

The outages are unlikely to give many corporates the right to terminate their contracts. But, as I note below, the outages could be part of the leverage to get better pricing and services for Telecom’s range of products, even before the contract terms end.

Like all telcos, Telecom’s contracts do not promise continuous service. Additionally, to terminate for breach — as the network is down — the corporate usually can only terminate if the failure is not remedied after 20 business days’ notice, which is a typical clause in commercial contracts. During those 20 days, Telecom can stop the outages and there is no longer a right to end the agreement.

However, this will not apply to all. For those that are keen to bring an end to the agreement, a closer review may show there are rights to do so. For example:

• Pre-sales material may effectively assure higher levels of performance in ways that override the contract, enabling termination (for example, under the Fair Trading Act or the law as to representations);

• For some corporates (those with life-critical needs such as on-call doctors, for example), there may need to be greater reassurance that the network won’t fail to the same degree. Those corporates could find it easier to terminate if, after the 20 business days’ notice, the network is still at risk of a similar level of outage.

The XT outages can, however, contribute to the corporate’s ability to negotiate a better deal with Telecom or Gen-i, in relation to services generally. This can happen during the contract term and at contract renewal time as well.

Reductions in ICT spend, or improved/additional services could be substantial. In our CIO article, “New Deals for Tough Times” (http://bit.ly/b9v2ph), we outlined the ways in which this can happen. Sometimes the relationship can be re-negotiated so that both the corporate and Telecom/Gen-i benefit. For example, Gen-i provides more services at lower costs, but the contract term is extended.

The key to success in negotiating with Telecom and Gen-i is to work out a careful strategy, taking into account the commercial environment and objectives, and the legal, contract and regulatory position. Success is much more likely if the corporate generates genuine options if a deal cannot be struck with Telecom/Gen-i. Otherwise the negotiating position is much weaker. Very often, there are potential options, even where Telecom has a dominant market position.

One of the strange things when outages like this take place is the cry in the media for compensation. In this instance, Telecom says it is shelling out around $5 million for compensation. For business customers, that’s a two-week rebate on plan charges where the corporate was affected for a day, and four weeks where the impact was longer.

The amount is not a big number in the scale of things, and is likely to be significantly lower than actual losses (particularly if “nuisance value” considerations are taken into account). Here, the general response to the $5 million compensation package was positive: for example it was supported by TUANZ.

In a way, the $5 million — as noted above, not a big number relatively speaking — ends up generating goodwill for Telecom. Maybe it can be seen as a good, and not too expensive, marketing opportunity for Telecom arising out of a bad situation.

For the majority of customers (ranging from individuals with their rights under the Consumer Guarantees Act) to high-spending large corporates, seeking compensation in practice is not realistic.

That is so, unless there are demonstrable large losses in particular instances. But that’s unlikely, and the commercial claimant would still have to work around limitations of liability in contracts (although in some cases, the facts may allow this).

In summary, rights to terminate XT agreements are usually limited, as are rights to compensation.

However, problems like the XT outages, handled strategically and carefully, can contribute to an approach that may achieve broader outcomes for wider Telecom/Gen-i services (including reduced pricing).

This might be achieved during the course of the contracts as well as on contract renewal.

Michael Wigley is the Principal of Wigley & Company, a law firm specialising in ICT. He can be reached at michael.wigley@wigleylaw.com

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