Jim Blaszak

Jim Blaszak | January 30, 2008 |


Fighting Back-Billing

Fighting Back-Billing This article was written by Justin G. Castillo, partner at Levine, Blaszak, Block & Boothby law firm Suppose your next invoice from your telecom carrier contains a surprise: back billing for over two years' worth of previously-unbilled charges. You dispute the back-billed charges, but the carrier insists that its back-billing is lawful. What are your rights? How much of the back-billed charges (if any) must you pay?

This article was written by Justin G. Castillo, partner at Levine, Blaszak, Block & Boothby law firm Suppose your next invoice from your telecom carrier contains a surprise: back billing for over two years' worth of previously-unbilled charges. You dispute the back-billed charges, but the carrier insists that its back-billing is lawful. What are your rights? How much of the back-billed charges (if any) must you pay?

This article was written by Justin G. Castillo, partner at Levine, Blaszak, Block & Boothby law firm

Suppose your next invoice from your telecom carrier contains a surprise: back billing for over two years' worth of previously-unbilled charges. You dispute the back-billed charges, but the carrier insists that its back-billing is lawful.

What are your rights? How much of the back-billed charges (if any) must you pay?The Nature and Threat of Back-Billing Back billing refers to a delay between the time when a carrier should have billed for service (usually the next billing cycle) and when it actually does bill for the service. Although often associated with usage-based services (e.g., voice minutes), back billing can show up anywhere. In one "real-world" example we've dealt with, an RBOC installed and provided SS7 services in one case and interstate private line in another, but failed to bill the services for several months. In another instance, an IXC and its customer were negotiating renewal of an expired frame relay contract, and during the negotiation period, the carrier continued to provide service at contract rates. Shortly after negotiations failed, however, the IXC re-rated the services and back billed the customer for the difference between base rates and contract rates back to the date of contract expiration.

What Are the Rules? The rules governing back billing vary by jurisdiction and service type: regulated services can be governed either by the FCC or the applicable state public utility authority, while unregulated services may be subject to traditional state contract law (including statutes of limitation). This article concentrates on services regulated by the FCC.

Under the Communications Act, a carrier's charges, practices, classifications and regulations must be "just and reasonable." Back billing can violate the Act if it rises to the level of being an "unjust and unreasonable" practice. In 1989, the FCC ruled that "back billing may under certain circumstances constitute an unjust and unreasonable practice . . . . and that Section 415 [the Act's two-year limitations period] does not authorize back billing for any particular period." Unfortunately, the FCC declined to create a bright-line rule (such as 60 or 180 days) for determining when back billing becomes unlawful. Instead, it announced that it would resolve such disputes on a case-by-case basis.

Over the years, the FCC wrestled with a variety of back billing scenarios. Here are several key factors discussed in those cases that you should consider when evaluating a specific situation:

The Back Billing Interval: The carrier's chances of collecting charges are inversely related to the length of the back billing interval. Absent extraordinary circumstances, a carrier trying to back bill for two years (or more) would almost certainly lose. On the other hand, the FCC has allowed back billing of up to 160 days in some circumstances (and has stated that even longer intervals might be lawful). Under existing FCC decisions, back billing within the 60-180-day range is a "grey area" that makes it difficult to predict the outcome of a dispute. Ultimately, however, the lawfulness of the back billing will turn on the specific facts.

Does the Customer Compete with the Carrier or have End-Users? If the customer is billing the service to other users (e.g., as a reseller, systems integrator or other service provider), the FCC will consider the impact of the back billing on the customer and its relationship with end users (especially if the customer cannot pass on the back-billed charges).

Contractual Considerations. Have the parties addressed back billing in their agreement? If so, the FCC will give great weight to those provisions because it believes that sophisticated customers can protect themselves in the marketplace.

The Nature and Extent of the Back Billing. Back billing caused by a one-time computer error that was quickly repaired is more likely to be allowed than chronic back billing resulting from systemic problems. The FCC will also take into account whether and how the carrier notified customers and whether the carrier tried to mitigate the impact of the back billing (e.g. by offering offsetting credits).

How to Respond to Back Billing If a carrier back bills you, dispute the charges in writing and get a written explanation of the back billing. Do your homework: research the facts, read your contract (including the billing and dispute resolution clauses along with the applicable tariffs and service guides) and determine who has jurisdiction over the services. Escalate and document the dispute quickly -- talking to someone who understands back billing will be far more productive than yelling at your account rep.

If writing and talking fail, enlist the help of someone who understands applicable procedures, regulations, statutes and case law. State agencies and the FCC offer a variety of cost-effective dispute resolution tools ranging from informal mediation to full-blown hearings. Carriers are far more reasonable in settlement talks when there is a regulator in the room. Disputing unreasonable back billing in this way (as opposed to in court) may be quite cost-effective.

Managing Back Billing Risk in Your Next Contract Many carriers try to persuade unwary customers to agree to curtail their back billing rights. Some carriers' service guides allow back billing for up to two years (other, less shameless carriers draw the line at 180 days). Customers that fail to override such provisions in their contracts with the carriers will not be able to blame a rigid tariff regime. If a dispute arises, the carrier will argue (perhaps with some justification) that the customer "agreed" to the back billing provision.

Customers that try to negotiate reasonable back billing clauses also face challenges. Carriers will agree to add a provision barring back billing beyond 160 days. In the name of "mutuality," however, they will insist that the customer agree in return to waive its right to recover any overcharges if it does not seek a refund within 160 days of the invoice date. This is a cynical ploy, as the customer is giving up its statutory right to dispute bills within two years in exchange for little or nothing because in many instances back billing beyond 160 days would be unlawful if contested. But as noted above, the authorities will be inclined to enforce such "agreements."

Conclusion Back billing is a serious problem for enterprise customers because of the amount of money at stake. Carriers will continue to try to back bill their customers for the longest possible interval. As always, the best way to counter these ploys is to negotiate fair agreements and assert their rights when pushed by their suppliers.


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