Why Five-Year Telecoms Contracts Feel Like A Scam

To some of the businesses we speak to, Telecoms contracts can feel like a scam.

Companies ask clients to sign five-year contracts, which only makes sense for the provider. With a pressing need to be connected, businesses sign up trusting the provider to look after their interests.

However, once under contract for some time, circumstances in the business change or new technology changes the available options. At this point, businesses can often end up with buyer’s remorse and little flexibility to exit the contract fairly and equitably.

So, let’s look at these types of contracts and evaluate if they are scams.

Five-Year Telecoms Contracts Analysed

Long-term contracts can make sense where there are large upfront costs that need to be absorbed avoiding a high upfront fee.

This helped significantly for IT and telecoms procurement back in the days when the amount of hardware and associated costs were higher.

Long contracts allowed the provider to spread the cost of the hardware and installation work over the full term to reduce the upfront costs to the customer. The provider would charge a slight premium to balance the risk of non-payment.

However, the advance of technology and reduced hardware requirement, and costs, mean that this is not as big a factor and 12- or 24-month commitments can more than cover hardware outlay without loading a high upfront cost on the customer. In fact, with today’s communications technology desk phones are becoming a thing of the past for many.

The main frustration now is that the contracts are restrictive and often counterproductive to the growth of the business.

Five years is a long time, an eternity in a business, so much can change in terms of personnel, working patterns and communication preferences. Meaning there are few scenarios where such long-term commitments make business sense now.

Difficult To Exit Contracts

On a weekly basis we get enquiries from companies shackled by ridiculously high telecoms bills that do not serve the needs of their business, unable to leave due to punitive release clauses that test the boundaries of “fair and reasonable”.

These contracts are holding thousands of UK businesses back, preventing them from adapting to changing market conditions and implementing the most operationally efficient solution for their business.

Real World Scenario

Last week we spoke to a company, we will call Company Z

Company Z is an architecture firm with 5 telecoms users and two broadband lines, over which the business runs. They are currently paying hundreds of pounds a month on a 7-year contract that does not expire for another 2 years.

They have already paid enough to cover any hardware that was purchased several times over, but the kicker is the exit terms.

The company is demanding they pay MORE than the remaining value of the contract if they want to leave. This is absurd and will cost this business tens of thousands of pounds compared to the most efficient solution they could implement.

If they wish to leave sooner, they will need to put the emotional and financial battle to the ombudsman and hope they rule that the fee to leave is unfair and not enforceable by law.

This means the company is effectively trapped in an inflated contract that does not fit their requirements.

The Solution

This problem and the frustration we hear from businesses trapped in these contracts has had a huge impact on our way of operating.

There is a better way of working.

Our industry needs to be more transparent in how the contracts work, the costs being covered and the exit penalties being built into contracts. Wherever possible avoiding tying a customer in for excessive amounts of time.