This is the third of three entries analyzing telecommunications services agreements. The first—Overview—highlighted the structure and basic components of telecommunications services agreements. The second—Revenue Assurance—focused on the carriers’ interest and mechanisms for locking-in projected revenues. This third entry—Risk Mitigation—looks at damage caps, termination rights and indemnity obligations in carriers’ standard agreements.

Customers Bear the Risks. In terms of substance and process, the carriers’ standard agreements are as one-sided as ever. Mutuality is limited to the standard disclaimer of consequential, special and incidental damages. The artificially low cap on damages is often limited to the carrier. This cap is laughable in light of the potential adverse impact of poor service on customers’ businesses and operations. As to process, customers may raise billing issues, but the standard billing dispute resolution provision typically provides that the carrier’s determination is final. Whether the parties agree to resolve disputes by litigation, arbitration or another form of ADR, all disputes should be subject to the agreed-upon process.   

Chronic Service Problems—Customer Beware. In light of the standard damages cap, the meaningful remedy for chronic service problems is termination of the service or the agreement. Several carriers undercut this option by limiting the consequences for poor service to credits offered under their Service Level Agreements (“SLAs”). The challenge is negotiating a service impairment threshold for which there is no opportunity for cure. (As a practical matter, a chronic service issue cannot be “cured”). As noted in an earlier entry, site-specific remedies are meaningless for chronic service issues associated with workhorse corporate data services—such as MPLS—in which hundreds, a thousand or more customer locations may be impacted.

While the “termination remedy” imposes its own set of hardships–unplanned procurements and transitions to replacement carriers, customers should preserve this option. This is accomplished by negotiating provisions that provide (i) a reduction in the minimum revenue commitment equal to the value of the discontinued services for the balance of the agreement, and (ii) a reasonable transition period—not less than 90 days; six months is more realistic—to migrate traffic to a replacement provider. In addition, the underperforming provider should be obligated to issue a credit or pay the customer an amount equal to any increased cost for the replacement service.

Why is the Customer Indemnifying the Carrier? Indemnity obligations vary widely, based on the services provider and the services in question. Customer indemnities (for the carrier’s benefit) should be limited because the vast preponderance of the customer’s risks—poor or unavailable service—are not and cannot be reasonably addressed because of the standard disclaimer on consequential, special or incidental damages. Some carriers demand indemnities against claims from customer’s users who suffer serious injury as a result of not reaching the local Public Service Answering Points (“PSAPs”)— when the VoIP/SIP user dials 9 1 1 at a location other than its “primary registered” location. The FCC’s regulations on VoIP and 9 1 1 calling should be sufficient. While some carriers reserve the right to suspend service for violations of the carrier’s Authorized User Policy (“AUP”), demanding an indemnity from customers against claims arising from non-compliance with an AUP is over the top.

One major carrier’s standard agreement disclaims all liability for unauthorized access to customer’s communications. While it may be reasonable for a carrier to disclaim liability for unauthorized access to the customer’s information conveyed over its services, it is quite another to attempt to insulate itself from the misdeeds of its employees and contractors. Sadly, the FCC is not helping customers in terms of reasonable privacy expectations. The FCC’s Enforcement Bureau recently acquiesced, in effect, to Google’s view that Sec. 705(a) of the Communications Act does not bar non-parties to a wireless communication from securing the contents of non-encrypted Wireless communications.  Shortly thereafter, the FCC rushed out guidance on how to encrypt WiFi communications.

Wireless Agreements—It Couldn’t Get Much Worse. Customers face a far steeper challenge in regard to Wireless service. Meaningful SLAs are few and far between. Wireless carrier agreements provide, in effect, that “if a subscriber is within range of an operational cell site having capacity to initiate and maintain the Wireless connection, service may be available.” More favorable “commitments” are sometimes negotiated, but SLAs as to access, availability or quality are feeble to nonexistent. Wireless carriers do address problematic service for business customers—at major corporate locations—through the deployment of distributed antenna systems (“DAS”) or bi-directional amplifiers (“BDAs”). The cost and terms of these arrangements vary widely. Customer self-help remedies for in-building coverage gaps are adamantly opposed by the carriers.

Consumers and business customers access the same networks and procure largely the same handsets and laptop plug-ins. The two-year handset minimum commitment period drives enterprise agreements almost to the same extent as consumer transactions. Only recently has some differentiation between consumer and business Wireless services emerged, such as M2M and, most recently, an integrated LTE-MPLS offering from Verizon Wireless. Unlike data communications supported by Wireline services, wireless carriers clearly intend to control aspects of M2M applications.

As a result of handset IP infringement litigation and the bundled nature of Wireless services and handsets, smartphones and tablets, Wireless agreements should provide practical remedies in the event continued use of infringing devices is banned. Carrier statements that customers look to handset manufacturers for equipment issues are laughable, at best. Each carrier picks the models, specifies the frequencies and may restrict/suppress certain technologies in the Wireless devices it offers for sale for use on its networks.