Best of the ISP-Lists

The Price of Doing Business?

Members of the ISP-CLEC list share thoughts and strategies relating to the enormous security deposits currently being charged to new, smaller customers by their ILEC suppliers.

[October 14, 2002]

On ISP-CLEC last week , ML raised these questions:

"We recently finished signing agreements with our ILEC; then they tell us because we are a small company we have to send $20,000 to open a billing account. Has anyone else run into this?

"I e-mailed my account rep to ask her if this is a running balance we need to maintain or can we use it up and then pay from there on. If they require us to keep that balance, I asked if we earned interest on that money? I haven't heard back yet."

JM quickly confirmed that ML's company was not alone:

"BellSouth made us pay $10K, but they are paying 8 percent interest on it!"

SM, on the other hand, pointed out that executed agreements might or might not bind the company to such a deposit.

"Look at the terms of your Interconnection Agreement (IA). This governs. If it is not in the IA, they can't force a deposit. This has become a more contentious issue lately. One thing I always do is ensure that if there must be a deposit it is no more than your estimated billings over a relatively short period, say two to three months.

"In some IAs a deposit is optional and the ILEC must make a reasonable, objective evaluation of your 'credit risk.'

"So, look to the document you signed."

JH, apparently speaking for the ILEC community, explained the reasoning behind such hefty deposits.

"That is very common. Times are tough, and it is no longer economically sound practice to write off 'bad-risk.' Our risk management people do this all the time. As someone else said, you will get it back with interest. "T" is currently paying 6 percent; better than most investments."

IF chimed in, confirming the widespread nature of the practice, but also suggesting that the size of the required deposit was not necessarily cut and dried.

"I was asked to give $28,000 by Verizon. I updated my Dun & Bradstreet credit profile and it was good enough for them to reduce my deposit significantly. They want a pay-on-time 'PayDex' of 80."

SK tossed out one final suggestion—a possible way to avoid laying out such a substantial sum in cash.

"You might want to look into an Irrevocable Line of Credit (ILOC) in order to secure your deposit."

— End