Photo of Douglas Jarrett

This entry provides an overview of how enterprise customers shape the underlying business deals in telecommunications services agreements. In the previous entry, we discussed the primary objectives enterprise customers look to achieve in negotiating telecommunications services agreements.  In our initial entry in this series, we discussed the challenge counsel for enterprise customers face in confining telecommunications services agreements to the four corners of the customer contract.

Overview. There are two basic approaches for putting these deals together. The first is the default or “seat of the pants” approach in which the customer (telecom manager) limits discussions to the current provider(s), typically 3 to 6 months prior to expiration of the current contract and, based on informal discussions with consultants or other customers, asks for a “market-based” reduction in rates for a new three-year deal, maybe remembering to request pricing for replacement IP services. The second is to initiate a more structured process 9 to 14 months prior to the expiration of the current agreement by engaging an experienced consultant to develop a demand set for an RFP to issue to both incumbent and potential successor carriers and to advise on trends in carrier services and pricing, particularly the transition to IP-based services offerings. This entry focuses on the second approach.

Caveat: The incumbent often prevails even under a systematic, well-planned procurement. Transitioning to successor providers is resource-intensive and, for some period, entails the payment of services to the incumbent and the successor provider during the transition process. Hot cuts are not the rule for major enterprises, particularly at critical locations. Caveat to the Caveat. If there is insufficient time to initiate a transition to a successor provider (and avoid a substantial increase in service pricing per the rates in the incumbent’s price guide), both the incumbent provider and its competitive providers likely will not propose market-based pricing and terms and conditions. Thus, the RFP should be issued in a timely manner to allow for competitive, responsive bids and for a doable transition to the successor provider(s).

Value of Telecom Consultants. There are several reasons for engaging a competent consultant. First, there are no published lists of market-based rates; carrier guide rates are rarely accepted by customers. There is no equivalent of published commodity prices (crude oil, corn or pork bellies) or web sites such as Edmunds or TrueCar for enterprise telecommunications service pricing. Even the “best of the best” telecom managers have a limited knowledge base of current market pricing; unless they have changed jobs (frequently), these persons’ pricing knowledge is limited to the company’s last agreement or competitive pricing review of 12 to 18 months ago. Experienced consultants have more insights into current market pricing.

Consultants offer two other value-added services. The first is the development of the enterprise’s demand set for its RFP. Telecom service pricing is based largely on volume, customer locations, and service mix. Two aspects of developing a demand set are determining current usage of existing services at current and planned locations (or anticipating a reduction in locations) and selecting the services (type and capacity) that the customer is looking to acquire. This entails a review of bills and invoices, existing network design, current services, expected growth or contraction of the enterprise’s requirements, and desired services. The two latter considerations are driven by the customer with input from the procurement consultants.

The second value-added is the consultant’s RFP templates. In addition to setting out the demand set and desired services, the RFP elicits information on pricing, other business considerations and legal terms and conditions. The RFP is the starting point for negotiations. The consultant’s RFP should be reviewed within the enterprise by the telecom/IT department, procurement group, legal, and, perhaps, risk management. A company may wish to incorporate the consultant’s RFP into its standard RFP documents or modify the consultant’s RFP. A related consideration to be determined upfront is the extent to which the consultant is the principal contact and whether the consultant will take the lead in discussions with the carriers.

Revenue Commitments and Pricing Reviews. Several other economic considerations are central to the business deal in addition to rates (recurring charges, non-recurring charges, waivers and credits). The first is the minimum revenue commitment which the customer commits to spend either annually or over the term of the agreement. Exclusive purchase commitments are rare. The minimum commitment level is based on projected expenditures at the proposed rates. Currently, term commitments with annual commitments for each renewal period are more common. The minimum commitment is increasingly supplemented by “incentive credits.” The best pricing or highest discount under the agreement is achieved only when expenditures exceed some dollar amount above the minimum commitment level, qualifying for the incentive credits.

Agreements also include a so-called “business downturn/downsizing” provision. This clause is triggered when unexpected reductions in projected expenditures occur due to downturns, divestitures or downsizing in the customer’s business. This clause addresses the risk of paying a hefty sum that is the difference between the minimum commitment and the actual (reduced) level of expenditures. The typical quid pro quo is an increase in rates or an increase in the term of the agreement or both.

The second major economic consideration is the competitive pricing review. These reviews are typically conducted annually or every 18 months. Involvement with consultants are often essential for the customer to have some insight into current market trends. For enterprises with stable or growing expenditures and general satisfaction with the incumbent’s services, services agreements may be extended based on the price negotiations that follow the path of competitive pricing reviews.

Photo of Michael Fitch

Many in the wireless industry are aware of the FCC rulemaking proceeding proposing regulatory changes to streamline the expansion of wireless infrastructure (WT Docket 17-79).  A basic premise of this proceeding is the tremendous potential of 5G wireless technology and the increased capacity needs and vast expansion of infrastructure supporting wireless networks that will be needed to deploy 5G. The proceeding focuses on and identifies potential obstacles to rapid deployment of wireless infrastructure at the local level.

For wireless carriers, small wireless cells are important because small cells support greater re-use of available spectrum and bring the wireless network closer to users and devices. Those attributes are very important to the developing Internet-of-Things (IOT).

Action by the FCC. In Nov. 2017, the FCC took one action in this docket. It excluded from required review under Section 206 of the National Historic Preservation Act (NHPA) replacement utility poles if these conditions are met:

(i)   The original structure

(A) Is a pole that can hold utility, communications, or related transmission lines;

(B) Was not originally erected for the sole or primary purpose of supporting antennas that operate pursuant to a spectrum license or authorization issued by the Commission; and

(C) Is not itself a historic property.

(ii)  The replacement pole—

(A) Is located no more than 10 feet away from the original pole, based on the distance between the centerpoint of the replacement pole and the centerpoint of the original pole; provided that construction of the replacement pole in place of the original pole entails no new ground disturbance (either laterally or in depth) outside previously disturbed areas, including disturbance associated with temporary support of utility, communications, or related transmission lines.  For purposes of this paragraph, “ground disturbance” means any activity that moves, compacts, alters, displaces, or penetrates the ground surface of previously undisturbed soils;

(B) Has a height that does not exceed the height of the original pole by more than 5 feet or 10 percent of the height of the original pole, whichever is greater; and

(C) Has an appearance consistent with the quality and appearance of the original pole. (FCC 17-153, footnotes omitted.)

What’s a “Small Cell.” There is no succinct, agreed definition of the term “small cells.” One FCC point of guidance is in the August 2016 First Amendment to the Nationwide Programmatic Agreement (NPA) for the Collocation of Wireless Antennas between the FCC, the National Conference of State Historic Preservation Officers, and the Advisory Council on Historic Preservation.

The amendment lists requirements for exemption from review under Section 106 of the NHPA for “collocation of small wireless antennas and associated equipment on buildings and non-tower structures that are outside of historic districts and are not historic properties.” The specified limits of the “small wireless antennas and associated equipment” are:

  1. Each individual antenna, excluding the associated equipment (as defined in the definition of Antenna in Stipulation l.A.), that is part of the collocation must fit within an enclosure (or if the antenna is exposed, within an imaginary enclosure, i.e., one that would be the correct size to contain the equipment) that is individually no more than three cubic feet in volume, and all antennas on the structure, including any pre-existing antennas on the structure, must in aggregate fit within enclosures (or if the antennas are exposed, within imaginary enclosures, i.e., ones that would be the correct size to contain the equipment) that total no more than six cubic feet in volume; and,
  2. All other wireless equipment associated with the structure, including preexisting enclosures and including equipment on the ground associated with antennas on the structure, but excluding cable runs for the connection of power and other services, may not cumulatively exceed:
    1.  28 cubic feet for collocations on all non-pole structures (including but not limited to buildings and water tanks) that can support fewer than 3 providers; or,
    2.  21 cubic feet for collocations on all pole structures (including but not limited to light poles, traffic signal poles, and utility poles) that can support fewer than 3 providers; or,
    3.  35 cubic feet for non-pole collocations that can support at least 3 providers; or,
    4.  28 cubic feet for pole collocations that can support at least 3 providers;

State Legislation. In addition to the FCC proceeding, there has been a flurry of actions at the state level that are changing the regulatory landscape for small cells. There has been a major campaign underway by the wireless industry which has achieved impressive results. A list of state legislative initiatives considered in recent years includes about 20 states, many of which have enacted new legislation limiting the authority of local governments regarding small cell installations on public right-of-way.

These proposed state law changes typically limit or eliminate the authority of local governments to determine where in local right-of-way small cell equipment can be installed; limit the time for review by local governments; and limit the application and/or right-of-way leasing charges that can be imposed. For example, Virginia enacted S.B. 1282 earlier this year. It provides that localities cannot require special exceptions or special use permits for small cell facilities installed on existing structures where providers already have permission to co-locate equipment. It imposes a 10-day limit to notify carriers of an incomplete application and a 60-day limit to approve or deny applications. It limits fees to $100 each for up to five small cell facilities on an application and $50 for additional facilities. It prohibits fees for carrier use of municipal rights-of-way, except for zoning, subdivision, site plan, and comprehensive plan fees. It mandates that approval for a permit shall not be unreasonably conditioned, withheld, or delayed.

The Virginia law uses these definitions:

“Micro-wireless facility” means a small cell facility that is not larger in dimension than 24 inches in length, 15 inches in width, and 12 inches in height and that has an exterior antenna, if any, not longer than 11 inches.

“Small cell facility” means a wireless facility that meets both of the following qualifications: (i) each antenna is located inside an enclosure of no more than six cubic feet in volume, or, in the case of an antenna that has exposed elements, the antenna and all of its exposed elements could fit within an imaginary enclosure of no more than six cubic feet and (ii) all other wireless equipment associated with the facility has a cumulative volume of no more than 28 cubic feet, or such higher limit as is established by the Federal Communications Commission. The following types of associated equipment are not included in the calculation of equipment volume: electric meter, concealment, telecommunications demarcation boxes, back-up power systems, grounding equipment, power transfer switches, cut-off switches, and vertical cable runs for the connection of power and other services.

State legislation along these same lines has been adopted in many other states in the last year. Of course, each state’s law varies and must be read carefully to determine its changes.

In contrast, Senate Bill 649 was passed this year by the California legislature but was ultimately vetoed by the Governor. S.B. 649 streamlined the local approval process for small cell sites and limited fees for small cells installed on municipal infrastructure to $250/year with a defined cost of living increase formula. The bill defined small cells as follows:

(3) (A) “Small cell” means a wireless telecommunications facility, as defined in paragraph (2) of subdivision (d) of Section 65850.6, or a wireless facility that uses licensed or unlicensed spectrum and that meets the following qualifications:

(i) The small cell antennas on the structure, excluding the associated equipment, total no more than six cubic feet in volume, whether an array or separate.

(ii) Any individual piece of associated equipment on pole structures does not exceed nine cubic feet.

(iii) The cumulative total of associated equipment on pole structures does not exceed 21 cubic feet.

(iv) The cumulative total of any ground-mounted equipment along with the associated equipment on any pole or nonpole structure does not exceed 35 cubic feet.

(v) The following types of associated ancillary equipment are not included in the calculation of equipment volume:

(I) Electric meters and any required pedestal.

(II) Concealment elements.

(III) Any telecommunications demarcation box.

(IV) Grounding equipment.

(V) Power transfer switch.

(VI) Cutoff switch.

(VII) Vertical cable runs for the connection of power and other services.

(VIII) Equipment concealed within an existing building or structure.

In his veto message, the Governor stated:

This bill establishes a uniform permitting process for small cell wireless equipment and fixes the rates local governments may charge for the placement of that equipment on city or county owned property, such as streetlights and traffic signal poles. There is something of real value in having a process that results in extending this innovative technology rapidly and efficiently. Nevertheless, I believe that the interest which localities have in managing rights of way requires a more balanced solution that the one achieved in this bill.

That suggests the possibility of another effort to address these issues during the next legislative session in California.

Federal Legislation. There is also proposed Federal legislation regarding the approval process for small cells. On October 19, Senators Wicker (R-MI) and Cortez Masto (D-NV) introduced S. 1988, the Streamlining Permitting to Enable Efficient Deployment of Broadband Infrastructure Act of 2017 or the “SPEED Act”.

This legislation would exempt small wireless facilities from environmental and historic reviews under the National Environmental Policy Act (NEPA) if they meet these conditions: (1) They are being deployed in public right of way and are not higher than an existing structure in the public right of way; or (2) They are serving as a replacement for an existing small cell and are substantially similar (as defined by the FCC) to the small cell being replaced. It would also exempt wireless towers from NEPA review if located in public right of way and the antenna tower or support pole is not more that the higher of 50 feet tall or 10 feet higher that any existing structure in the public right of way and does not have guy wires. The SPEED Act uses FCC size and other applicable requirements as its definition of small wireless facilities.

Prospects for enactment are not clear at this time.

If you would like additional information regarding these actions, please contact me or any other attorney in the Telecommunications Practice Group at Keller and Heckman LLP.

Photo of Douglas Jarrett

Updated May 2, 2018

Trends in wireline and mobile services strongly suggest a refresh to the FCC Forms 499-A/Q is warranted.  A shift to fewer revenue buckets (reporting categories and lines) consistent with the major services currently being offered to customers could reduce the time for services providers to prepare Forms 499-A, assist USAC staff in reviewing the forms, and help streamline USAC audits.  Other incremental steps are also suggested.  For purposes of brevity, this entry focuses on the Form 499-A.

Block 3: Carrier’s Carrier Revenue Information is a prime example of outdated and unnecessary revenue reporting obligations.  Several lines under Fixed Local Service could be aggregated or deleted; Line 308 (USF support revenues) should be a standalone category.  Toll services and all other wireline voice services should be consolidated on one line—Wholesale Wireline Voice Services, and all mobile voice services could be consolidated on one line (the toll distinction is irrelevant).  All wholesale private line service revenues should be reported on one line with special access service revenues expressly included or reported on a separate line as special access is the principal wholesale data service.

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.  Interconnected VoIP is rapidly displacing circuit switched wireline voice services.  Switched access service revenues are approaching inconsequential status.

The all-distance plans for wireline voice services may encompass unlimited domestic calls and an unlimited or an allotment of international minutes to select countries with the overage billed on a per minute basis; voice calling to other counties may be billed on a usage-basis.  All-distance voice plans are even more common for mobile services.  International calling card revenues remain cognizable.  Payphone services revenues are not.

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:  Despite a bewildering array of pricing plans, distinguishing between prepaid and postpaid voice revenues is irrelevant for determining USF assessable revenues.  The relevant USF contribution considerations for all mobile voice services are (1) apportioning revenues between assessable voice services from the revenues of bundled non-assessable services and products, and (2) determining the jurisdictional mix of voice services.

Enterprise customers often obtain a broader mix of wireline services:

Voice services (local, outbound and inbound (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.

As with the wholesale service reporting under Block 3, all wireline retail voice services revenue reporting could be simplified.  All enterprise, small business and residential wireline voice service revenues can be reported on one line, the principal USF consideration is assignment to the correct jurisdiction (intrastate, interstate, international or foreign).  Again, mobile voice revenues should be reported separately with determining the correct jurisdiction being the principal USF contribution consideration.

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 special access services (almost all special access services have endpoints within a single state), services providers must follow the 10% de minimis rule to determine the jurisdictional nature of these revenues associated with 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 Commission review that remains pending for over a year.

Another 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 assessable percentages reported for these services (based on actual traffic or traffic studies) on the other.

The Commission or the Wireline Competition Bureau could take the pragmatic step of issuing a Public Notice to refresh the record to align the safe harbors with services providers’ reported data. This could ease reporting burdens for filers and reduce administrative burdens on USAC staff.  The safe harbors could be updated every three years to reflect shifts in usage, if any.

Photo of Douglas Jarrett

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.

Photo of Al Catalano

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.

Photo of Douglas Jarrett

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.

Photo of Al Catalano

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.

Photo of Douglas Jarrett

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)

Photo of Al Catalano

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.

Photo of Douglas Jarrett

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).