Bigger pipes, more applications, the need for storage, the rise of cloud services: all of this is contributing to a boom in the carrier data center opportunity. But building a data center is not just a question of installing some racks and calling it a day. There are several key legal and regulatory issues that can sink an unwitting operator.
Key Issues for Data Center Operators in the United States
Most data center agreements grant customers a license to use space in a data center for a term of at least one year. Customers ordinarily expect some form of renewal option, and the license agreement should provide for routine adjustments to the fee schedule, at least upon each renewal. Electric power usage usually is capped at a specific capacity for a fixed rate, subject to periodic adjustment.
In the typical data center agreement, customers receive exclusive occupancy rights for a specific cage, cabinet or rack. The customer’s right to use risers and common areas should be expressly stated as non-exclusive.
Customers should not be permitted to assign or sublicense their rights or obligations under a data center agreement, or authorize any third party to use data center space without the provider’s express written consent. Many customers have business plans that specifically anticipate sublicensing, so that issue should be addressed while the license agreement is being negotiated. It is important to identify any affiliates of the customer, contractors or other third parties that are entitled to have access to the space, and clarify that the licensee retains all liability for rent, security breaches, property damage and the like. The customer should disclaim any real property interest under the data center agreement, together with any rights as a tenant under landlord/tenant laws, regulations or ordinances.
Customers move in and out of data centers on a regular basis, and their space requirements change over time. Accordingly, the provider must have the ability to “groom” the facility to maximize utilization of available space as customers come and go. This requires the provider to have a right to relocate customers, in which case the customers whose facilities are moved should have the right to recover their reasonable costs, especially if such relocation occurs before expiration of a license term. The operator’s right to relocate customers is generally a major area of disagreement in any license negotiation.
Legal and Regulatory Issues Relevant to Data Center Operators and Customers
The act of operating a data center will not, in itself, subject the operator to any regulatory requirements at the state or federal level. Nor will the mere fact of occupying a data center subject the customer to any regulatory requirements as a common carrier. However, if a data center offers capacity services (as opposed to unlit cabling), this could subject the operator to regulation as a common carrier under federal and state laws. Likewise, some of the activities conducted by customers in a data center could be considered intrastate or interstate telecommunications services, and be subject to regulation by the state utility commission or the FCC if offered to the public for a fee.
