|Dear Legal Line,|
I read your column regularly and have some
questions regarding a new project I just started for local phone
services. I used to be just in the business of distributing cards
and prepaid calling services through POS systems in locations I
control. This changed last week when I obtained CLEC certification
to provide local services in the state of Florida. Some of these
services on the CLEC side will be prepaid and the rest, postpaid.
I plan to market the local services through our existing locations.
My plan is to focus on just UNE-P resold CLEC services so I don’t
have to secure huge financial commitments, and can offer a flat-fee
prepaid local dial tone service for customers who get cut off by
I am now in the final process of “negotiating”
with BellSouth for an Interconnection Agreement. One of my employees
used to work for BellSouth so he handled most of the process. To
my surprise, there was no formal “negotiation” as was
my impression. We just requested an Agreement, along with the changes
we wanted regarding deposits, installations, and prepayments according
to their tariff, and BellSouth gave us the changes without a hassle.
The Agreement is now before the Florida Public Service Commission
in order to get final approval. They have already told us that there
is no problem and the Interconnection Agreement will be approved
soon. It seems like this was all a routine “No-Brainer”
type of activity. Why is such a big deal made over hiring a telecom
attorney to negotiate the Interconnection Agreements? I know that
attorneys need to earn a living too, but I don’t see the need
for one in this process. Am I missing something about this process?
Honestly I would rather use my telecom attorney for something I
need (e.g. filing a lawsuit or writing a commercial contract) instead
of something routine like this. What do you think, was an attorney
necessary or is my agreement OK?
- Just Connect Me
Dear Just Connect Me,
Well, congrats on the CLEC certification
and Interconnect Agreement. A lot of prepaid businesses are now
doing exactly what you are doing - transitioning and diversifying
their services so that not all their eggs are in one basket. In
regard to your Interconnect Agreement, it is always helpful to have
someone who knows the LEC and how it works when working on the CLEC
side of services. This can speed up the interconnection process
tremendously for both technical and bureaucratic reasons.
As to your question as to whether an attorney is necessary, I think
that having counsel available is always a good idea should you have
questions about CLECs, state regulation, and the 96 Telecom Act.
However, depending on your services, and your own knowledge of ILEC
obligations, the extent to which you need an attorney may be greatly
reduced. You are correct in that there is no formal sit-down or
point-by-point “Negotiation” of the Agreement, as is
common with commercial agreements. This is a misnomer in the industry.
Most of the time a telecom attorney will
expend in “Negotiating” an interconnect agreement consists
of reviewing the Agreement to see that there are no terms that violate
the ILEC’s obligations under the law, state regulation or
tariff. Should there be such terms, the attorney may contact the
ILEC to have them stricken before review by the state commission’s
staff, or wait and request the commission to do so. In all honesty,
most states’ commissions will review the contract for such
terms and conditions as a part of its review of the interconnect
agreement prior to docketing it for final approval. The attorney’s
review, by no means, is the last bastion of legal and regulatory
review of the ILEC’s terms before the Agreement is approved.
The likelihood of the LEC maliciously including terms substantially
divergent to regulation or creating an unfair advantage is reduced,
for the most part, because of the Commission’s review. This
is not to say that it can’t happen. However, there are checks
and balances in place to reduce the odds should you “Negotiate”
on your own. So, as to your Interconnect Agreement being “OK”
without an attorney reviewing it first, it’s probably alright
but it would be wise to have it reviewed sometime in the near future.
I am personally going to agree with you
on one issue - save your telecom attorney for the bigger battle.
I honestly believe that a telecom attorney plays a more important
role after the “Negotiation” of the interconnect agreement
rather than in the “Negotiation” process. As you pointed
out, there are those of my brethren who will disagree with your
conclusion in regard the need for an attorney throughout the process
of Interconnection “Negotiations,” as such services
are a source of their livelihood. However, I agree with you, and
believe that most real problems concerning an interconnection agreement
center on the performance of the parties after the final agreement
has been inked and approved.
My opinion is that when it comes to CLEC
Interconnection legal problems - it’s all about performance
issues. ILEC performance legal issues tend to focus on performance
matters related to delays in provisioning, delays deploying equipment,
actual charges of the ILEC not in the Agreement, and deposit requirements
being increased without a valid reason. The ultimate legal question
here is whether the “true” motive of the ILEC is to
knock you out as CLEC competition, or are they doing all they are
required. CLEC performance legal issues stem from much simpler rationales:
either a refusal to pay the ILEC’s bill because of delays
or performance problems by the ILEC that have caused damage or client
loss to the CLEC; or the inability to pay because of mismanagement
of the CLEC’s own business. In the majority of Interconnection
legal disputes, ILEC performance problems usually arise as a defense
to non-payment by the CLEC. While there have been a few pre-emptive
lawsuits based on predatory behavior of the ILEC, most CLECs do
not have the financial resources to initiate a cause of action or
administrative proceeding unless it is necessary.
In terms of forums of legal remedy for
such cases, there are basically two options: Administrative Remedy
or the Courts. Generally, administrative remedies are found through
voluntary or mandatory arbitration conducted by the State’s
utility commission. This process is a bit more informal than the
courts and does not have the same injunctive powers of the courts
should a stay or hold particular to a unique aspect of the case
be necessary to keep the status quo. The advantage of administrative
remedy is cost. While there are some costs associated with the arbitration,
they are far less than litigation.
Also, the utility commissions, as well as the FCC, are more familiar
with the obligations imposed on ILECs by the 96 Telecom Act. This
places them in a better position to properly resolve those issues.
The courts are not necessarily so attuned such issues. The reason
is that an interconnection agreement is more than just a commercial
contract between providers that a court may rule breach and liability.
It is an agreement compelled by sections of the Telecom Act (47
USC sections 251 and 252) and measured in part by the Sherman Act
(the Federal Act that regulates monopolistic behavior) when it comes
issues of predatory behavior or unwarranted delay. The proper balance
between application of these two laws, and their regulation, is
not necessarily something that the courts ordinarily do.
These issues are often perceived by the
courts as “an all or nothing” application of law or
remedy in CLEC cases. This can be seen in the numerous cases for
“attempted monopolization of markets” based on ILEC
performance issues which were initiated by CLEC plaintiffs, summarily
dismissed, and upheld on appeal. Since 2001, the number of these
cases has grown on the federal docket with a very definitive line
of precedent developing - not in favor of CLEC interests. A good
case for dissection by you legal eagles out there is Cavalier Telephone
LLC v. Verizon Virginia, Inc., 330 F.3d 176 (4th Cir. 2003). Cavalier
provides a good evaluation of the law, the balancing of Telecom
Act and Sherman Act application, AND, a dissenting opinion favoring
delay and lack of ILEC performance as a method of monopolization
of the local markets in regard to CLECs. Here’s the Cavalier’s
Cavalier filed against Verizon based upon
a theory that the ILEC breached not only the terms of the interconnect
agreement, but also the duties imposed by the Telecom Act by virtue
of intentional delay in proving trunks and not providing rates per
the Agreement, among other things. Cavalier claimed that this type
of behavior denied them increased access to the ILEC’s services
and blocked them out of competition per the Sherman Act. The lower
court dismissed the case for failure to state a claim because Cavalier
did not state a precise monopolization claim.
Cavalier appealed, raising issue under
the “essential facilities doctrine” and an array of
examples of performance issues related to Verizon. The U.S. Court
of Appeals evaluated the entirety of the claim and ruled on a number
of key issues:
1.) The Sherman Act cannot be used to enforce duties under the Telecom
Act. They are two distinct Statutes, and two distinct purposes.
2.) Claims based in breached of the Telecom Act and interconnection
agreements cannot be applied to the Sherman Act because the obligations
imposed by both came substantially after the Sherman Act and are
outside the scope of the legislative intent.
3.) Under the Sherman Act, conduct merely having the consequence
of shutting out competition does not rise to the level of anticompetitive.
4.) Under the Essential Facilities Doctrine, an ILEC cannot be forced
to new or “non-traditional business” or provision of
service simply in order to respond to a CLEC’s increased demand
Not to completely disenchant CLEC interests
that conflict with ILEC performance, Senior Circuit Judge Greenberg
dissented with a full opinion siding with rulings in the 2nd and
11th Appellate Circuits allowing essential facilities claims to
survive motions to dismiss and claims related to undue delay by
the ILEC. (FYI: Florida is a part of the 11th Circuit.) In sum,
Judge Greenberg held that the body of law related to ILEC and CLEC
issues have developed enough to allow disposition at trial as to
essential facilities. As to the Sherman Act, Judge Greenberg did
not dissent and in the end the dismissal was upheld anyway.
Why bring all of this up? Well, its just
to give you an idea how complicated performance issues can get when
it comes to working with the ILEC and then suing them in court.
Because of this, many CLECs prefer to seek administrative remedies
opposed to those in court. Likewise, the need for an attorney’s
assistance is critical here. While I agree with you that an attorney
is not absolutely necessary for “Negotiating” the Interconnect
Agreement, what may come afterward most definitely does. Interconnect
Agreements are empty without performance of them. How this is done
may make a substantial difference in how your plan works, succeeds,
or fails. Have an attorney review your Agreement, but more importantly,
ask about their experience in fighting the performance issues with
ILEC. It may be relevant in the future. Also, do not get confused
by “Form” over “Substance” when it comes
to using an attorney - some things can be prevented by contract
and some things just develop over time. A seasoned Telecom attorney
knows the difference.
Good Luck and Success in the