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Telecommunications Consulting Services	"The Brave New World of Business Telecom Transacting" Article by Donald J. Elardo. June 2002. All rights reserved. It used to be that telecom users were obliged to order service from publicly maintained common carrier "tariffs," with only limited ability to negotiate terms different from, or supplemental to, those in the tariffs. That has changed dramatically. Users now have the ability to negotiate telecom service agreements without interference from arcane legal requirements that grew out of the "old way" of doing business. Their new opportunity results from significant changes occurring in both regulation and the business environment. These are characterized by: (1) excessive telecom capacity; (2) intense marketplace competition; (3) reluctance on the part of the Federal Communications Commission ("FCC") to regulate in "business markets;" and (4) "detariffing," or the removal of the tariff-filing requirement. Thus, recent industry developments -- in particular the elimination of tariffs --have resulted in a significant shift in negotiating strength from service providers to customers. The following discusses these important changes and offers a framework in which to negotiate telecom service agreements. The respective "needs" of telecom users and service providers in a competitive environment free of tariffs are presented, and insights into, and recommendations regarding, essential business and contract terms to be included in telecom service agreements are offered. Changes in the Business and Regulatory Environment As noted, regulation and the business environment have changed dramatically. Service providers no longer are required, or even able, to transact with their customers by tariffs for most long distance services. This means that advantages enjoyed by service providers under the tariffing regime are gone, probably forever, and that service providers and users now will bargain with one another on more equal footing. Significantly, the body of law holding that tariffs are "the law" and must be enforced strictly according to their terms -- no matter the consequences -- is no longer applicable, along with the resulting inequities often spawned by such holding. This is important to understand, if only because today many service providers are seeking to maintain, in a detariffed world, the same advantages they once held over customers under the tariffing regime. A scant thirty years ago, service providers offered only "standard services." Discount programs and packages were rate and offered only in the face of a compelling competitive need to do so, which rarely manifested itself. That changed in the late 1980's when MCI decided to make a serious run at the "large customer" class of users, long the exclusive domain of AT&T. Using its status as a "non-dominant carrier" under FCC rules, MCI began to court aggressively -- and successfully -- large customers under a program that resulted in MCI's not filing FCC tariffs to cover individually negotiated service arrangements with its customers. AT&T, a "dominant carrier" under FCC regulation, was hamstrung by the requirement to tariff all its customer service arrangements, thereby publicly revealing the terms of its negotiated deals without being able to learn detail about its competitions's offerings. Forced to become "creative" with its "Tariff 12" and "Tariff 15" service arrangements, AT&T was opposed at every turn by its competitors which sought to limit AT&T's ability to respond to their "unpublished" service offerings. AT&T, in turn, challenged the right of MCI and others to deal "off-tariff" with customers. By the mid-1990's, AT&T finally caught up with its competition, first by challenging successfully their right to provide untariffed services and, then, by being declared similarly "non-dominant" by the FCC. The irony here is apparent. AT&T's victory in the tariffing fight meant that it, too, would have to continue to file tariffs for its large customer service transactions after finally achieving "non-dominant carrier" status -- a classification that largely resulted because it had suffered so many losses over the years to its non-tariffing competitors. The FCC's desire to rid the landscape of tariffs first arose in the early 1980's but did not come to fruition until 2000, when the courts finally decided the FCC had the legal authority to require their elimination. In lieu of tariffs, the FCC intended that "contracts" govern the relationship between telecom providers and their customers, just as occurs in "unregulated" industries or markets. Significantly, matters such as contract formation, interpretation and enforcement now are governed by state contracting and consumer protection laws, even though the FCC retains authority over issues involving the legality of service rates, terms and conditions. This promises to generate a great deal of confusion and uncertainty -- and litigation -- until the new transactional medium is tested legally and jurisdictional issues are resolved. Gone -- But Not Forgotten It is important to understand that "detariffing" is not "deregulation." Thus, the elimination of tariffs does not mean that service providers are exempt from, or potentially unaffected by, regulatory requirements imposed under the Communications Act of 1934. Indeed, several important requirements continue to apply, with the result that telecom service providers are not entirely free to transact like entities in unregulated industries. Service providers remain subject to the "non-discrimination" and "just and reasonable" requirements contained in the Communications Act. Of necessity, these requirements influence the approach taken by service providers toward marketplace transacting. Broadly translated for practical application, the Act requires that service providers treat all "similarly situated customers" the same; that provider services contain reasonable terms, including prices; and that services be made "generally available." Practical considerations, and precedent as well, have dulled the sharp edges of these requirements, such that service providers now are relatively free to deal as necessary in each transaction and not worry about others. Because no user is truly "similarly situated" (because of differences in type, quantity, locations and timing of service), it is difficult, if not impossible, to show that any two or more users are "similarly situated." The reasonableness of prices and other service terms are virtually guaranteed by the presence of an effective competitive environment. And, the "generally available" requirement is satisfied by the offering of negotiated deals for only an abbreviated period of time -- normally thirty days -- after which their availability "expires." All this is to say that telecom service providers remain subject to certain requirements that, as a practical matter, present little risk to them. With this the case, these "requirements" likely will not become factors during contract negotiations. There are several significant regulatory "doctrines" and requirements directly affected by the elimination of tariffing. They simply are no longer relevant and and their absence from consideration should simplify telecom contract negotiations, if only because awkward approaches previously used to address and circumvent them no longer are necessary. Three of these now irrelevant doctrines and requirements are: "Filed Rate Doctrine." This infamous doctrine is a judicially enforced rule requiring that filed and effective tariffs be enforced according to their terms, no matter what "extra-tariff" promises may have been made by the parties during negotiations and reflected in written contracts governing service. As a result of much litigation over the years, the courts required that promises made and accepted had to be tariffed to assure their enforceability in legal actions. The doctrine was much abused over the years, especially by service providers, and eliminating the effect of the doctrine was one of the primary motivations underlying the FCC's detariffing inititatives. Carriers and customers alike now must live with their contract promises, as distinct from those appearing in filed tariffs that were under the exclusive control of the the service provider. "Retroactive Ratemakeing." Simply put, "retroactive ratemaking" meant that today's prices could not be applied to yesterday's service. In a long line of cases, the courts held retroactive ratemaking to be inimical to the requirements of the Communications Act. The issue normally arose in the context of some need to adjust the tariffed rate because of unforeseen delays affecting service delivery or to implement a settlement reached with a customer that affected the tariff rate the customer had been paying. To avoid violating the law and to achieve the desired end, service providers and customers were reduced to entering into complex service arrangements. For example, to avoid affecting what the customer had paid, or was required to pay, under the tariff, the amount or value of a "credit" was ascertained and then reflected in reduced rates or special credits to be applied prospectively. This "forward-looking" solution avoided potential legal pitfalls because it technically did not vary the charges imposed under the filed and effective tariffs. With detariffing, this issue is eliminated so service providers and their customers can affect past and current prices without the need to negotiate clumsy contractual amendments to circumvent the retroactive ratemaking rule. "Rebating." An unlawful rebate is the furnishing by a service provider of untariffed value to a customer for and in connection with the latter's subscription to telecommunications services. By definition, then, if the value conferred, i.e., the rebate, was reflected in a tariff, it was permissible; and, conversely, if it was not contained in a tariff, it was unlawful. In addition to the fines and forfeitures applicable to rebating service providers, customers soliciting or receiving rebates were potentially liable to pay into the U.S. Treasury an amount equal to triple the value of the untariffed benefits received. Because unlawful rebating only can occur in a tariffing context, the elimination of tariffs removes the concern. However, care should be taken to avoid any rebating program that might violate the "anti-discrimination" and "just and reasonable" requirements to which service providers remain subject. Detariffing thus provides an environment free of century-old doctrines and requirements that had complicated considerably the transactional process. And, because of the existence of a truly competitive marketplace and technological changes that have led to drastic reductions in the cost of provider telecom networks, telecom users now may approach the bargaining table and deal with service providers on a more equal basis. [The remainder of the article addresses "user needs" versus "provider needs" in transacting; whose "form" of contract to use; and numerous other issues of special importance including mutuality, indemnification, assignment, confidentiality, arbitration, data protection, credit outage allowances, "most favored nation" clauses, taxes, backbilling, fraud, "bundling," "competitive necessity," service dispute resolution, invoice due dates, withholding of payments, account stability, and service/pricing structure changes.] If you would like to receive the remainder of this article, please contact us and we will send it to you electronically in Word format. "Detariffing is not deregulation" In: A More Level Transactional "Playing Field" State Contract and Consumer Protection Laws Website Publications of Telecom Service Offerings Out: Tariffs "Filed Rate Doctrine" "Retroactive Ratemaking" Rebating