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Trading Desk: Master Trading Contract Nears Completion

Posted: 10/2000

Master Trading Contract Nears Completion
By Khali Henderson

After months of deliberation, a master agreement for trading bandwidth among carriers is nearing the final stages of construction. Only one point–how to measure liquidated damages for non-performance–remains undecided, says H. Russell Frisby Jr., president of the Competitive Telecommunications Association
(CompTel, www.comptel.org), the carrier organization spearheading the contract’s creation.

Frisby says the group hopes to finalize the CompTel-sponsored contract–also known as the Bandwidth Trading Organization (BTO) master agreement–in time for presentation at the association’s fall conference, Oct. 1-4 in San Francisco.

“We are going to try like the dickens to get the final document out by October, by our fall meeting. But I can’t guarantee that,” he says.

The BTO is expected to be the contract’s administrator once the organization is incorporated. When that will happen is dependent on settlement of governance issues for the now ad hoc group, which carriers, online exchanges and operating telephone company (OTC) brokers formed in May with CompTel’s help.

Governance issues, such as who can be members and who will run the association, apparently have taken a back seat to the contract writing; as Frisby notes, they have yet to be discussed.

When it is formalized, the BTO is expected to be the mechanism through which contract modifications are made and technical standards relating to bandwidth trades are authored, Frisby says.

No formal ratification vote will be taken on the BTO contract, but it will be advanced pending group consensus on the method for measuring damages. Among the many ways that such damages could be measured are as a percentage of the contract value or as the cost to cover the loss, Frisby explains. He notes that one or neither of these may end up in the fine print.

At press time, the draft agreement was 27 pages plus addenda. It mirrors a carrier contract. Among the things the final form will address are how transactions are entered into; exchange of demarcation point information; terms (duration and price); QoS; damages and payment procedures.

Uniquely, Frisby notes the contract begins with a cover checklist, enabling carriers to immediately note which sections of the contract apply to the deal at hand.

For example, it allows them to specify what language pertaining to verbal contracts or certain QoS provisions applies.

Frisby says this gives the agreement a degree of flexibility so carriers can customize it.

While the BTO contract was days or weeks away from being finalized (at press time), some traders already are using the draft form. OTC broker Amerex Bandwidth Ltd.
(www.amerexbandwidth.com), for example, says it is quoting more than 60 city-pair bandwidth markets using the BTO master agreement as the foundation document for each transaction.

Frisby says use of the draft document is a positive in that it generally acknowledges the need for a standardized contract and specifically affirms that CompTel’s efforts are on the right track.


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