I recently read an article that Sorell Slaymaker put out a few years ago, and he stated that folks should stop signing up for 3-year contracts (https://talkingpointz.com/foolish-things-we-do-telecom-contracts/). I respect his opinion, but there are many variables to consider.
From my wholesale background, 1-year terms made sense. I would consistently see at least a 15% and more often 20% rate reduction year over year. There were also times when three years made more sense. Change platform from 10 gigs to 100 gigs, or get 30% or discount over 1-year price versus 3-year price.
When working with the enterprise side, I see wholesale pricing, and most of the time, the three-year pricing is the best option for customers with the lower MRC. I decided to reach out to my network of professionals and ask their opinion and share best practices. The response was tremendous, critical decision-makers from Cloud Aggregators, Submarine Cable providers, Fiber Network, Larger Enterprise focused providers, wholesale Carriers, OTT providers, Large ISP. Here is a breakdown:
Customer Access: 3 years is prevalent. Providers have no issues with matching the term for the access piece to the client's commitment. If a company was only purchasing a few circuits a month and circuit management is relatively easy, hey would consider 1-year terms, but if there are many orders, the resources to manage the workflow often outweigh the cost savings.
Network Backbone: Many respondents had their fiber network backbone and mainly purchased last-mile access. But a few buy their backbone networks from wholesale providers, and a 1-year term is preferred. Many have seen cost reduction year over year. Last-mile connectivity has become more fluid, eliminating a significant obstacle of changing out providers.
Portability. My industry colleagues are incredibly savvy. They purchase a significant volume of services and have many moving parts connecting the metro, long haul, and customers. They insist on a portability clause in their Master Service Agreements (MSA's). Usually, they have services priced at a 3-year rate and sometimes even a 5-year rate. Most providers will require the circuit to stay in place for one year to use portability. You may have a customer that signs up for one year; you price out the access at a three-year rate. This approach is beneficial in winning the business; others may be pricing the higher one year rate. The customer elects to go elsewhere after the year, and you have a circuit that has two years left on the term. With the portability, you cancel the circuit no longer needed and assign a new circuit to that position or renew an existing circuit towards that commitment. Portability requires very efficient and effective Telecom Management.
Dark Fiber. Here is an area that is rarely a 1-year rate. If you are in the market for dark fiber, you are more than likely to operate DWDM, having more than just a single circuit. Terms can run 3-year, 5-year, or possibly a 15 to 25-year IRU.
Overall, there is no one size fits all. Many times 3-year agreements work, and other times the 1-year deal works. At 3 Eagles, we analyze what is best for our customers and present all options. Whatever your service needs: VOIP/SIP, UCaaS, Cloud, Transport, SD-WAN, IP, and many others.
Before I close, I wanted to shout out to key contributors: Frank Florentine, Nigel Bayliff, Debbie Grasso, Walt Wollny, Jim Jerrells, Michael Hallgren, Lauri Abrahamson, Mike Leber, Jake Miller, Gary Funk, Bill Rauch, Jens Leuchters, John Welch, Julie Brown and many others.