LEGAL & REGULATORY MATTERS
THREE THINGS YOU SHOULD KNOW ABOUT CAPACITY IRU AGREEMENTS By Andrés Fígoli
H
ere are some guidelines that salespeople and lawyers should follow when negotiating Capacity Indefeasible Rights of Use (IRU) agreements:
1. AN IRU MODEL DOES NOT TRANSFER OWNERSHIP OF THE UNDERLYING ASSETS.
It is one of many legal forms for commercializing capacity. A Capacity IRU agreement grants the right to use a specific amount of capacity over a long-term period, typically 10–20 years, without transferring ownership of the underlying asset, that is, the submarine cable. Therefore, make sure to define the term Capacity and use it extensively in the contract to differentiate it from other similar services in the wholesale telecom market, such as spectrum, wavelength, or even dark fiber. It is sometimes better to be repetitive in an agreement than argue afterwards that the negotiated and agreed Capacity IRU with extremes A-Z was only a point-to-point dedicated bandwidth, and not something else. The term IRU stands for Indefeasible Right of Use and refers to the exclusive, unrestricted, and indefeasible right to use the bandwidth of a determined capacity service of a fiber cable. Accordingly, the capacity supplier will be committed to providing the capacity services associated with the IRU contract, possibly without making any reference to a specific cable infrastructure. This last aspect is also relevant when considering bankruptcy1, and it is 1 See WorldCom, Inc. and MCI WorldCom Network Services, Inc. v PPL Prism, LLC (United States Bankruptcy Court, Southern District of New York, 2006).
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advisable to include additional terms in the agreement to clarify that there is no sale of assets or transfer of title. Hence, it is recommended to explicitly state that the sale of the Capacity IRU does not transfer any form of title or ownership in any real or personal property, including, but not limited to, the supplier network.
The term IRU stands for Indefeasible Right of Use and refers to the exclusive, unrestricted, and indefeasible right to use the bandwidth of a determined capacity service of a fiber cable. This is also important for those who are outside the wholesale market, such as local tax authorities or antitrust watchdogs, that may request a copy of these agreements to calculate the market share of international connectivity of a specific cable owner. For such purposes, the submarine cable owner landing in that country should carefully analyze the contract beforehand, in accordance with applicable local laws that may impose dominant operator obligations. A similar approach should be considered to avoid potential restrictive criteria from national telecom regulators. Before signing a multijurisdictional capacity IRU agreement, lawyers should carefully examine the appropriate local terms used for capacity IRU
operations in those markets to avoid any legal burdens commonly restricted to the mobile/retail business, such as price control mechanisms, obligations to publish the service offer, or standard network interconnection agreements.
2. SERVICE LEVEL AGREEMENTS (SLAS) ARE A CRITICAL PART OF A CAPACITY IRU AGREEMENT.
During its life cycle, any cable submarine system is expected to experience a service outage. For such cases, the sole remedy provision in a SLA is an important clause that specifies the customer’s options for receiving compensation or terminating the contract if the service provider does not meet the agreed-upon service levels. While it is essential to customize SLAs to meet customers’ needs and expectations, it is also important to remember that the supplier of capacity IRU service is merely a provider and not a partner of its customers. Financial entities may receive numerous claims when their clients experience interruptions in wire transfers or other banking operations due to disruptions caused by force majeure events in submarine cables. However, these inherent business risks should not be passed on to the carrier. Other alternatives to SLA credits are typically requested by the financial industry as IRU capacity customers, such as redundancy or emergency plans, specific termination rights or harsher monetary penalties. To limit its risk exposure, the carrier should know where to draw a red line. Even with the best possible capacity IRU contract and its SLA, it is not