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The Nature of the Niche |
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AmLaw Tech - The American Lawyers Technology Magazine (Summer 1997) Can a telecom boutique flourish by representing users instead of providers? By fighting aggressively for its clients' contracts-and by fashioning a low-cost, high-tech office environment-D.C.'s Levine, Blaszak has done just that. Henry Levine, then a telecommunications partner in Morrison & Foerster's Washington, D.C. office, had a tough decision to make in the summer of 1988. That August Merrill Lynch & Co. had put its account up for bidding between long distance carriers, and the brokerage house wanted Levine- who had handled regulatory work for it in the past- to do the deal. Trouble was, MCI Communications Corporation, another firm client, hoped to win the account, and the last thing MCI legal director William Erickson wanted was for Levine to end up on the other side of the negotiating table. But, Levine now says, he had a hunch that the Merrill Lynch deal could be the beginning of a larger practice, one driven by the demand for corporate telecommunications services and competition between phone companies. Moreover, while MCI had been a valuable client to the firm in the mid-1980's, the work it had offered Morrison & Foerster had dwindled in recent years, says Washington D.C., partner Robert Loeffler. After the firm's conflicts committee gave Levine the green light to take the Merrill Lynch deal, Levine went to MCI's Erickson and insisted that he do the same. "[Erickson] said, 'If you're going to do this, we'll fire you,' and I said, 'I'm taking it,' and he said, 'You're fired.'" (Erickson calls Levine's telling of the story "conceptually correct.") As it turned out, Levine went on to broker a deal between Merrill Lynch and his former client and has no regrets. "You make sixteen bets in life, and you always remember the ones that work out," says Levine. "That was one that worked out." As Levine envisioned in 1988, the representation of large telecom users like Merrill Lynch was a niche waiting to be found. In the age of AT&T's dominance, corporations didn't have much leverage in their dealings with the phone company, but with the emergence of MCI and Sprint Corporation, and changes in federal regulations, corporate telephone users in the late 1980's suddenly were in a position to bargain for better contracts, and Hank Levine was frequently the one who did the bargaining for them. In the Merrill Lynch deal and those following it, says Erickson, Levine "set the bar for what customers could expect of the carriers." By negotiating such deals for companies and handling regulatory assignments while at Morrison & Foerster, Levine built up a practice that he says grossed &1.5.-2 million annually between 1988 and 1992. In 1993 he left to start a boutique, now called Levine, Blaszak, Block & Boothby. It has only four partners and a total of 11 lawyers, but its clients are big-Visa International, Merrill Lynch, and American Express Company, to name a few. While the negotiations aren't high-profile, they sometimes involve large sums (last year's deal between Merrill Lynch and AT&T came to $500 million). And since many clients will ask the firm to negotiate a new telecom agreement every three years, the practice promises a healthy flow of revenue. By focusing on the representation of users, and by letting the expensive trappings of traditional firms fall by the wayside, this group of telecom lawyers has also managed to make a big-firm living as well. Last year's average profits per partner-$500,000-exceeds profits that several large D.C. firms recorded in 1995, according to "The Am Law 100." The secret, says Levine, is that no one is going after his clients. With big firms anxious to work for AT&T, MCI, and Sprint, the user field is relatively uncluttered with competitors, he says: "We're the only neurosurgeons around. In telecom, the overwhelming majority of the billable work, ninety percent of it, is on the provider side." Levine overstates the case. Other lawyers do do what he does- some in-house attorneys and also a few D.C. firms, namely Wilmer, Cutler & Pickering and Shaw, Pittman, Potts & Trowbridge. But few have done as many deals with the major carriers as Levine, Blaszak, says Erickson (who has since left MCI). In the financial services industry, Levine "is probably more familiar than anyone in the world as far as what individual carriers can and cannot do [in a deal]," adds client Robert King, vice-president and counsel of Visa, for which Levine recently negotiated a telecom contract. "He knows what has and hasn't been done out there." Users Get Tough Before 1995 Levine did have competition to worry about. Jamas Blaszak, then of the Washington D.C., office of Chicago's Gardner, Carton & Douglas, had developed a practice very similar to Levine's. But the two lawyers started talking about what they could do working in concert, and two years ago Blaszak joined the firm. A slow-speaking, methodical man, Blaszak provides a metabolic balance to Levine, whose rapid-fire banter has the flair of stand-up comedy. Levine's the sort of performer who's not too bashful to stop himself in the middle of a monologue and exclaim, in his raspy voice, "That's a great quote!" Blaszak, on the other hand, would rather not talk to a reporter: "I am fundamentally a more private person than Hank is." However different the two men are, their working under one roof makes good business sense. In the late 1980's, when the two first began competing for business, the upstart MCI had already begun offering customized deals for users' phone services. AT&T, unlike MCI, was then shackled by a strict tariff regime, and was urging the Federal Communications Commission to allow it, too, to negotiate customized deals. In 1988 the FCC did just that, instituting "Tariff 12" agreements specifically for AT&T, which in turn created a greater need for lawyers to negotiate transactions between users and long distance carriers. Suddenly rates were up for grabs, as were terms and conditions affecting the service provided by a carrier, or the carrier's responsibilities in case of a system failure. Levine and Blaszak were there from the beginning to capitalize on the changes. At the time Blaszak represented the Ad Hoc Telecommunications Users Committee- a lobbying group for corporations with unusually large telecommunications needs, such as American Express, The Proctor & Gamble Co., and Honeywell, Inc. As counsel to the committee, Blaszak petitioned the FCC for the Tariff 12 change, and when regulations were eased in 1988, several committee members independently retained him to renegotiate their telecommunications agreements. While Levine handled the Merrill Lynch-MCI transaction, Blaszak deals forged by American Express, Ford Motor Co., and American Airlines, Inc., with AT&T. The contracts for such deals committed the telecom users to spending amounts ranging from about $90 million to $350 million over a three- or five-year period. With each deal, says former MCI attorney Erickson, the users demanded better terms, threatening to go to a different carrier, as Merrill Lynch had done in abandoning AT&T for MCI, if they didn't get what they wanted. "The next customer wanted more and more and more," says Erickson. "Customers got tougher. They hired people like Hank Levine." One trouble with Levine and Blasnak's practice in the late eighties and early nineties was the potential for conflicts. Both lawyers, in their respective firms, ran into trouble with the clients of other partners. Morrison & Foerster partner Diane Hinson explains that in the early 1990's carrier clients were approaching the firm with nontelecommunications law assignments. Although no one at the firm was pressuring Levine to leave, says Hinson, the fact that his practice was adverse to carriers made it difficult to take them on as clients. "You have to do one or the other," she says. "You can't be representing the users and the carriers." Levine also had an itch to start his own show. Not only was Morrison & Foerster having a particularly bad year at the time (in 1992 profits per partner dropped 32 percent from the previous year, to $235,000, according to "The Am Law 100"), but Levine says that with a practice that demanded the expertise of specialists, he couldn't afford to rely on associates who were doing work for other partners. What's more, Levine was an avid high-tech advocate and was pushing the firm to switch from the older mainframe system to a network of personal computers, says MoFo partner Robert Loeffler, but management didn't act on the plan until after Levine left in 1993. Levine, co-chair of the firm's technology committee, says he also argued for PCs on everyone's desktop and innovations like CD-ROM library resources. "I wanted to do all those things, and I wanted to do them quickly," he says. But at a big firm, things move slowly. "It's like a coral reef," he says. "It's where it is. You can't move it five miles." So he moved himself. In the fall of 1992 he, junior partner Debra Lagapa, senior associate Ellen Block, and MoFo's office manager, Meghean Field, met for breakfast across the street from Morrison & Foerster's office. Levine wasn't the only one who'd been thinking of leaving. Block, who had worked at Common Cause and MCI before being recruited to MoFo by Levine, had just been passed up for partnership, and the idea of starting something new was attractive. That morning "we each put our cards on the table," she says. "We said, 'What's the first step?' At which point Hank pulled out his checkbook and wrote out a check to Levine, Lagapa & Block ... The next thing we knew, we were looking for office space and picking out stationery." The Devil's in The Details Lagapa later left the firm in 1993 to spend more time with her family, but additions of FCC lawyer Colleen Boothby in November of that year and Blaszak in early 1995, who later brought in of counsel Kevin DiLallo, filled out the partnership. The four partners now offer clients a real choice of personalities. While Blaszak is subdued, Boothby charms with a straight-talking gabbiness. Block, on the other hand, is careful but bubbles with mild joviality. And then there's Levine, a self-promoting yet likable ham. They have in common a clientele of which a vast majority are corporate telecom users-UPS, Compaq Computer Corporation, American Express. While Boothby works exclusively on regulatory matters, Block and Levine spend nearly all their time on user/carrier deals, and Blaszak splits his days between such transactions and regulatory work for the Ad Hoc Telecommunications Users Committee. In the beginning Levine wasn't sure that Fortune 500 companies would take the chance on a start-up. "would a client like the Securities Industry Association (SIA) hire Levine, Anonymous & Anonymous?" he wondered. The SIA has, in fact, hired Levine, Blaszak, Block & Boothby, as have other large clients. The firm has taken on assignments for IBM, First Data Corporation, Intel Corp., and Motorola Network Ventures, Inc. Levine handled one of his biggest deals early last year, when Merrill Lynch again put its contract up for bid. Depending on the degree to which the client wants the firm involved and how protracted the negotiations are, corporate user transactions bring legal fees of anywhere between $10,000 and $150,000, say Blaszak and Block. In the transactional arena the firm's job is usually to negotiate the technical minutiae of contracts between carriers and corporate users. Levine says he often secures pledges from carriers to lower rates as the market prices for telecom services fall, as it often does. The firm also negotiates clauses pertaining to installation fees, and reductions on the amount the user would have to pay in the event that it does not spend as much on telecom services as it commits to. However obscure, such details can mean millions of dollars to a company whose very lifeblood is its telecommunication service, says H. Pim Goodbody, Jr., vice-president-management services at the SIA. Back in 1988, Goodbody recalls, association members were paying NYNEX about $2 million a month for customized telecom service that connected traders to their institutional customers. Now, thanks in part to Levine, says Goodbody, they're paying about half that. Because of the specialized nature of the deals, and because a company needs to negotiate the contracts only once every three years or so, in-house lawyers are often scared to touch them, asserts one Washington lawyer who does outsourcing and telecom deals. Certainly, when VISA's in-house counsel King was faced with negotiating a large telecom transaction last summer, he chose to find help. "This was a tremendously complicated deal, and without someone like Hank, it would have been beyond my ability to do," he says. Levine, Blasnak's specialization is also an advantage in that the firm is almost always adverse to carriers. "[They] know that if he's involved, the deal's going to be less good from their point of view," says Robert Zahler, a competitor at Washington, D.C.'s Shaw, Pittman, Potts & Trowbridge. Levine is effective, Zahler explains, because he is likely to wind up in front of the same carrier lawyers in the future, and can call their bluff if they refuse to meet demands they met just a few months ago in a prior deal. AT&T senior attorney Daniel Gepford says he doesn't recall ever discouraging a customer from retaining Levine, but he does say that users have sometimes threatened to bring Levine into negotiations if the carrier didn't grant their wishes. ("I always thought that was kind of humorous. They thought they were going to terrorize us by saying that," says Gepford. "I was not frightened.") Working with Levine, Blasnak can be a mixed bag, though-and if Levine's demands sometimes rub carrier lawyers the wrong way, so does his style. He's the kind of negotiator who will pace the room, interrupt the opponent, put words in his or her mouth, and steal the show with his theatrical wit, says AT&T vice-president-governmental affairs Gerry Salemme. That approach doesn't always work. "Hank has a reputation for being a very tough negotiator and fighting to the very end," says Salemme. But the "rapid-fire style," he says, doesn't always fall on receptive ears. "The like-him-or-hate-him kind of thing with Hank-if you're the Brooklyn, moxie, aggressive, this-is-the-way-it-is, raspy -voice kind of negotiator, then you'll like Hank," adds Deloitte & Touche partner Steve Martin. "It works well with some people, some are indifferent, and others [are] put off by it." In a 1990 deal, says Martin, Levine, representing the state of Virginia, went head-to-head with Bill Erickson, his old contact at MCI. "It sort of got to the point where you had the two kings of the jungle thumping their chests," recalls Martin. The client was turned off by the combative nature of the proceedings, so Erickson replaced himself with an MCI colleague, and the firm floated in the more diplomatic Ellen Block in place of Levine, says Martin. (Levine and Erickson confirm the story. Says Erickson: "We'd run into each other so many times we were basically completing each other's sentences.") Levine knows he's not liked by everyone, but maintains that that's because he's effective. "I have people who walk in and say, 'I see your list [of demands], we don't do those things,'" he says. "Do I get the fourteen or fifteen [demands]? Yeah, and is it like pulling teeth? Yeah, and do they hate my guts? Yeah." Local Access And Digital TV Levine works almost exclusively on deals, but with the additions of FCC veterans Blaszak and Boothby, the firm has been able to win a few high-profile regulatory assignments as well. Last summer, for example, the Information Technology Industry Council, a trade association representing the computer industry, was looking for regulatory counsel and interviewed about a dozen firms. According to Rhett Dawson, the council's president, all four partners at Levine, Blaszak took part in the beauty contest, but the counsel came away most impressed with Boothby, the frank-talking FCC alum. That connection led to an assignment from the Internet Access Coalition, which was formed to address the FCC's effort to change how access to local phone networks is paid for. Boothby spent much of last fall trying to convince her former colleagues at the FCC to continue to exempt Internet access providers from paying fees to local phone companies for using their local exchanges. At about the time the firm was hired, the Baby Bells were pressuring the FCC to change its regulations so that outfits like America Online, Inc., would no longer escape the local access charges that long distance companies have paid for years. Boothby, arguing that companies like AOL are corporate users rather than long distance companies, urged FCC officials to maintain the status quo. Her efforts seemed to have paid off: On May 7 the FCC announced that it would not charge Internet service providers the same fees that long distance companies pay for local access. (The news for Boothby's clients was not all good, however. The decision is only part of a broader reform ruling that shifts some of the expenses for local telephone access from long distance companies to businesses, including Internet service providers.) "The firm took a more active role in representing information service providers than the agency has seen in the recent past," says one FCC lawyer involved in the matter. He observes that in addition to arguing against local access charges, the firm insisted that the FCC look at ways in which the phone companies could upgrade the service it provides to the Internet access providers. The commission is now conducting an inquiry into new technology the phone companies could install to remove Internet traffic off voice networks, and Levine, Blasznak is again in the thick of the debate, this lawyer says. Last year the firm was also in the midst of a heated regulatory battle involving standards for digital televisions. Back in 1987 an advisory committee made up of TV set manufacturers and broadcasters was formed to come up with industrywide standards for the new high-definition TV technology. After years of wrangling, the committee submitted its recommendation to the FCC in 1995, and last spring the FCC began its proceeding to adopt the committee's results. Only then did the computer industry wake up and realize that the proposed standards would make the new television technology incompatible with computers. A coalition of computer and software makers quickly sought out regulatory counsel, and invited three firms for a beauty contest-Latham & Watkins; telecom boutique Goldberg, Godles, Wiener & Wright; and Levine, Blasnak, according to Jeffrey Campbell, manager of technology and telecommunications policy at Compaq. Given the fact that the computer industry was entering into the fray so late, most lawyers that the coalition spoke with about the matter warned that the FCC was likely to rubberstamp the television manufacturers' proposal, says Campbell. But because Levine, Blaszak was hopeful that it could turn the tide quickly, he says, the firm stood apart. "These guys wanted to win," he says. "They seemed to take this more [as] a challenge rather than a fait accompli." That spring and summer, in comments for the FCC, Levine, Blaszak argued that the market should decide what video formats the digital television should have. Their position, with FCC chairman Reed Hundt's support, won the day. The FCC encouraged the warring parties to settle on their own, and in November they did just that: Television manufacturers and broadcasters gave up on insisting that their video formats be the only standard in exchange for a promise from the computer industry that it would not advocate the public auctioning of the digital TV spectrum. Compaq's Campbell says the lawyers who worked on the matter, principally Blaszak and of counsel Kevin DiLallo, filed the usual pleadings and did the usual lobbying, yet presented their case with unusual aggression. "They were ready to throw themselves on the tracks to stop that train, and we needed lawyers like that," he says. A Penny Saved From the moment he left Morrison & Foerster and started out on his own, Levine envisioned a leaner firm that would use less space, employ fewer staff, and rely extensively on technology. A grandiose library and a secretary for every lawyer, he believed, were extravagances that his firm could do without. And it has. Located near DuPont Circle, a few blocks from the FCC, the firm's offices are tiny compared to those of most firms. For 11 lawyers, Levine, Blaszak rents 6,300 square feet for about $200,000 a year. With only one small conference room, Levine complains that they need more meeting space, and the walls are so thin that the associate in the office next to his can hear him shouting into his speakerphone. Levine admits the firm is cramped and that they're looking for more space now, but on the whole he and his partners are proud of their thrifty digs. "Why do you need exotic teak floors? Why do you need marvelous bookcases in the law library? Why do you need a [traditional] law library?" asks Blaszak. "we don't need it... Most of our clients, they don't hire us for teak floors and Oriental carpets." The physical library is a small alcove that holds five bookcases, a couch, and two armchairs. There are a few things, like the FCC Record, that don't come on CD-ROM, but almost all the other resources do, Levine points out. The real heart of their library can be found in a room not much larger than a broom closet, cluttered with computer monitors and keyboards. Stashed underneath a countertop is Levine's pride and joy-a CD-ROM jukebox stocked with about four dozen discs, including Martindale-Hubbell Law Directory, federal laws and regulations, and court decisions. (The computerized library took some getting used to: "Early on there was a tendency to go, 'Where's my book?'" says Levine.) The jukebox cost $25,000, but Levine figures the firm has already saved four times that amount by not having to buy books or pay rent for a big library. While they pay $15,000 a year for the discs, he estimates that the books would have cost $30,000. Another benefit to the jukebox, Levine points out, is that it eliminates the need for a librarian. The few library-related tasks are handled by the same staff person who oversees all filing, billing, and collection work for the firm. She's paid "a very good living," says Levine, "but it's not four bodies." All in all, Levine, Blaszak has five other nonlawyer employees-three billing paralegals, one receptionist, and the office manager. It also employs two or three undergraduates from George Washington University, or "CKs" (college kids), as Levine enjoys calling them, to do part-time grunt work like copying and making runs to the FCC. Nowhere is there a secretary. "Everybody does a little bit [of] what a secretary would do," says Levine, who says he sends his own faxes and makes his own lunch reservations. The receptionist makes travel arrangements. Everyone does his or her own word processing. "We always planned not to have any secretaries," Levine says. "I just didn't think it would work." Thanks in part to the firm's reliance on technology, fewer staff hasn't meant longer hours, insist Boothby and Blaszak. Computerized word processing takes less time than collaborating with a secretary, they say, and with their digital library and e-mail capability, doing research and communicating with clients is simple. "We have very good support, but it's technological support rather than secretaries scurrying around serving coffee," says Blaszak. The firm's technological infrastructure also includes a computer in every lawyers home, which allows them the option of leaving early. The founder of this firm, in fact, boasts of being home for dinner with his family eight out of ten nights. Levine says that part of his vision was to offer a better-living package to lawyers used and abused by big firms. The firm ideally would like to keep hours billed to around 1,800 per lawyer, say Blaszak and Block, though this past year the average was closer to 1,900. (To deal with the workload, the firm is looking to hire two more associates.) "There's absolutely no emphasis on billable hours. None," asserts of counsel DiLallo. "It's probably the only place I've been where partners actually feel kind of bad when you're working really hard," adds associate Janine Goodman. "More than once, if it was 7:30, partners would come in and say, 'What are you still doing here?'" Levine's style of firm management has created a seemingly starch-free, antihierarchical firm culture. The lawyers slouch about in denim and sweaters. Everyone's office is approximately the same size. A decent quality of life and a casual atmosphere, however, have not prevented the firm from being profitable. According to Levine, in 1996 the firm grossed $3.75 million last year (or $417,000 per lawyer ), $1.1 million of which went to salaries, and $650,000 of which went to rent, computers, and supplies. With the exception of associate bonuses given in celebration of a good year, the partners kept the rest. "I like what we've done," says Levine. "I do look over my shoulder and pinch myself and say, 'You know we're going to implode!'" With that sort of balance sheet, Levine, Blaszak could be a nice acquisition for a large firm anxious to expand its telecom practice. The secret may be out. New York's Paul, Weiss, Rifkind, Wharton & Garrison and Weil, Gotshal & Manges have been interested in talking with the firm. (Paul, Weiss's telecommunications partner Phillip Spector confirms this; David Berz, the head of Weil, Gotshal's Washington office, says he has not had serious talks with Levine about an acquisition, but that they have informally discussed ways of growing Weil, Gotshal's telecom practice.) Levine has heard them out-"You always talk to everybody," he says. "Interviewing is marketing." But so far he is pleased to be on his own. "this is too much fun, and there's always the conflict [of interest] issue," he says. In the future, though, the firm may have good reason to match up with a bigger firm. As domestic carriers merge into and form alliances with foreign counterparts, and foreign markets open up to competition, multinational companies are more likely to contract for global telecommunication services in a few large deals, says David Cantor, Weil, Gotshal's Brussels-based telecom partner. Citing the MCI and British Telecommunications PLC joint venture, Concert, and AT&T loose alliance of international operators, World Partners, Cantor predicts more cross-border deals between international carriers in the future, and says there will be a need for firms capable of negotiating international agreements for corporate users. The globalization of the telecom market could present even greater opportunity for Levine, Blaszak, but it could also spell trouble: "When the deals get really big and global, you have to have more resources spread around the world," explains Levine. So far the boutique has managed. Merrill Lynch has retained it to work on the outsourcing of its nondomestic telecom services, Levine reports. And he has recently visited Rome and Rio de Janeiro for client Iridium SudAmerica, a venture whose parent company, Iridium LLC, plans to launch an armada of 66 satellites to form a satellite phone network. The deal is about as global as they come: Levine is negotiating with an Italian satellite company to operate and manage a South American "earth station" that will connect cellular phone users in Brazil with Iridium's satellites circling the earth. (That's one of the weirdest, coolest," says Levine.) But will little Levine, Blaszak be able to dominate its precious niche in a worldwide telecommunications market? Levine admits he's worried. Global deals like the one he's about to do for Merrill Lynch will reap an attractive six-figure fee, he says, and that's enough to bring on the sharks. "As the deals get bigger and bigger, it will attract the attention of the larger firms," he frets. Nevertheless, he's hopeful that Levine, Blaszak will continue to be a player. "It is a relatively small world," says Levine, "in which we are relatively well recognized." |
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