[Random-bits] Time Warner: Term Sheet for ISP/TWC Broadband ISP Service

[James Love]

Thanks to Jeff Chester for this pointer. jl

http://www.ispworld.com/src/OA_term.htm


Time Warner's Full Disclosure

Time Warner's draconian term sheet has gone over like a kick in the teeth to ISPs. "At first
blush, their proposal looks OK," said David Baker, vice president of Earthlink, in The Wall
Street Journal on October 2. "But they are proposing economic terms that would make it
difficult, if not impossible to make a profit." ISPworld obtained a copy of the confidential
term sheet that Time Warner has offered to ISPs. The opening paragraph regarding good
faith and sections 5, 6 and 7 have been the main focus of controversy.

          Term Sheet for ISP/TWC Broadband ISP Service 

 

This term sheet (the "Term Sheet") is a list of key business points that are intended to be
memorialized in a definitive agreement (the "Definitive Agreement") between Time Warner
Cable ("TWC") and the Internet Service Provider (the "ISP") identified below. Except for
the provisions of Section 21 of this Term Sheet, this Term Sheet is not intended to create
any rights for, or impose obligations upon, either party including without limitation any
obligation to negotiate in good faith.

   1.Service 

     The "Service" will be ISP?s Internet access, content, applications and functionality
     delivered over TWC?s broadband cable infrastructure, as jointly provided by the
     parties within the Network Architecture to be specified by TWC in the Definitive
     Agreement. The Service will be tiered based on a maximum line speed and overall
     consumption of bits per billing period. Initially, the parties will offer two tiers of
     Service. The maximum line speeds for the lower tier Service will be 2mbps,
     downstream, and 384 kbps, upstream. Line speeds for the initial higher tier of
     Service, and bit consumption for both initial tiers of Service will be specified in the
     Definitive Agreement. Following execution of the Definitive Agreement, the parties
     may modify the foregoing service specifications and/or add service levels solely
     upon mutual agreement..

     The Service will be optimized for the personal computer, but the parties understand
     that the Service may be capable of working on another device if so connected by a
     customer. TWC?s obligations under the Definitive Agreement will be limited to a
     customer?s use of the Service through a personal computer.

   2.Non-Exclusive. The parties? rights and obligations under the Definitive Agreement
     will be non-exclusive.

   3.Scope and Rollout. The rollout of the Service will be on a TWC divisional level,
     except with respect to the National Division, for which rollout will be on a cable
     system by cable system level (Each division, and in the case of the National
     Division, each system, may be referred to herein as an "Operator"). Each Operator
     will have the option ( but not the obligation) to rollout the Service to potential
     customers in its operating area, subject to ISP?s agreement to offer the Service
     through such Operator and subject also to ISP?s payment of the Advance (as
     defined herein) with respect to each Operator that offers the Service Rollouts will
     occur 30 days after the Operator determines that its cable systems are capable of
     providing the Service. TWC will have the right to terminate the Definitive
     Agreement with respect to Operators which are divested or are no longer under
     management by TWC. Systems which are acquire by TWC after the effective date
     of the Definitive Agreement but during the term thereof will have the option to
     offer the Service under the terms of the Definitive Agreement.

   4.Distribution. Each of ISP and TWC will sell the Service and will determine the
     pricing of the Service when sold by it.

   5.Subscriber Revenue Splits. TWC shall retain seventy-five percent (75%) of gross
     Service subscription revenues and ISP shall receive twenty-five percent (25%)
     thereof. Notwithstanding the foregoing, for subscriptions to the lower tier
     Service: (a) TWC shall receive a minimum monthly payment of $30 for each
     subscription sold by ISP to existing TWC cable television service subscribers; and
     (b) ISP shall receive a minimum monthly payment of $10 for each subscription sold
     by TWC. TWC shall be entitled to higher minimum monthly payments, specified in
     the Definitive Agreement, with respect to subscriptions sold by ISP to customers
     who are not TWC cable television service customers.

   6.Service Home Page. ISP will have sole control of, and responsibility (including
     without limitation editorial and technical responsibility) for the homepage for the
     Service, provided however that: (a) the home page will be subject to TWC?s
     approval; and (b) at all times during the term of the Definitive Agreement there will
     be a dedicated availability of prominent above-the-fold areas on the home page of
     the Service for use by the Operator in its discretion, but which may, without
     limitation link to content, applications, services and functionality provided by such
     Operator. The Operator presence on the home page for the Service shall be
     defined in the Definitive Agreement.

   7.Advertising and Other Fees. TWC will receive twenty-five percent (25%) of gross
     revenues received by ISP for advertising, transactions, communications, premium
     services, e-commerce and other fees (e.g. web hosting surcharges) related to
     ISP?s ability to offer the Service ("Ancillary Revenues"). Except as expressly set
     out in this Term Sheet, all revenues generated by the Operator in connection with
     the Service and whether or not through the Service Home Page (including
     advertising, transactions, communications, premium services, e-commerce and
     other fees and service revenues) will be retained by TWC.

   8.Advance. ISP will pay TWC an advance payment to be recouped against revenues
     to be received by TWC under the Definitive Agreement in the amount of dollars
     ($___) for each Operator which the parties agree shall offer the Service (the
     "Advance"). The Advance will be due and payable thirty (30) days following ISP?s
     receipt of notice from TWC that the Pre-Existing Obligations have terminated.
     The Advance will be applied to revenues due to TWC hereunder until such advance
     had been fully recouped, at which time TWC and ISP shall make appropriate
     payments as set forth herein. The advance is refundable upon expiration of the
     Agreement, provided however that in the event the Definitive Agreement
     terminates for any reason before TWC has earned at least $50,000. TWC will be
     entitled to retain an amount equal to the difference between $50,0000 and the
     actual amounts earned by TWC under the Definitive Agreement.

   9.Minimum Subscriber Level. TWC will have the right to terminate the Definitive
     Agreement with respect to any particular Operator after one year from the
     commencement of rollout by such Operator unless the Service has, upon the
     one-year anniversary of the rollout, in such Operator?s operating area, a number
     of subscribers equal to the greater of (a) 100 or (b) .5% of homes passed by the
     particular Operator.

  10.Marketing and Service Packages. ISP will market and promote the availability of
     the Service. TWC may package the Service with TWC?s other services, subject to
     the terms and conditions of the Definitive Agreement, including without limitation
     the payment of minimum fees.

  11.Facilities. 

     TWC will be responsible for all aspects of the Service infrastructure facilities from a
     point of demarcation at the Operator headend to Service subscribers. TWC will
     provision and install (except to the extent that self-provisioning is available) the
     Service for users using personal computers to utilize the Service. Whichever party
     sells the Service to a customer will determine whether it wishes to charge an
     installation fee. Notwithstanding the foregoing, if ISP sells the Service, ISP will
     reimburse TWC, at TWC?s cost without markup, for TWC?s direct costs (including
     labor and equipment) of provisioning and installing the Service.

     ISP will be responsible for all aspects of the Service, infrastructure facilities,
     software, hosting, caching, peering and general Internet connectivity and
     transport to the point of demarcation at the Operator headend. ISP?s transport
     facilities to the TWC headends will meet maximum and minimum capacity
     specifications as will be specified in the Definitive Agreement. If tunneling
     protocols are used, the tunnels will terminate at TWC headend. ISP will be
     responsible for obtaining and managing blocks of IP addresses to support the
     Service.

     The Definitive Agreement will set forth minimal technical performance requirements
     with which the ISP must comply. The Definitive Agreement will provide for
     appropriate credits for Service outages caused by failure of either party?s facilities
     to meet specifications. If outages or performance failures reach a specified level, or
     if the ISP does not respond reasonably to increased volume or usage of the
     Service in any particular operating area, TWC may terminate the Definitive
     Agreement with respect to the Operators in such areas.

  12.Billing and Customer Service. 

     TWC will invoice the customers to which it sells the Service. ISP shall have the
     option to invoice customers to which it sells the Service, or to have TWC invoice
     such customers at a monthly billing charge payable by ISP of $.50 per Service
     subscriber invoiced. The invoicing party will remit payment to the other party for
     the other party?s share of subscriber revenues no later than 30 days after the end
     of month in which such revenues were received revenues from Service customer. If
     a TWC invoiced customer pays only a partial payment, the payment will be allocated
     proportionately among the Service and other TWC services, with TWC remitting
     twenty-five percent (25%) of the amount allocated to the Service to ISP (subject
     to minimum payments as set forth herein. TWC will have sole discretion over
     Subscriber termination policies, including without limitation for non-payment. ISP
     will remit to payment to TWC for TWC?s share of Ancillary Revenues no later than
     30 days after the end of the month in which ISP received such revenues.

     The Definitive Agreement will define "Tier I" and "Tier II" issues. Each party will
     handle any Tier I calls or emails directed to it, with a handoff to the other party if
     necessary. ISP will handle Tier II customer service, except that TWC will handle Tier
     II customer service for those aspects of the service and facilities TWC is
     responsible for providing.

  13.Local Franchise Requirements. ISP will agree to abide by the terms of any local
     franchise obligation regarding the provision of the Service on the TWC cable
     systems that, in TWC?s judgment, are applicable to it, including, without limitation
     (x) charging and remitting to TWC for payment to local franchise authorities (or, if
     directed by TWC, paying to franchise authorities directly) the applicable franchise
     fee on the Service when sold by ISP; and (y) complying with any customer service,
     disclosure, quality of service and other requirements (including providing
     subscribers with copies of the privacy policy); and (z) the provision of the Service
     to persons, places or institutions without charge. TWC will provide ISP with notice
     of such requirements and the parties will cooperate on such compliance matters.

  14.Privacy. Each party will comply, and assist the other in complying, with all
     applicable laws and regulations respecting collection, use, disclosure and protection
     of subscriber information. TWC shall use reasonable efforts to comply with ISP?s
     customer privacy policies, provided however that to the extent ISP?s privacy
     policies are inconsistent with, and in some way a limitation on TWC?s current or
     anticipated business uses of such information, ISP agrees to take whatever action
     necessary to modify its policies with respect to conform with TWC?s business
     objectives.

  15.Customer Policies and Procedures. The parties will agree upon policies and
     procedures to be maintained by each of them with regard to the customers, for the
     benefit of each other and the customers. Areas will include, without limitation, (I)
     acceptable use policies; (ii) procedures to enable each party to take advantage of
     the notice and takedown provisions of the Digital Millennium Copyright Act; (iii)
     procedures for other takedowns of posted content and denial of service; (iv)
     response to subpoenas; (v) response in emergency situations; and (vi) minimum
     standard service terms, including limitations of liability for the benefit of both
     parties.

  16.Video Streaming: Telephony. Video streaming and telephony will be permitted as
     part of the Service, subject to the following provisions: 

     The Service will not include any local telephony services requiring special gateways,
     powering, software or equipment, or that otherwise could cause TWC to be subject
     to regulation as a common carrier of telecommunications services by any state
     public utilities commission, the FCC or otherwise, or other adverse regulatory
     consequence.

     TWC will not be required to provide QoS support for telephony or video streaming
     for the Service QoS may be provided upon request and at an additional cost.

     To the extent ISP wishes to offer any functionality as part of the Service which:
     (a) is outside the scope of the Network Architecture; (b) requires an Operator
     acquire equipment or software or implement a change in the way the Operator
     processes, TWC shall have the right to approve such new functionality , provided
     however that in the event TWC approves such functionality, ISP will be obligated
     to reimburse for TWC its direct, out-of-pocket costs in implementing such new
     functionality.

  17.Term. With respect to each Operator, three years from launch of the Service by
     such Operator.

  18.Responsibility. Subject to any restrictions and exceptions specified in the Definitive
     Agreement, ISP will have control over and responsibility for all content,
     applications, functionality and services included in the Service, except that TWC
     will have control over and responsibility for the portion of the Service allocated to
     the TWC local service.

  19.Subject to Pre-existing Obligations. Any Definitive Agreement which the parties
     may reach will be subject to TWC?s compliance with pre-existing obligations,
     including those with ServiceCo LLC d/b/a/ Road Runner, as described in the
     Memorandum of Understanding dated February 29, 2000 between AOL and Time
     Warner (the "Pre-Existing Obligations").

  20.Costs. Except as specifically provided in the Definitive Agreement, or as otherwise
     agreed by the parties, each party will bear the costs of performing its obligations.

  21.Confidentiality. ISP agree to keep the Term Sheet, any of the terms set forth
     herein, and any discussions with respected to the contemplated arrangement
     confidential, and ISP agrees not to disclose such information to any person except
     employees or agents of ISP with a need to know in connection with services they
     provide to ISP. Each party agrees not to make any press release or public
     announcement mentioning the other party?s name or identity without such other
     party?s express written consent. The provisions of this Section 21 are intended to
     be binding. 

  
-- 
James Love  mailto:love@cptech.org http://www.cptech.org
Consumer Project on Technology, P.O. Box 19367, Washington, DC 20036
voice 1.202.387.8030  fax  1.202.234.5176