Won a deal with a big telco? Protect yourself with a well-balanced contract

Here’s the thing about the telco space. It’s big. Really big. According to the GSMA, the world currently has 5.3 billion unique mobile users and 8.3 billion SIM connections. This vast customer base is what makes MNOs some of the richest companies in the world. Combined, they pull in $1.08 trillion a year.

How big are the telcos? Here are the market caps of three pulled at random.

Telefónica               $23.38 billion

Vodafone                $37.49 billion

Verizon                    $173.44 billion

Major MNOs like the three above sit at the top of a vast (and still flourishing) ecosystem, so it’s not surprising that a substantial number of smaller companies want to do business with them.

You may well be one of them.

If you’ve just won a contract with a mobile superpower (it might not be an MNO, of course), you may well be celebrating. You should be. It’s an achievement.

But you should also go into these lopsided business relationships with both eyes open. After all, when there’s a dramatic imbalance of power in a business relationship, the received wisdom is that the bigger partner stacks the cards in its favour.

Well, it doesn’t have to be this way.

Be prepared – it’s your best protection

GTC has years of experience dealing with giant multinational firms – as both a supplier and an advisor to numerous smaller vendors. We know the risks. In our opinion, any agreement with a big company should not be unreasonably risky (or harmful if there is a contract breach) in any way for the smaller company.

And the best way to ensure this? A well-prepared legal contract.

Now, it’s important to state that negotiating a fair deal will require a certain level of self-confidence from the smaller party. In general, large enterprises have templates for business contracts, which they (understandably) draft in their interests.

So, the first step is to read and evaluate the templated agreement. Highlight anything that appears ambiguous or unduly risky. You should be ready to suggest changes, as long as they are reasonable.

You might even have your own contract template to offer. If you do, and your service is rare and unique, you may well be in a position to enforce it.

But from GTC’s experience of dealing with big enterprises, this is not usually the case. Instead, most companies simply need legal protections from the issues that arise when big and small start working together.

Let’s review five that you should consider…


Protecting against damages and losses – the liability cap

When a big company loses money, the financial damages can be substantial. So what happens if a small partner breaches its contract and the counterparty loses an amount that exceeds the yearly revenue of the small company? Clearly, the minor partner would be liable, but unable to cover the losses.

What’s the solution? Well, smaller firms can negotiate to exclude all indirect, special or consequential losses/damages however they are caused.

But if this fails, there is also the liability cap. This is a contractual agreement that limits the amount of damages a party can claim in the event of a breach of contract. It can be a fixed amount (acceptable to both parties and bearable to the small company) or linked to the maximum contract value.

Protecting against staff poaching – the non-solicitation clause

Lots of people dream of working for big companies. The attractions are obvious: stability, career path, extras etc. So when a small company wins a contract with a bigger partner, there’s a real danger the smaller firm can end up losing its best team members.

One way to minimise this risk is with a non-solicitation clause. Here, the parties agree not to solicit any employee (or independent contractor) of the other party – or induce them to terminate their relationship – for one year after the termination of the contract.

Protecting against unfair competition – the non-circumvention clause

When two firms start working together, you’d think they would cooperate, not compete. But it doesn’t always work out this way. Occasionally, one side does something to compete with its erstwhile partner.

It’s for this reason that legal experts advise a non-circumvention clause for the period of the contract and one year after its termination. These clauses specify that the parties do not “pursue any action, transaction or business relationship that circumvents the other party, either directly or indirectly.”

Everyone’s happy when a new business relationship starts. No one can anticipate things going so far south that the parties end up in court. Sadly, it happens. And when it does, it’s extremely expensive.

To avoid costly legal wars, legal teams can insert clauses on dispute resolution and applicable law.

The former may allow for the parties to solve controversies without going to court. For instance, they might have an agreed resolution procedure prior to starting legal action. This could include executive-level discussions or an offer to submit the dispute to mediation.

An applicable law clause clarifies what law will be applied and (usually) where disputes will be handled. It’s often the case that the ‘applicable law’ is in one party’s country of registration. But this can cause problems.

Let’s imagine a contract between a Finnish company and a Chilean company where the applicable law is with the national courts of Chile. Obviously, any dispute could be challenging for the Finnish firm. It would require inside knowledge of an overseas judicial system. It would obviously cost more to fight too.

With an applicable law clause, it is advised that the parties agree on the applicable law and the jurisdiction for the dispute of the country, which is neutral and acceptable to both parties. The English courts, for example, are well versed in this kind of law.

Protecting against being tied in – the non-exclusivity clause

Big enterprises often insist on exclusivity. In some cases, this is fine, and the smaller partner is happy. But not always. For this reason, we believe exclusivity clauses should be avoided. However, when a big company does insist, there should be agreed parameters.

For example, exclusivity should be limited by service and/or region. Alternatively, it could apply only to specific customers. For example, if a messaging company provides agent services to enterprises, it could act only for MNOs and not aggregators.

Conclusion: always negotiate a contract!

From our many dealings with global telcos, we know that small companies should always work towards well-balanced business contracts with larger partners. The clauses mentioned above offer a good starting point, but there are others that relate to confidentiality, intellectual property, payment terms and more.

After all, every situation is different.

Ultimately, negotiation is the key. Remember, if a big company wants to do business with your company, it’s because you have something it wants. That is leverage. So use it to get a contract that serves you well.

The information provided does not, and is not intended to, constitute legal advice; instead, all information is for general informational purposes only. Information may not include the most up-to-date legal or other information.

Global Telco Consult (GTC) is a trusted independent business messaging consultancy with deep domain knowledge in application-to-person (A2P) services. GTC provides tailor-made messaging strategies to enterprises, messaging service providers, operators and voice carriers. We have expertise in multiple messaging channels such as RCS, Viber, WhatsApp, Telegram and SMS for the wholesale and retail industry.

GTC supports its customers from market strategy through service launch, running the operations and supporting sales and procurement. The company started in 2016 with a mission to guide operators and telcos to embrace new and exciting opportunities and make the most out of business messaging. For more information or industry insights, browse through our blog page or follow us on LinkedIn.

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