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Beware of the Tipping Point.  Telecommunications services procurements do not always yield the targeted results.  This typically arises when a non-incumbent carrier concludes the incumbent is going to retain the business.  This can and does occur when the customer signals—intentionally or not—that  the RFP process is just a formality.

It can also arise in connection

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In an earlier entry, we outlined the importance of counsel understanding the critical elements of the business deal in order “to provide relevant advice” to enterprise customers negotiating telecommunications services agreements. This entry focuses on carriers’ standard services agreements (“Carrier Agreements”), highlighting how these agreements remain highly problematic.

 1.  Above All, Carrier Agreements Are Drafted to Maintain Projected Revenue Streams

Minimum revenue commitments and early termination liability provisions are standard in Carrier Agreements, vestiges of the 20th Century when interexchange (Wireline) services were offered under tariff.  Regulators either required or tolerated revenue shortfall protection for discounted rates.  Today, the economic justification for early termination liability is tenuous, at best, as (1) the services are no longer regulated and the carriers vigorously maintain the markets for their services are competitive;  (2) carriers’ costs consist largely of fixed, sunk network investments; and (3), from the customers’ perspective, the logistics and transaction costs in migrating enterprise- wide data services to successor carriers negates the option of readily switching carriers to optimize rates.

Billing for telecommunications services have been the carriers’ Achilles Heel for decades. A cottage industry of telecom expense management firms thrive because of challenged carrier billing systems.  Despite this reality, standard billing dispute clauses call for payment of disputed amounts after the carrier reaches its conclusion regarding the dispute.

Unrealistically low caps on direct damages is another 20th Century vestige.  While problematic, the more significant concern is that Carrier Agreements do not provide meaningful resolution procedures for chronic service issues, as discussed in an earlier entry.  Site-specific or network-based Service Level Agreements are not adequate as the impact of chronic service issues on the enterprise go far beyond generally accepted notions of direct damages.


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The American Arbitration Association (“AAA”), at the request of the Cellular Telecommunications Industry Association (CTIA) established a special arbitration program for the wireless industry and its customers.  The program has its own set of Rules and its own Panel of arbitrators.  This program is designed to address any dispute relating to the provision of cellular and broadband PCS services although any arbitration agreement can elect to employ the rules.  Any AAA arbitration arising within the wireless industry is handled under this program by default, unless other rules are stipulated by contract.

The Wireless Industry Arbitration rules are essentially the same as those for ordinary commercial disputes.  There are three tracks.  The Regular Track is for cases involving claims between $75,000 and $500,000 dollars.  Smaller claims are handled on using the Expedited Procedure and larger claims are handled on the Large/Complex Case Track.

In the Expedited Procedure, the AAA appoints a single arbitrator.  There is a presumption that the matter will be “tried” on the papers and there is a 45-day “time standard” for case completion.  In the Regular Track, there is presumptively one arbitrator and any discovery is at the discretion of the arbitrator.  Cases on the Large/Complex Track, are subject to mandatory pre-arbitration mediation and/or early neutral evaluation according to AAA.  Also, there is a presumption that there will be three arbitrators and the presumption that there will be discovery.  Finally, the parties can agree to an appellate type review of the initial award.  The Large/Complex case rules can be applied to claims that are smaller than $500,000 or that have no undetermined or nonmonetary claims at the request of any party.

As part of the program, AAA maintains a special panel of arbitrators known as the Telecommunications Panel.  The Telecommunications Panel includes many individuals who are engaged directly in the telecommunications industry.  According to AAA, attorney members of the Panel typically devote at least half of their practice to telecommunications matters.

Of course, any of the Rules can be altered by contract between the parties.


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Growth in enterprise Wireless services tracks society’s accelerating shift toward all things Wireless—smart phones, apps, tablets, and Wireless broadband. The following is our assessment of major trends and influences currently impacting enterprise Wireless deals.      

  • If given the choice, telecom consultants would prefer—by a wide margin—to work on a Wireless procurement as compared to a Wireline

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The combination of Google and Motorola has elicited a flood of comments and analyses.  Those relating to Motorola’s patent portfolio are of most immediate importance for enterprise Wireless customers. As noted by Verizon’s deputy general counsel John Thorne, “the extent that this deal might bring some stability to the ongoing smart phone patent disputes,

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The broad acceptance of Multi-Protocol Label Switching (“MPLS”) service by enterprise customers warrants a “fresh look” in negotiating three important aspects of Wireline services agreements.  The discussion on service provider transitions applies to Wireless services agreements, as well.

1.  Addressing Chronic Service Issues.  The principal benefits of MPLS service are “any-to-any” connectivity, scalability and ease in adding or deleting sites.  Readily available CPE supports voice-over-MPLS.  These benefits are maximized when MPLS is offered by a single carrier, although multi-national firms may maintain region-specific MPLS networks and some large enterprises maintain several MPLS networks (each provided by a different carrier) for redundancy purposes.

A glaring weakness in carriers’ standard services agreements is the failure to address reasonably the risk of chronic service problems in an MPLS environment.  The carriers’ standard (and antiquated) “partial discontinuance” clauses are limited to problems associated with services to a single customer location; potentially relevant for high volume call centers utilizing inbound toll free services, but not an MPLS network.  Even though Service Level Agreements (“SLAs”), such as mean time to repair and site availability are customer-oriented, the metrics remain largely site-specific.

If  MPLS service to priority customer locations (data centers or corporate offices) are subject to chronic outages, the enterprise’s businesses and processes will be impacted severely and adversely.  The standard carrier insurance policy (to be purchased by the customer) of redundant ports, access and routers is not the answer.  The burden should not be shifted to the customer to insure that the carrier delivers the agreed-upon level of service.  In light of the limitations on potential damages demanded by carriers and the risks associated with chronic service issues, a tailored remedy or escalating remedial responses are warranted to more equitably address the risks borne by MPLS customers.


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Whether hitting a baseball, landing a triple axel on the ice, or striking a header in soccer, timing is essential.  In telecommunications services procurements, timing is a critical consideration even for the largest corporate and government customers looking to realize a measure of bargaining leverage in today’s environment.   While the proposed AT&T and T-Mobile combination

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A fundamental expectation of clients in any commercial transaction is that counsel understand the business deal.  When procuring Wireline voice and data communications services,  major businesses, institutions and state governments make five fundamental business decisions.  The first four apply to Wireless services procurements.
              1. Service
              2. Choice of Carriers
              3. Pricing
              4. Minimum Purchase Commitments
              5. Wireline Service for Enterprise Data Communications

1.       Services

The major domestic Wireline carriers are AT&T, Verizon, Sprint and Qwest/CenturyTel .  The core services these carriers offer to enterprise customers include long distance, VoIP, audio conferencing and various data services—high-speed Internet access, frame relay, private line (TDM and Ethernet), and Multi-Protocol Label Switching (“MPLS”) services.   As a rule, local exchange service remains regulated and is not included in these deals.  These carriers offer related services, such as network (router) management , data center (collocation) and network security services, but are not yet substantial providers of cloud computing or content delivery services.   Customer premises equipment  (routers and switches) typically are not bundled with these services.

All of these carriers offer international services ( i.e., services between the US and other countries).   Multinational enterprises also are interested in Rest-of- World (“ROW”) services (i.e., services between and sometimes within foreign countries).  Several domestic carriers and foreign carriers such as Telefonica and BT offer ROW services.

The Wireless voice and data services available to enterprise customers are largely the same as those offered to consumers, although pricing options are different.  Handsets are bundled with Wireless services.  The principal domestic providers are AT&T, Verizon Wireless, Sprint and T-Mobile.  Available handset options, in-country coverage, Wireless data options  and the extent to which domestic carriers coordinate or manage wireless services in other countries are among the critical decision points.  Wireless service offerings tend to be country-centric.

2.         Choice of Carriers

Wireline and Wireless services are highly commoditized offerings with high  market entry barriers.  Enterprise customers typically utilize RFPs and consultants specializing in procuring these services.   Properly crafted RFPs include substantial information regarding enterprise traffic and bandwidth requirements and service preferences.  As discussed below,  the real-world prices paid by enterprise customers are not publicly available.

Enterprise customers have a strong interest in limiting the number of Wireline and Wireless carriers, respectively, from which they obtain service, principally to clarify responsibility for service quality, provisioning and trouble resolution, maximize bargaining leverage, and develop a mutually beneficial business relationship.  Typically, Wireline and Wireless carrier selection decisions are made independent of each other.


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Amazon’s analysis of its extended cloud computing outage, as summarized in Richi Jennings IT Blogwatch, raises an important question for counsel advising clients negotiating agreements to procure cloud computing, content delivery and data communications services:  Should the agreement include a provision defining a service problem threshold and/or a series of problems threshold that triggers