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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.

 2. The Threshold Issue:  What Constitutes the Agreement?  

As telecommunications services were detariffed in the late 1990s, the carriers implemented tariff replacement documents that—in time—were loaded onto carriers’ web sites and referred to as “service guides” or “online documents.” Today, Carrier Agreements consist of 10–100 + pages and an array of non-indexed, online pages sprinkled throughout the carriers’ web sites.

Initially, the service guides set out standard rates, some general terms and conditions, and service descriptions. The carriers reserved and continue to reserve the right to amend service guides without notice or consent by customers; often, offering the customer the right to terminate the affected service if changes are “material and adverse.”  Historically, few carrier-initiated changes were “material and adverse.”  Over time, the carriers have added indemnities to the their online documents, such as to their Authorized User Policies, even reserving the right to amend these policies.  In other cases, the general terms and conditions are online documents.

Thus, counsel have several challenges: (1) ascertaining and defining the scope of the agreement;  (2) understanding and monitoring the carriers’ unilateral changes to the agreement; and (3) limiting the extent of unilateral changes that impact the legal and business risks initially agreed to by the customer.  Standard precedence and entire agreement clauses are not adequate for these agreements.

3. Carriers Shift Regulatory Compliance Burdens to Customers

From time to time, Congress or the FCC adopt laws or regulations that impose restrictions or carriers, such as the protection of customer proprietary network information (“CPNI”).  Congress requires carriers to secure the customers express approval to disclose a customer’s CPNI to affiliates or 3rd parties. Instead of allowing the customer to make a simple election to “opt-in” to CPNI sharing, the Carrier Agreements typically provide that the customer grants the carrier the right to share CPNI with affiliates and designated third parties, and requires customers to follow a detailed procedure to revoke this authorization, i.e., to “opt out.”

Another example lies in the FCC’s rules adopted to ensure that carriers apprise customers of the risks associated with the use of interconnected VoIP services in connection with 9 1 1 calls.  Because customers may utilize VoIP services wherever they secure Internet access, the telephone numbers of the calling party are not tied to a specific location.  Carrier Agreements place a variety of burdens and obligations on customers to mitigate carriers’ perceived risks in the event  9 1 1 calls don’t reach a public service answering point (PSAP) capable of alerting local emergency responders.

The ever-expanding clauses permitting the recovery of regulatory surcharges and taxes belie the notion that carriers offer fixed rate pricing.  These provisions have mutated from the recovery of surcharges or taxes imposed on the purchase of services to expansive provisions that permit carriers to recover virtually any tax imposed on them and any cost of doing business.