Whether an end user is a Fortune 100 corporation or a small organization, negotiating service agreements with telecommunications carriers is a precarious undertaking. Carrier agreements typically present a host of elusive provisions, concepts, and references which, if not properly handled, can easily lock the end user into a financially costly deal. On top of this, carrier account teams are typically backed by experienced telecommunications counsel,thoroughly versed in the inherent advantages built into the template agreements carriers routinely offer. End users, whether negotiating with a carrier for the first time or renegotiating an existing agreement, are well advised to proceed cautiously and ensure that they fully understand the implications of their deal.
Some of the more common areas of concern raised by carrier agreements are highlighted below.
The Filed Rate Doctrine.
Perhaps the most powerful weapon in a carriers arsenal is
the Filed Rate Doctrine. Federal courts uniformly recognize this legal principle which forbids a carrier from charging a rate other than the rate tariffed or filed with the Federal Communications Commission (FCC). What this means from a practical standpoint is that in case of a conflict between a carrier tariff and an executed service contract, the rate contained in the tariff prevails.
It is not uncommon for an end user to painstakingly negotiate a contract with a carrier only to learn later that the
rates (and provisions relating to rates) contained in the contract are null and void because they have been superseded by tariff provisions which the end user never approved. It should not come as a surprise, then, that because the filed tariff is the legally operative document, carriers can be extremely aggressive in initiating collection actions on the basis of the Filed Rate Doctrine.
In order to counter the carriers filed rate strategy, an end user is well-advised to insist upon the right to
approve the tariff that the carrier plans to file with the FCC, embodying the end users service agreement. Clearly, the tariff should reflect the terms of the agreement, and must contain relevant pricing, discounting, credits, and other crucial terms which affect price.
Sometimes carriers do not tariff their specific agreements with end users and instead simply incorporate by reference terms and conditions from their existing general tariffs. Such general tariffs must be reviewed and understood,
because any inconsistencies affecting rates will be resolved by the courts in favor of the tariff. The fact that a carrier misquotes the applicable rate or that the end user was unaware of the Filed Rate Doctrine is no defense to a collection action under the Doctrine.
Hidden Surcharges and Fees.
Another weapon favored by carriers in crafting service agreements is pass-through surcharges, which are insidious because they are typically not quantified in service agreements. Instead, service agreements
often reference carrier tariffs that spell out the specific charges in greater detail. Making matters worse, some carriers impose additional administrative fees on top of the surcharges.
The pass-through surcharges that end users are most likely to encounter include, but are not limited to, the FCCs Universal Service Fund (USF) surcharge, the public payphone surcharge, and the Primary Interexchange Carrier Charge (PICC). Since carriers treat these assessments differently, end users
should shop around for deals that minimize or at least fully disclose these surcharges. The FCC permits carriers to recover additional administrative costs, so long as they are reasonable.
At a minimum, end users should insist that the administrative charges be eliminated and that any authorized surcharges be passed on at cost. By law, specific surcharge levels must be reflected in carrier tariffs to be collectible. As with the Filed Rate Doctrine, foreknowledge of carrier use of hidden surcharges will aid
End users must also be careful to examine language in service agreements pertaining to minimum commitment levels. Typically, service agreements require customers to meet a specified minimum annual revenue commitment, subjecting the end user to penalties if a shortfall occurs. The ability to meet the commitment and the severity of shortfall penalties must be carefully considered.
It is also important to comprehend what counts toward the commitment. Clarifying
what kind of traffic will be covered by the deal is of vital importance, for if certain traffic is excluded in calculating the minimum commitment level, end users may suffer unexpected shortfall penalties.
Unilateral Increase of Rates.
End users must also be on guard against carriers unilaterally increasing rates during the term of an agreement. Carriers have a virtually unfettered ability to revise their FCC tariffs to increase rates and, because of the Filed Rate Doctrine, such increases have
the effect of law.
End users should look to negotiate fixed-rate pricing for a specified term or the term of their arrangement. The scope of any price protection afforded needs to be clearly understood, including the service offerings to which it applies. Sometimes fixed rates only apply to selected services under the deal. Ironically, even a rate decrease poses concern since it can cause an end user to fall short of the minimum commitment (absent a traffic increase).
service agreements impose a potentially heavy penalty if the agreement is terminated by the end user prior to the end of the term. End users often fail to fully comprehend the financially devastating impact of termination penalties and, as a result, find themselves fettered to more expensive deals because early termination would prove even more costly.
End users must be exceedingly careful and thorough in examining contract language regarding termination penalties, lest they find themselves on the wrong
end of an aggressive collection action.
A range of other potential traps exist for the unprepared end user, including service level agreements, credit issues, shortfall liability, business downturn or divestiture issues, installation delays, and how this impacts the minimum commitment, hidden exclusivity provisions, and commencement dates.
Negotiating a favorable deal with a carrier, particularly one of the larger carriers, is a daunting challenge even for large end users with significant legal support.
The larger carriers have dedicated teams, which routinely negotiate end user agreements, backed by specialized in-house legal counsel. Since large end users can meet larger annual minimum commitments, they typically have more bargaining power and can often command more favorable deals. Smaller end users may not have the same leverage, but with a full understanding of the issues they face, can avoid both common pitfalls and secure attractive rates.