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
Telecommunications Services Agreements and the Four Corners Defense
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
Enterprise Customers and Dark Fiber: An Important Connection (Part 2)
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).
Enterprise Customers and Dark Fiber: An Important Connection
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
Part 2: In Brief – Consequences of the FCC’s IP Transition Orders for End Users and Competitive Service Providers
This entry highlights the consequences of the FCC’s IP Transition orders for business customers and competitive carriers in terms of costs, changes in customer premises equipment (CPE), operational impacts and, for competitive carriers, interconnection agreements.
As noted in our 1st Entry in this two-part series, each ILEC sets its own plans and time lines
Part 1: In Brief – The FCC’s Ground Rules for the IP Transition
For several years, the major incumbent local exchange carriers (ILECs) have been heralding the benefits of transitioning their networks to IP technology. The FCC has supported this transition. Agreeing that “less is often more” and reviewing related decisions in one entry may be helpful, this entry highlights the FCC’s recent decisions on policies and procedures
The Industrial Internet – Legal Issues and Procurement Implications—A Series; Part 2—Distinguishing Characteristics
This is the second entry in a series on the “Industrial Internet,” focusing on the basic elements, legal issues and procurement implications, principally from the perspective of the end user.
Distinctions between the Industrial Internet and consumer IoT are not hard and fast. For example, many consumer IoT applications are implemented through smartphone apps. On
The Industrial Internet – Legal Issues and Procurement Implications–A Series; Part 1–Overview
This is the first entry in a series on the “Industrial Internet,” focusing on the basic elements, legal issues and procurement implications, principally from the perspective of the end user. The term is used to distinguish industrial and critical infrastructure applications from consumer “Internet of Things” applications, but similar concepts apply.
The unifying characteristic is
Overdue Process Improvements to USF Contribution Reporting
It is all-too-fitting that the annual USF report is due on April 1. For many filers, OMB’s “Estimated Average Burden Hours Per Response” of 13.5 hours for completing the Form 499-A is laughable. The FCC could substantially reduce USF reporting burdens by implementing a number of overdue changes.
Many process improvement proposals offered in comments
Verizon Acquires XO: “Another One Bites the Dust”
As widely reported, Verizon has entered into an agreement to acquire the fiber network business and assets of XO Communications from its sole shareholder Carl Icahn for $1.8 Billion, plus an option to purchase XO’s spectrum that expires at the end of 2018. Verizon is also leasing the spectrum from XO, presumably to “test drive” the spectrum until it either exercises or passes on the option.
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