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Growth: How Can Agents Tap Into Customer Value?

December 22, 2010 - Article

By Neil S. Ende

Unlike most business relationships, where the party with the direct relationship controls the customer, telecom agents do not have this luxury. To the contrary, because the role of a telecom agent typically is limited to acquiring customers for the carrier, an agent generally does not have any proprietary interest in the customer or control over the customer relationship.

An agent’s rights are purely derivative and only exist to the extent granted in the agent agreement. And, because agent agreements often limit the time period in which commission payments are paid to the term of the agreement itself, an agent may forego long-term commission income even when the carrier’s relationship with the customer, and the income flowing from that relationship, continues well beyond that term.

Even worse, many agent agreements contain restrictive non-compete terms that prevent the agent from communicating with, let alone seeking to sell other services to these customers both during and for years beyond the term of the agreement. The combination of strict limitations on commission payments to the term of the agreement and aggressive non-compete terms can wall off an agent from the opportunity to derive a long-term revenue stream and/or obtain the full value of its customer base.

However, there are a number of business and legal tools that can be employed to enhance the opportunities for agents to maximize their opportunity to greatly enhance these revenues and value.

Evergreen Clause

Evergreen clauses are the most common mechanism used to extend the period in which an agent obtains commission payments. Although these clauses come in various forms, as a general matter, they provide that commission payments will continue to be made on revenues obtained from customers brought in by an agent following the expiration or termination of the agent agreement.

In considering an evergreen clause, it is essential to be vigilant not only that the words of the clause itself accurately set forth the agreed-upon terms, but also that the intended effect of the clause is not jeopardized by other provisions of the agreement. Thus, for example, it is critical that the clause specifically provide that, while an event of termination may permit the carrier to refuse to take on new customers from the agent, it does not void the obligation to pay commissions under the evergreen clause on revenues derived from existing customers. The evergreen clause also should carefully define the period in which commission payments will continue to be made, address the obligation to pay commissions on additional and/or new services ordered by the customer following termination as well as the impact of the expiration of any term commitment and/or renewal of the underlying customer agreement.

If written correctly, and contained in a properly crafted overall agreement, evergreen clauses can substantially increase the period in which commission payments are received and thus the value of the customer base both in the near and long terms.

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