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Nov 28, 2003

THE LEGAL LINE

Ed Maldonado, Esq.

Dear Legal Line,

I work for a resale carrier and I am the administrator for their regulatory/legal affairs department, which is really is just me, and by the way I’m not a lawyer. I have seen a lot of different carrier service contracts for resellers, underlying carriers and prepaid service bureaus from all over the country this past year. Some of them are exactly the same in some clauses and others are different. The interesting part is that most of these contracts are for the same basic service, which is long distance. I would like to know if there is a “standard” contract for telecommunications long distance resellers. It seems like resellers are all over the place when it comes to the contracts they use. What are your thoughts on this? Thank you.

Martha in Legal

 

Dear Martha,

Your observation in that there is no “one” standard telecommunications resale agreement is a valid one. There is none. While I have heard an array of legal reasoning why this is so, my opinion is that this is the result of three factors: 1) lack of model commercial standards in the telecommunications and prepaid industries; 2) diversity of players in the telecom industry and their various roles in the delivery of service; and 3) long-standing legal principles related to the freedom of contract between parties. Although I am sure there are a few telecom attorneys out there that may differ with me, I doubt they can categorically deny all three. Let’s go over each briefly and perhaps it will be clearer why there is not a standard resale agreement.

To date, there is nothing within the laws of the United States, via either a Model Statute or otherwise, normalizing all telecommunications relations. While regulations exist as to how common carriers and the various players in the industry must conduct themselves in the delivery of their services, telecommunications regulation applies to classes of providers. Some providers, such as RBOCs and ILECs, have heavier transactional requirements and regulatory scrutiny because of prior monopolies that have since been broken-up with the federal divestiture of Ma Bell. Other newer classes of providers since the 1996 Act, such as resellers and prepaid providers, have lesser regulation than ILECs in order to promote competition. The result is that the industry has statutorily defined service providers that are required to act in a certain fashion for “the public necessity” by motive of regulation, but there are no defined commercial standards in how they must treat one another in the market, outside of a limited regulatory requirement of a “non-discriminatory” fashion.

Martha, you may also notice a variety of clauses common in all your various contracts that speak of compliance by one or both of the Parties to state of federal laws and regulations. This is a method used to preserve state or federal regulatory compliance as a liability standard if a dispute arises and one provider attempts to cut-off another. This is a drafting strategy commonly used to raise telecom regulations as a “standard of care” to be used between the providers should the transaction go bust. How effective this clause is can vary on how well your attorney invokes the standards in any claim or defense you are litigating on.

However, it is an attempt to build liability standards into contracts by means of federal or state regulation through a legal principle called judicial notice. (In a nutshell, judicial notice is the Court recognizing a public law, function or record. In this manner, any court can recognize the ’96 Act, a Section 214 authority, or even an actual state IXC license or application in order to establish a course of conduct in which the Parties must have behaved before, during and after the dispute.) While these clauses are common, I doubt that there is any specific language of applying state or federal regulation to how the parties shall part ways should there be a falling-out. Most times this is simply left to the actual custom and practice among common carriers, which is a matter to be proved in court and alluded to in contracts. The bottom line is that there is no identifiable uniform standard in commercial dealing among common carriers, resellers and prepaid providers outside of custom and practice, regulation, and the verbiage of the contract.

This brings up the other factors I mentioned earlier. Consider for a moment the various players now in the field of providing telecommunication services and the diversity of the services they are providing based on the technology at hand. VoIP is a good example. It is a cost effective mode of transport used by many providers but still largely being debated and defined from the regulatory side. Application of regulations as a liability standard to VoIP will require your attorney to grasp both the technical and regulatory issues in order to get a court to give judicial notice. This is by no means a “bright lines” scenario.

Likewise, many players provide only limited aspects of the total line of service in the transport of the calls — for example: the direct route resellers, international wholesalers, the US-based resellers, the prepaid calling card providers, the local service provider, and the payphone provider are all needed to terminate a call by means of a prepaid calling card through a payphone. Therefore, should commercial standards apply to all the providers collectively or just a subset based on their function? It is still an open question.

While these may be open-ended questions from within the telecom industry, there still remain legal considerations based purely on legal theories of contract. The Anglo-American framework of contract law places an importance on the freedom of parties to agree upon what they wish. This principle can be seen from the early restatements of the law on contracts, up to current publications by notable legal scholars such as Farnsworth. Although there are limitations based on fraud and other equitable considerations, it is generally left to the Parties to decide how they will conduct themselves. Other national and international industries, such as the buying and selling of products, have used this principle to have the Parties opt-into a Uniform Commercial Codes and International Treaties or Protocols to supplement the contract, but nothing of this sort exists in a meaningful way (that we can continually point to again and again) in telecom.

I think your question is a good one to ask, because most people in the industry “whip-up” or revise a rushed Service Agreement in order to seal a deal and don’t think about their contract’s terms and conditions. I also think that you raise an interesting point, between the lines of your question: Do we need uniform commercial standards in the telecommunications industry for the various providers? Martha, from the litigation side of the matter, I would say wholeheartedly — yes.

Good Luck and Success in the Industry.

•• Ed Maldonado is a principal of Maldonado & Glenn, a telecom legal firm. He can be reached atinfo@4counsel.net.

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