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Trends in wireline and mobile services strongly suggest a refresh to the FCC Forms 499-A/Q is in order. For purposes of brevity, this entry focuses on the Form 499-A. While changes to the forms do not address the challenge of a declining USF revenue base and an accelerating contribution factor or answer long pending USAC requests for guidance to the Wireline Competition Bureau (“the Bureau”), a shift to fewer revenue buckets (categories) aligned with the major services currently provided to customers could reduce the time for services providers to prepare Forms 499-A and for USAC staff to review forms or conduct audits. Other incremental steps are also suggested.

Consumers increasingly purchase service in bundles:

  • Wireless bundles: Voice, text and data (Internet access service); occasionally, voice-only
  • Wireline bundles: Voice, data and video: data and video; or increasingly data-only

Voice services are assessable services. High speed Internet access and multi-channel video programming services are not. The FCC has declined to classify text messaging as telecommunications, a telecommunications service or an information service. Interconnected VoIP is rapidly displacing circuit switched wireline voice services. Switched access service revenues are approaching inconsequential status.

The all-distance bundles for wireline voice services may encompass unlimited domestic calls and unlimited or an allotment of international minutes to select countries with the overage billed on a per minute basis, as service to other countries, tracking closely mobile voice service pricing schemes. International calling card revenues remain cognizable. Payphone services revenues are not.. The same is true for Line 405 revenues (subscriber line charge and certain PICC charges). The latter can be added to the voice services bucket.

The utility of separate USF reporting categories for wireline voice services, depending on how they are priced, is not apparent. The same is true for mobile voice service revenues; distinguishing between prepaid and postpaid voice revenues is irrelevant for determining USF assessable revenues. The relevant USF considerations are (1) apportioning revenues between assessable voice services from the revenues from bundled non-assessable services and products and (2) determining the proper jurisdiction.

The revenues for wireline voice services (increasingly interconnected VoIP) provided to small businesses, many educational institutions, libraries and not-for-profits, and many local governments (collectively “SMB customers”) are principally wireline voice (intrastate, interstate, and international, both outbound and inbound (toll free)), and high speed Internet access service. These services are often priced separately, posing less of a revenue apportionment challenge.

Enterprise customers often obtain a broader mix of services that include

  • Voice services (local, outbound and inbound (toll free), increasingly interconnected VoIP), with multiple pricing options
  • Special access services
  • Private line services
  • Other non-Internet data services, such as MPLS-based services
  • High speed Internet access services

Enterprise customers, including the Federal government and many state governments, will have significant international revenues.

Enterprise voice services revenues would be added to a services provider’s voice services revenue category; for enterprise voice services, the principal USF consideration is assignment to the correct jurisdiction (intrastate, interstate, international or foreign). The same is true for special access and private line services. Special access services are sold to wireless carriers and, principally, to wireline services providers that resell the services to end users. Special access services should be reported separately from private line service, consistent with industry practice of offering and charging for these services separately.

Private line service should be reported on one line as the distinction between “local’ and “toll” private line services is both confusing and irrelevant. The critical issue for private line and special access services is determining the correct jurisdiction. For physically intrastate private lines and (almost all) special access circuits (having endpoint within a single state), services providers must consider the 10% de minimis rule to determine the jurisdiction of these services. The Bureau addressed several longstanding requests for review of USAC determinations involving the 10% de minimis rule in its 30 March 2017 Memorandum and Opinion and Order, but the decision is subject to applications for review.

An addressable issue raised in the 2012 USF Contribution Reform Further Notice of Proposed Rulemaking is the disparity between the “safe harbors” for interstate/international mobile service (37.1%) and interstate/international VoIP service (64.9%) on the one hand, and the noticeably lower reported values provided by the services providers (based on actual traffic or traffic studies) for these services on the other. A review of how the Commission set the mobile service safe harbor highlights the need for a refresh.

The Bureau could readily take the pragmatic step and conclude the process (or refresh the record) to align the safe harbors with services providers’ reported data either actual or based on traffic studies. This could reduce administrative burdens for services providers and for limited USAC staff resources.

Despite the trend in USF-support being extended increasingly to non-assessable high speed Internet access service, the instructions for Line 308 could be expanded to identify (i) all USF-supported programs, and (ii) the portions of providers’ revenues from supported services per program that should be reported as end-user revenues. This is preferable to reliance on abbreviated answers in USAC FAQs, particularly as more services providers are and will be receiving USF funds going forward as compared to 2015 and previous years.

Finally, a “Line 418.5” could be added to identify the revenues for high speed Internet access service provided within the United States. It merits reporting as it is such a large component of many services providers’ aggregate revenues.

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This entry discusses the primary objectives that enterprise customers look to achieve in negotiating telecommunications services agreements. In a recent entry, we discussed the challenge counsel for enterprise customers face in confining telecommunications services agreements to the four corners of the customer contract. In a future entry, we will look at how the underlying business deal is put together.

Invariably, the customer’s objectives include the following:

  1. Improved pricing
  2. Desired, reliable services (core transport services and non-core services)
  3. Sufficient capacity for services at customer locations
  4. Timely provisioning
  5. Meaningful service level agreements (SLAs)
  6. Customer support

These objectives are not static; rather, the intention is that these objectives be met for the duration of an agreement that typically includes an initial term for 3 years, at least a single, one-year renewal option for the customer and a transition period.

Improved Pricing. The constant underlying interest is that the customer wants to finalize the agreement “yesterday” because in almost all cases the new agreement provides improved pricing. This is often coupled with the deployment of new services and, sometimes, the transition to a successor carrier’s services. Carriers leverage this customer interest in negotiations, not offering the optimum terms; obligating the customer to request or forego requests for better terms and conditions, subject to commitments made in its response to the customer’s RFP.

Customers often request a competitive pricing review clause that calls for one or more reviews of current rates. The purpose of this clause is to “refresh” the pricing to secure “market-based” rates. Because there is no public repository of current pricing for enterprise services agreements, customers often look to telecom consultants to assist in pricing reviews

Services. There are five core services:

  • Voice services, either TDM, VoIP or both as carriers are transitioning their networks from TDM to VoIP (Call center services are often included as a subset of voice services)
  • Special access service
  • An MPLS-based data service
  • Private line service
  • High speed Internet access service

These services are provided in the United States and to varying degrees within its territories and possessions. Depending on customer requirements, voice services, private line services and MPLS-based data services connect U.S. locations to and from foreign destinations and between foreign points. Special access services are acquired in other countries, but pricing for these services are not always included in the enterprise services agreement.

Customers often request a technology upgrade clause, the purpose of which is to allow a customer to secure a more advanced service (a problematic definition) in lieu of an existing service provided under its current agreement. The advanced service may be offered by the current provider or another services provider. This clause is invoked far less than competitive pricing review clauses.

The primary non-core services include network management (router management), firewall and encryption (security), data center (collocation) and content delivery services.

Sufficient Capacity. In both fast and slow growing organizations, the demand for services is increasing; it is not a matter of whether, but by how much. Services agreements often include pricing schedules for higher capacity MPLS-based service ports, special access and private line services.

Provisioning. Whether IP-based or TDM wireline services are being provided, physical circuits must be extended from a services provider’s network (its closest point of presence (POP)) to customer locations. A local services provider—sometimes an affiliate of the customer’s carrier—provides the special access circuits connecting customer locations to its services provider’s network. Services agreements include specific procedures for ordering, testing and accepting new circuit/service installations and discontinuing services.

Provisioning is a resource-intensive process for carriers and customers. It is one of, if not the most significant, hurdle for switching from the incumbent provider to a successor carrier.

Service Level Agreements (SLAs). These are carrier commitments that a given service will meet performance metrics, such as jitter, latency, availability, and mean time to repair (MTTR).  Some SLAs apply to service between carrier endpoints; others apply to service between customer locations. SLAs are also offered for provisioning. SLAs are not always published in the carrier’s Service Guide; if not, the SLAs will be attached to the agreement. One criticism of carrier SLAs is that chronic or recurring issues are either ignored or inadequately addressed. Some customers look to negotiate “custom” SLAs that more fully reflect the adverse impact of significant service issues on the customer’s business.

Many SLAs provide credits for non-compliance that extend beyond a minimum period. As a rule, customers must report the trouble and submit a separate request for a credit.

Customer Support. Carrier processes for ordering, provisioning and testing circuits and services, and acting upon service termination requests are well-established and work most of the time. Recurring problems in either service ordering, provisioning, testing or significant SLA violations can arise and, from the customer’s perspective, cannot be addressed soon enough. In addition, there is a likelihood of hiccups as carriers transition from TDM to IP-based services, as this can entail service/circuit transitions at every customer location.

The customer is not necessarily looking for credits, but assurances that these issues are addressed as they arise and procedures implemented to minimize their recurrence. These concerns are often addressed by adding provisions to the services agreement calling for scheduled discussions pertaining to one or several of these areas between knowledgeable carrier staff and the customer.

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After an extended deliberative process and pursuant to issuance of a Request for Proposals (“RFP”), the First Responder Network Authority, commonly known as FirstNet, selected AT&T as its partner to build, operate and maintain the Nationwide Public Safety Broadband Network (“NPSBN”). The actual terms of the agreement between FirstNet and AT&T remain unavailable to the public for “proprietary” reasons. However, what has been revealed in public statements and in trade press reports may raise questions about whether the AT&T proposal accepted by FirstNet tracks the vision Congress had when it created FirstNet.

Spectrum Licensed to FirstNet Apparently Being Held in Reserve

As mandated by Congress in the Middle Class Tax Relief and Job Creation Act of 2012, (“Act”) the FCC licensed the 758-769/788-799 MHz band to FirstNet on a nationwide basis. This legislation was the culmination of a persistent effort by the nation’s leading public safety organizations to secure a 20 MHz block of “beachfront” 700 MHz spectrum for broadband use by first responders in urban and rural areas across the country. As recognized by the FCC, the “Act charges FirstNet with responsibility for establishing and overseeing a ‘nationwide interoperable public safety broadband network’ operated in this spectrum.” Emphasis on this spectrum.

The AT&T proposal adopted by FirstNet appears to essentially make the AT&T network the heart of the NPSBN with the FirstNet 700 MHz spectrum playing, at best, a supporting role in parts of the country. FirstNet has widely promoted that the entire AT&T network will be available immediately to first responders, with priority and preemption available on the LTE portion of the network. FirstNet’s beachfront spectrum will be utilized as part of the NPSBN where deemed necessary by AT&T. In testimony before Congress on July 20, 2017 (‘Congressional Hearing”), AT&T acknowledged that it will use the 700 MHz FirstNet spectrum where added “capacity” is needed by the AT&T network.

Exactly how much of FirstNet’s licensed spectrum is intended to be incorporated into the NPSBN by AT&T under its contract with FirstNet is a carefully guarded secret. In its Congressional testimony, AT&T represented that it will be “significant.” However, when pressed for a percentage on how much of the geography of the United States will be covered by the build-out of licensed FirstNet spectrum, AT&T declined to provide a specific answer saying this information is “proprietary” and cannot be disclosed – even to Congress.

Rural America

The Act also speaks in terms of “buildout” and “construction” to meet rural milestones. However, parts of rural America will apparently not see NPSBN base stations deployed– on any spectrum. The AT&T plan adopted by FirstNet apparently will rely on deployables – such as cells-on-wheels or COWs – in those areas of rural America in which neither the AT&T network nor the networks of potential roaming partners extend. In some cases, these deployables may take many hours to reach the site of an incident. How this approach meets the intent of Congress in mandating rural milestones for build-out of the NPSBN is an open question.

“Public Safety Grade”

FirstNet and AT&T have not articulated the meaning of a “public safety grade” facility. At the Congressional Hearing, both AT&T and FirstNet struggled in articulating the meaning of this concept, essentially saying that there is no one definition. This lack of clarity is unfortunate since a fundamental purpose of the legislation creating FirstNet was to make sure that public safety would not have to rely on a commercial network that is not sufficiently hardened. Groups such as NPSTC have developed detailed descriptions of what the first responder community considers “public safety grade.”  One only need look at the devastating results of Hurricane Sandy, which knocked out service in 25 percent of the cell towers in its path, to understand the importance of this issue to public safety.

Priority and Preemption

The concepts of priority – first responders go to the head of the line – and preemption – first responders knock other users off the network – under FirstNet’s plan also raise concerns. Following acceptance of its proposal by FirstNet, AT&T raised the issue of whether the FCC’s “net neutrality” policy, which is aimed, in part, at minimizing prioritization of Internet-based traffic could complicate its ability to provide priority and preemption to public safety users on the AT&T network. Congress or the FCC may eventually change the 2015 Open Internet Order, consistent with the proposal recently released by the FCC. Nevertheless, it is striking that AT&T is concerned with the potential impact of net neutrality on first responder priorities under the plan adopted by FirstNet.

As originally intended under the Act, first responders on FirstNet’s 700 MHz spectrum would be entitled to preemption, with the potential that non-public safety or less essential users could lose access to the network during emergency situations. The statute is based on the premise that these “secondary” users would be well-aware of their lower status on the FirstNet spectrum and would be willing to accept this condition in exchange for the right to access the NPSBN.

The proposal to deploy on AT&T’s network flips this concept on its head.  Under the plan adopted by FirstNet, the users that are subject to preemption during an emergency could potentially be members of the public who are depending on AT&T’s network. It is not entirely clear from public statements if AT&T customers will lose access to the entire network and if so, under what circumstances. At a minimum, this is an issue that deserves further clarification.

The spectrum licensed to FirstNet is intended under the Act to be the centerpiece of a hardened NPSBN that serves public safety agencies throughout America. It can be argued that the plan adopted by FirstNet is, in effect, little more than a rebranding of the AT&T network as the NPSBN, which raises substantial legal and policy questions.

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A guiding principle for attorneys and their clients when negotiating telecommunications services agreements is the four corners defense.  No, not the end-of-game defensive strategy devised by the legendary Dean Smith for his UNC basketball team, but the straightforward strategy of keeping the terms and conditions of telecommunications services agreements within the four corners of an agreement.

Due to deregulation and migration to IP-based services, telecommunications tariffs have largely disappeared.  The process started over twenty years ago.  In the United States, local exchange TDM voice services, DS-1 and DS-3 special access services and some intrastate interexchange voice and private line services remain tariffed.  Consistent with FCC decisions dating back to the 1990s, the major wireline and wireless carriers and the MSOs have replaced tariffs for telecommunications services with a combination of end-user (consumer, small business and enterprise) agreements and online service guides.  Broadband services have always been offered through some combination of end-user agreements and online terms and conditions.

These service guides were initially required by the agency to disclose standard prices for de-tariffed services and to be made available to the public at the carriers’ principal offices or online.  The scope of the terms and conditions in online services guides has expanded substantially and, in many cases, replicates the one-sidedness of tariffs.  For enterprise customers, service guides currently offer the services providers’ service descriptions, service level agreements (SLAs) (sometimes), standard rates and charges, and policies such as the Authorized User Policy (AUP) for Internet access service.  Several services providers also post a comprehensive set of general legal terms and conditions and related definitions.

Several online service guides are almost impossible to search.  URLs in customer agreements related to potentially relevant online web pages often prove to be dead-ends.  However unfriendly the online design and integration of service guides, the overarching concern is that services providers reserve the right to modify unilaterally all aspects of their service guides including service descriptions, SLAs, pricing schedules, privacy and authorized user policies (AUPs) and, as applicable, the provider’s online general terms and conditions.  Some services providers insist on an indemnity from customers for violations of the provider’s AUP for which the provider reserves the right to modify at any time.  In some instances, the general terms and conditions in the services guide not only conflict with the terms and conditions in the executed agreement, but may impose additional or supplemental customer obligations and conditions that are not readily trumped (excuse the pun) by a standard precedence clause in the executed agreement.

Some services providers push the envelope even further, asserting that the customer’s sole remedy for services providers’ unilateral changes to the service guides that are “material and adverse” to the customer is the customer’s right to discontinue the affected service on sixty (60) days-notice.  Apart from excluding the customer’s right to damages, replacement services to multiple customer locations (sometimes a hundred or more sites) cannot be sourced, provisioned, and tested and the customer’s traffic cannot be reliably migrated to replacement services in sixty (60) days.

This brings us back to the four corners defense.  The agreement executed by the customer and the services provider should provide for fixed rates, as opposed to percentage discounts of the rates in the online services agreements; services providers invariably reserve the right to change the rack rates in their service guides with virtually no notice.  The written agreement should also exclude “shadow” general terms and conditions in the service guide as opposed to relying on a precedence clause.  The minimum response to the services providers’ provision authorizing changes to the service guide that are “material and adverse” to the customer is to secure a six-to-twelve-month transition period to migrate to replacement services, not sixty (60) days.

There is one caveat on changes in wireline services. The major telecommunications carriers are now transitioning their networks from TDM technology to IP-based services.  (The MSOs’ networks are largely IP-based.)  The FCC is accommodating the carriers’ efforts to minimize regulatory delays and burdens on ILECs in implementing this transition and in replacing copper loops with fiber or fixed wireless technologies.  The core networks of the major services providers are well along in this transition, but the transition in special access services varies considerably in terms of location and the ILEC provider.

Enterprise customers should press their wireline services providers on (i) the status and projections for completing their IP-transitions, and (ii) the transition plans for the ILECs from which the services provider will be acquiring special access services.

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FirstNet recently selected AT&T as its partner to build, operate and maintain the Nationwide Public Safety Broadband Network (“NPSBN”).  With AT&T leading the charge, network development appears to be on a fast track. In early June, the initial AT&T/FirstNet Radio Access Network (“RAN”) or coverage plans were made available electronically to all 50 states, the District of Columbia and territories of the United States (referred to as the “states” for purposes of this article). After a brief period for review, comment and consultations, the plans will be finalized and the Governor of each state must decide whether to accept the FirstNet plan or to seek an alternative coverage model through the state’s own Request For Proposal (“RFP”) process.

In evaluating its options, the goal of every state should be to obtain the best possible network coverage for its First Responders. The safety of First Responders and the public must be the primary concern in evaluating the AT&T/FirstNet plan. In order to conduct a reasonably thorough examination, the Governors and their teams must have access to the necessary financial, technical and legal information regarding AT&T’s commitments to deliver the NPSBN.

However, the states currently face a major obstacle in conducting their analysis. They do not have access to the underlying contract between AT&T and FirstNet. There have been numerous trade press reports and FirstNet/AT&T presentations about what the AT&T proposed roll-out will entail (e.g. access to the entire AT&T network, public safety usage targets, priority and preemption). However, no one from a state government is privy to the specific terms of the FirstNet/AT&T agreement. As with most agreements the “devil is in the details,” but the states cannot access the details.

There are countless issues involved in the review of state plans that turn on the conditions of the underlying FirstNet/AT&T contract. For example, how much of the statutory requirement for rural coverage can be satisfied through “deployables” as opposed to permanent hardened infrastructure under the terms of the contract? What is the specific long-term commitment to support discounted pricing for public safety use? Is there a mechanism in place to resolve any disputes that may arise between FirstNet and AT&T.

A fundamental question is whether there is an option for AT&T to “opt-out” of the contract with FirstNet if it fails to obtain a certain number of states “opting-in” or for any other reason. Another basic issue pertains to the penalties that AT&T may have to pay if it fails to meet certain levels of public safety use or “adoption” on the network. Without firsthand knowledge of the AT&T/FirstNet agreement, there is no way of knowing with certainty if there are caveats or conditions that could limit such a requirement?  What happens to the spectrum if there is zero public safety adoption in a given area or insufficient adoption on a nationwide basis? These are significant questions to which states are entitled to an answer.

For AT&T and FirstNet to simply address these and other critical questions an on ad hoc basis is not a prudent approach. The only way for a full evaluation of whether the needs and objectives of public safety are being met is for FirstNet and AT&T to disclose the underlying contract to the states so that they can examine the specific terms of the agreement.

As things now stand, a Governor is being asked to accept a vendor to build and operate the public safety network within his or her state – impacting the lives of First Responders and the public – without firsthand knowledge of the terms under which AT&T will provide the service. FirstNet and AT&T should disclose the terms of their contract pursuant to an appropriately drafted non-disclosure agreement so the Governors and their teams will have a complete picture in reviewing the FirstNet/AT&T coverage plans.

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This is the second of two entries on dark fiber arrangements.  Dark fiber is a realistic option for high-bandwidth requirements of businesses, medical and educational institutions, and state and local governments (collectively “enterprises”).  This entry focuses on the two principal types of dark fiber arrangements: indefeasible rights of use (“IRUs”) and leases.  The IRU agreement is different from a telecommunications services agreement, but the dark fiber lease resembles a services agreement.

Under an IRU or a lease, the customer is obtaining a “facility,” not a service such as broadband or VoIP.  The term of an IRU often tracks the useful life of the fiber—at least 20 years.  A dark fiber lease extends up to 5 years, often with renewal options.  Under generally accepted accounting principles, an IRU is typically treated as an asset and a dark fiber lease is treated as an expense.  In addition to different accounting treatment, state property and transactional tax implications may be different.

Indefeasible Rights of Use

Pricing.  IRU customers (“grantees”) typically make two payments to IRU network operators:  the one-time charge for access to and use of the fibers for the duration of the IRU and an annual maintenance charge.  The latter covers “routine” maintenance that is typically scheduled during off-hours and emergency restoration of a fiber cut or other damage to the dark fiber cable or strands. The IRU fee is often paid in two installments:  50% at contract signing and 50% upon acceptance.  The “cost per fiber per mile” is the principal metric for comparing IRU pricing.

In major metro areas, dark fiber network operators (that may also offer telecommunications services) extend their network to customer locations.  This network extension is typically expressed as an agreed-upon, one-time charge that includes the splicing of customer’s fibers at agreed upon demarcation points.

Outside of major metro markets, the network operator may construct all or a portion of a fiber route for a customer (retail services provider, another dark fiber network operator or a technology company).  Network design and construction costs typically are built into the IRU fee.  A newly constructed fiber route invariably includes more fiber strands than a given customer requires.  Network operators often view the initial IRU customer as its “anchor tenant” from which it looks to recover most of the construction costs for a given fiber route.  The total fiber count for a route is a major decision for a network operator; however, other costs of dark fiber network construction (see initial entry) typically exceed significantly the incremental cost of additional fibers along a route.

Business Risks in IRUs.  Customers bear three principal risks in IRU agreements: the fiber network operator’s bankruptcy; loss of underlying rights; and fiber cuts.  The network operator’s bankruptcy poses the most significant risk.  This is due to the term of IRU agreements being 20+ years, the IRU fee typically being paid in full during the initial year, and the relative modest capitalization of dark fiber network providers (as compared to the major telecom and cable service providers).

Continue Reading Enterprise Customers and Dark Fiber: An Important Connection (Part 2)

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FirstNet was born more than five years ago with the passage of the Middle Class Tax Relief And Job Creation Act of 2012 (“Act”). As we wait for the conclusion of a court challenge by Rivada Mercury to the federal government’s procedures in selecting FirstNet’s partner to build, operate and maintain the nationwide public safety broadband network, one wonders if there is a better way forward. Does FirstNet really need the Federal Acquisition Regulation (“FAR”) procedures to select its partner?

FAR contains the uniform policies and procedures for acquisitions by agencies and departments of the federal government. For many, it is a lengthy, complex and bewildering maze of requirements. For a single-purpose, long-term service provider relationship, the question is whether FirstNet would be better off without the FAR? The FirstNet enabling legislation simply requires FirstNet to issue Request for Proposals (“RFP”) for selection of a vendor to construct and operate the network that are “open, transparent and competitive.” There is nothing in the legislation that requires FirstNet to use FAR procedures to select a vendor.

FirstNet is an “independent authority” within the National Telecommunications and Information Administration (“NTIA”) with an urgent public safety and national security mission. Despite not being an “executive agency” explicitly subject to the FAR, FirstNet decided early on to subject itself to the rigorous hurdles required by FAR. FirstNet “assumed” application of the FAR because it  was “not expressly excluded from application of the Federal Acquisition Regulation.”

Under FAR, FirstNet had expected that a winning bidder for building out the network would be selected by November 1, 2016. However, as often happens in the FAR process, a court challenge was instituted by a disappointed bidder. The dispute could end soon and FirstNet will be able to go forward with its selected winner – AT&T by all public accounts. But what happens if the Court finds that FirstNet did not follow FAR requirements in the selection process? What happens if there are further court appeals leading to endless delay? Delay, delay and more delay is not in the best interest of the nation as FirstNet waits to fulfill its statutory mandate.

At what point should FirstNet even consider turning away from the FAR? FirstNet has gone so far down this road that it may be difficult at this time to forge a better path to a speedy and fruitful result. Nevertheless, FirstNet is not obligated to follow FAR procedures and it is free to craft its own guidelines for selection of a partner subject only to the “open, transparent and competitive” standard of the Act. There is nothing in the legislation that prevents FirstNet’s procedural guidelines from being simple, transparent and straightforward.

When it was first created, many had hoped FirstNet would act like a quasi-private entity with the ability to move swiftly, unburdened by bureaucratic quicksand. Unfortunately, as those who have followed FirstNet’s early history are well aware, that has not been the case. Perhaps out of necessity FirstNet will need to find a new way to “do business.” Just perhaps, the time is soon coming when FirstNet will find it best to sit at the negotiating table much like a private entity and negotiate a deal that is in the best interest of the country, without the weight of the FAR on its shoulders. While at the outset, FAR may have been considered a “safe” way forward, as demonstrated by the pending court challenge it is not necessarily the “best way” for FirstNet.

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This is the first of two entries on dark fiber arrangements for the dedicated, high-bandwidth requirements of businesses, medical and educational institutions, and state and local governments (collectively “enterprises”).

Enterprises should consider dark fiber arrangements for local and regional high capacity requirements. High-bandwidth, dedicated services (Gig-Ethernet and higher) within metropolitan areas are relatively expensive on a cost-per-mbps basis; special access service rates are not competitive and the major carriers are not aggressively competing for dedicated high capacity services in regional markets.

The second entry focuses on the two principal agreements under which enterprises may acquire dark fiber: indefeasible rights of use (“IRUs”) and leases.

Dark Fiber—In Brief

Dark fiber is a facility, comprised of glass fibers, placed in a loose tube with filler and strength members; multiple tubes may be placed within a sheath (collectively “fiber optic cable.”)  The unlit glass fibers are universally referred to as “the dark fibers.” The “fiber counts” in a fiber optic cable vary. Fiber optic cable may be installed in underground conduit (“underground”) or extended along utility poles and other aboveground infrastructure (“aerial”). Most dark fiber arrangements are between dark fiber providers and telecommunications carriers.

In dark fiber arrangements, the customer (carrier or end-user) is responsible for “lighting the fiber”—installing and maintaining the electronics, principally the transmitters to convert electrical signals into light and the receivers that convert the light back into electrical signals for processing and conveying communications. A dark fiber provider terminates its fiber optic cable in connectors or performs fiber splices between their dark fibers and its customer’s cabling or fiber at mutually agreed upon demarcation points (patch panels that may contain connectors or splice boxes or both).

Dark fiber customers typically do not physically access the dark fibers, but often require providers to perform tests to confirm the glass fibers meet end-to-end connectivity measures and that all splices connecting network fiber to the customers’ cables meet industry standards at delivery (acceptance) and that these measures and standards are maintained for the duration of the agreed upon term.

The Merits of Dark Fiber Connectivity

                  Dark Fiber is a Durable Asset. Fiber optic cables have useful lives of 20–30 years, or more.  Fiber optic technology (the cable and the electronics) is a building block of telecommunications networks throughout the world; wireless and wireline. Annual maintenance costs are modest, though fiber cuts do occur and permanent restoration is a significant undertaking that dark fiber providers price into their charges.

                  Derivable Bandwidth Will Increase Over Time. The electronics that “light” the dark fibers are part of a very large, well-funded technology ecosystem. Over the useful life of a fiber optic cable, the derivable bandwidth/capacity should increase substantially due to advances in the underlying technologies embedded in the electronics. This is why one major wireless carrier opts for dark fiber connectivity between its small cell sites and network.

                 Fiber Deployments Are Capital-Intensive. The “sunk costs” of fiber networks are substantial: right-of-way and easement acquisition, construction and other land use permitting, the installation of the fiber optic cable—underground or aerial, the fiber optic cable, and the splicing and testing of the fiber. Splicing is necessary throughout a fiber network because cable lengths are limited by amount of cable that can be rolled around spools for transport and ready deployment. Regenerators must also be installed in fiber networks as the signal must be regenerated to reach distant endpoints.

For these reasons, enterprise customers and technology companies rarely construct fiber networks extending beyond the contiguous real estate of their facilities. The major exceptions are electric utilities that have deployed fiber optic networks for years to support their operations. Utility easements and rights-of-way typically accommodate dark fiber installed for a utility’s internal telecommunications requirements.

                 Major Telecommunications Carriers Typically Do Not Offer Dark Fiber Arrangements. The three largest domestic wireline carriers: AT&T, Verizon and CenturyLink do not typically offer, if at all, dark fiber options to end user customers. It is doubtful this practice will change significantly despite Verizon’s acquisition of XO Communications and CenturyLink’s proposed acquisition of Level 3 Communications. The three largest cable operators—Comcast, Charter-Time Warner and Cox may prove more flexible.

Zayo is probably the largest, independent (as of the date of posting for this entry at least) dark fiber provider (that also offers services) in the United States. There are other metro-area fiber networks in the larger metropolitan areas. Service providers offering dark fiber arrangements exist in less densely populated areas as well, particularly along the Nation’s major North-South and East-West fiber routes.

                 Total Cost of Ownership. The full cost of dark fiber arrangements includes the cost of the electronics, the lease/use charges for the dark fibers, the dark provider’s one-time costs particularly extending facilities to a customer’s locations, and the customer’s costs in managing the electronics and monitoring network connectivity. On the other hand, the USF charges are not imposed on dark fiber transactions and sales, use and gross receipts taxes applicable to “telecommunications services” may not apply though other state taxes may apply (to be confirmed by state transaction tax counsel).

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On January 30, President Trump signed an Executive Order on Reducing Regulation and Controlling Regulatory Costs. The Executive Order sets out a number of related concepts focused limiting Federal regulations, including a “Regulatory Cap” that is implemented through three inter-related provisions

  1. “Section 2(a): Unless prohibited by law, whenever an executive department or agency (agency) publicly proposes for notice and comment or otherwise promulgates a new regulation, it shall identify at least two existing regulations to be repealed.
  2. Section 2(b):. .  .  [T]he heads of all agencies are directed that the total incremental cost of all new regulations, including repealed regulations, to be finalized this year shall be no greater than zero, unless otherwise required by law or consistent with advice provided in writing by the Director of the Office of Management and Budget (Director).
  3. Section 2(c):. .  . [A]ny new incremental costs associated with new regulations shall, to the extent permitted by law, be offset by the elimination of existing costs associated with at least two prior regulations.

During my years at the Federal Communication Commission, I worked on implementation of a one-for-one deregulation directive by the FCC Chairman that specified a new regulation could not be added unless an existing regulation was deleted. That initiative did not call for a comparison of costs of the proposed regulations and the proposed deletions; sometimes the outcome was the addition of a substantive and potentially burdensome new regulation “offset” by the elimination of an outdated or largely irrelevant regulation that no longer had significant impact and did not provide any real cost savings. Provision 2(c) of the Executive Order appears to call for a cost- based approach to deregulation.

An important legal distinction is that the FCC is not bound by the Executive Order because the FCC is an independent regulatory agency, rather than a part of the Executive Branch of the Federal Government. However, there is good reason to believe that the FCC may choose to emulate the Executive Order based on previous statements made by then minority Republican Commissioners Pai and O’Reilly in response to the adoption of new FCC rules, regulations and policies they viewed as either unwarranted or unduly burdensome.

In a December 2016 speech, prior to being named FCC Chairman, Commissioner Pai offered these comments: “In the months to come, we also need to remove outdated and unnecessary regulations.  As anyone who has attempted to take a quick spin through Part 47 of the Code of Federal Regulations could tell you, the regulatory underbrush at the FCC is thick.  We need to fire up the weed whacker and remove those rules that are holding back investment, innovation, and job creation.  Free State and others have already identified many that should go.  And one way the FCC can do this is through the biennial review, which we kicked off in early November.  Under section 11, Congress specifically directed the FCC to repeal unnecessary regulations.  We should follow that command.”

The biennial review referred to in then Commissioner Pai’s speech is underway in an FCC docket. The Public Notice issued in late December has a 57-page Appendix listing the rules adopted by the FCC 10 years ago and now due for review. Comments in that proceeding are due on or before May 4, 2017.  As part of the biennial review, Chairman Pai could direct that the FCC follow a substantially similar approach to the Executive Order.

The change in attitude toward regulation at the FCC by the new Chairman and majority makes this the ideal time for an entity to compile its wish list of FCC regulations to eliminate as unnecessary or streamline to make less burdensome or more cost effective. The alignment of the Executive Order, Chairman Pai’s deregulatory mindset, and the biennial review are an opportunity that should be seized and quickly.

The attorneys in the Telecommunications Practice Group at Keller and Heckman would welcome the opportunity to review your ideas on a courtesy basis and discuss how we can provide our assistance in presenting your proposals to the Commission.

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The nation watched President Trump take the oath of office last Friday.  On the same day, but to considerably less fanfare, it was widely reported that President Trump would appoint Commissioner Ajit Pai as Chairman of the FCC.  It became official on January 23, 2017.

Chairman Pai is joined by current Commissioners O’Reilly (a Republican) and Clyburn (a Democrat).  The Republican majority should make it easier for Chairman Pai to quickly act on his priorities.

What are his priorities?  To get a sense, we examine then-Commissioner Pai’s public statements in several high-profile – and sometimes contentious – FCC proceedings. Continue Reading FCC Priorities Under Republican Leadership