When most attorney’s, or people in general, are presented with a contract to review, they naturally address what they see. The terms in the agreement are carefully redlined and negotiated. In the case of this vendor, the problem is not what is in the agreement, it is what isn’t that causes problems. Clients are presented with a 14-15 page MSA with all the legal terms and conditions one would expect for this type of service. The only reference to pricing however states that the customer agrees to pay the fees outlined in a separate order form. This comes later. We find that in most cases, master services agreements are reviewed by legal. Subsequent pricing sheets and order forms are not as heavily scrutinized and are left to the people ordering the service. At this point, price is what is being negotiated. This is where the bait and switch occurs.
The order form that is presented to the customer is typically a few pages long and contains the rates for the services the carrier chooses to display. Since it is just a pricing schedule, the fine print is rarely looked at. In a small box under the pricing schedule there are a few sentences that should have been included in the MSA but were conveniently left off. To paraphrase, this language states that the customer agrees to pay for all added fees and surcharges and that the customer agrees to the pricing and terms found in their standard pricing guide for anything not agreed to in the signed pricing schedule. This seems innocent enough until you see this carrier’s standard pricing guide. It is over 90 pages long and has terms and fees that few people would agree to if they saw it.
This 90-page document’s first paragraph states
Customer acknowledges and agrees that standard rates are subject to change at any time without Carrier X providing specific notice to customer by Carrier X posting new standard rates. Customer therefore agrees to check Carrier X’s standard rates from time to time and in each case prior to using any services subject to standard rates. Negotiated rates are subject to change at any time on thirty (30) days prior written notice to customer. Customer agrees that either or both of negotiated rates and standard rates may be increased by Carrier X by 15% each year without prior notice to customer. In light of the price changing policies herein, customer therefore agrees to carefully review each invoice prior to making payment and to notify Carrier X of any rate disputes within thirty (30) days from the date of the invoice, otherwise customer will be deemed to agree to such rates and to have waived any rights to dispute them if not raised within thirty (30) days from the date of the invoice.
There is no mention of these terms in the MSA. The customer unknowingly agrees to these and many other things by signing the order form. The carrier leaves it up to the customer to check their bill each month to see if the carrier raised their rates. If the customer doesn’t catch the changes in 30 days, there is nothing they can do about it. By paying the bill, a customer is unknowingly providing their tacit consent to the new higher rates. Not a single customer of ours knew this other agreement even existed. Aside from the annual increase that do not require notification, they can also change the contracted rates at any time with notice to the customer. The sketchy part is that this notice only shows up as a footnote on their paper invoice. The people paying the bills are unlikely to notice or understand the changes.
Another sketchy area is the significant “administrative” surcharges, call minimums and other charges. The way this carrier’s agreement works, if fees and services are not specifically called out on the order form, the customer unknowingly agrees to whatever is on the standard pricing guide. One example of this is call minimum charges. These fees are typically $15-$20/call. On larger customers, we don’t see this fee charged as much however, on smaller customers it is more common. On the Last Page of the standard terms you will find a section called “taxes fees and surcharges”. The non-governmental surcharges below are lumped together with the government mandated taxes. Most people assume that the surcharges are government mandated and that there is nothing they can do about them. Seriously, who looks at these? (We do) None of these surcharges have anything to do with any regulatory or taxing authorities.
Support Service Surcharge – 9% – This is nothing more than a profit enhancement fee and is not listed anywhere on the order form or MSA.
Telecommunication Surcharge – $.0027/min – This does not seem like a lot however, since the average contract rates are between $.0089 and $.011/min, this represents a 24%-30% markup.
These two hidden surcharges alone can drive up the contracted cost per minute by over 35% without the customer knowing it.
This carrier provides its clients with standard billing reports to review the costs and usage data. In my opinion, this carrier goes to great lengths to present the information in such a way as to hide what the services really cost. On one of the standard billing reports, this carrier displays the number of minutes and cost without the added surcharges and fees. This makes the rates match the price per minute from their order form. On another report the carrier shows the total costs including taxes fees and surcharges all lumped together. On this report they do not provide any of the detail that you would need to compute your effective cost per minute.
(For this example, the rate on the order form is $.01/minute) This is what shows up on the billing report:
200 calls – 10,000 minutes – $100 = $.01/min – You check your order form and determine you have been charged the correct amount.
The effective cost per minute, before govt. required taxes, is very different.
Call Minimums – 200 calls x $15/call = $3,000. These call minimums show up on a different report and they are listed as a “feature”. This makes it is difficult to link the two costs together.
Telecom Surcharge 10,000 min x $.0027 =$27
Service Support Charge – 9% x $100 = $9
The total effective cost for 200 calls and 10,000 minutes can be as much as $3,136 for an effective rate of: $.31/minute
If the carrier doesn’t charge the call minimums, the effective cost comes to $136 or $.0136/minute (36% higher than agreed to before govt. taxes)
The invoice also details the cost per minute without the added non-tax related surcharges. Throughout the detail on the bill, these charges are buried in a single line item for “State & Local Taxes and Fees”. Only on the last page of the invoice, (I’m not making this up), do you find a small section that specifies how much of the taxes, fees and surcharges are actually mandated by the Government. Below is the extent of the detail provided on the invoice. This is all you get. For this customer, the $46,000 in additional fees added 34% to their pre-tax monthly costs. As you can imagine, our client was not very happy to learn about these added charges. They were however grateful when we eliminated these added fees
Federal Taxes $0.00
State Taxes $1600.44
Local Taxes $1000.75
Federal Universal Service Fund Contribution $14,850.31
Telecom Surcharge $19,800.10
Service Fees $26,200.32
Using traditional methods, you will not likely find the answer to this question. This carrier does a brilliant job of keeping customers in the dark from the time they sign the deal to the time they get their invoice. Optelcon has developed systems and processes to bring these hidden charges into the light. You will only find them by requesting custom call detail reports with specific fields. Unless you know what fields to ask for, this carrier is not going to offer them up. Unless you know what fields to ask for and have a system that can link all of the charges together, it is unlikely you will find them on your own.
Yes, but not without a fight. Optelcon has been very successful in negotiating the removal of all these fees for our customers. Because we have set precedent with other customers, Optelcon is typically able to negotiate the elimination of these fees within 30 days. It helps when you have people on your team who used to work for the different carrier’s billing departments.
For a free evaluation of your conferencing or other IT and telecom costs, please contact us.