CBA reinvents SLAs for Telstra deal

Commonwealth Bank of Australia's $1 billion telecommunications deal with Telstra is the toughest the bank has negotiated with a supplier, according to CBA CIO Michael Harte, and all without the use of traditional service level agreements (SLAs).

Michael Harte
(Credit: ZDNet.com.au)

"They stepped into the relationship," Harte told ZDNet.com.au earlier this week. "We said we wanted to be the number one in customer satisfaction. OK, what does that mean? Well, we said, here are the measures that our customers want to know about: availability at the ATM, NetBank and CommSec."

Telstra overcame fellow bidders BT, Optus/Singtel, and incumbent supplier, Telecom New Zealand subsidiary, Gen-i, which dropped out of the race in July last year. The deal will see Telstra deliver CommBank's so-called "converged internet protocol (IP) network" that Harte hopes will also allow it to handle the peaks and troughs of network demand under a varied pricing model.

"It's really utility voice and data services and we wanted a big, reliable and trustworthy provider so that we can go about the business of creating and distributing rich financial services," Harte said.

He described the old pricing model under the Gen-i contract as an "all you can eat" deal, while the new contract with Telstra is an attempt to "de-average" pricing applied for telco services.

But while the race has been won by Telstra, ensuring payment won't be easy for it. According to Harte, Telstra will continually have to jump through the bank's hoops without a hitch in order to secure payments.

"We've boosted the incentive [for Telstra] to meet our customers' expectations and increased the penalty when they don't," said Harte.

The contract, which Harte described as "completely new" in structure, has been penned without conventional service level agreements (SLA) — a management tool that is meant to ensure a supplier performs to a minimum standard.

We said, 'If you can guarantee 100 per cent availability, then we'll pay for that'.

CBA CIO Michael Harte

Despite the guarantee that is meant to flow from SLAs, they have been widely criticised for failing to translate into outcomes "at the front counter" as then-Customs and Border Protection Services chief information officer, Murray Harrison, pointed out in 2007. "SLAs don't work. SLAs are open to management discussion and don't affect people providing services at the front counter," said Harrison.

Customs' new outsourcing structure was based on shared risk and reward, with payment determined by a complex grid of performance metrics that could not fall below 80 per cent twice in succession. If the suppliers did not meet that expectation, penalties followed.

CommBank's deal with Telstra is different, but attempts to overcome similar issues via tough financial penalties when outcomes are not met. "To the extent that they can go beyond what most companies regard as an SLA, they get paid. If they blow it, they don't," said Harte.

Harte described a typical scenario with suppliers where SLAs were relied upon and outages had occurred. "Some [suppliers] would sit back and say, 'Well, we met the 99.98 per cent SLA'. But we could lose 6000 calls in a morning and they would say, 'Tough luck'. What part of that would make our customers happy?" said Harte.

There are, however, sweeteners for Telstra, such as a marginal pricing schedule whereby CommBank pays higher prices for telco services during peak demand periods and nothing when demand is zero.

"We'd like to pay extra for when that occurs, but pay less when the services are scaled down and not being used. So there's a real autonomic aspect to being able to provision on-demand to that scale," Harte added. "We said, 'If you can guarantee 100 per cent availability, then we'll pay for that'."