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Wireless Developments
700 MHz Auction Nears Conclusion
Bidding in Auction No. 73, which began on January 24 and has gone through more than 100 rounds, is winding down with minimal activity now in each round. Provisionally winning bids have been placed for the vast majority of the 1099 licenses that cover 62 MHz of "beachfront" spectrum at a value of more than $19.5 billion.
Bidding continues on a handful of A and E Block Economic Area licenses, as well as some B Block Cellular Market Area ("CMA") licenses. Many believe the E Block spectrum is well suited for video broadcast to cell phones. Prices for the B Block have been higher than anticipated, likely because a large number of bidders have been interested in, and are better positioned to afford, the smaller CMA licenses over the larger licenses. The auction reserve prices for the A, B, and E Blocks have been met, and thus the blocks will not be re-auctioned. The C Block Regional Economic Area licenses have generated winning bids totaling around $4.71 billion, which is unlikely to increase given that the last activity for any C Block license occurred in round 40. Because the $4.6 billion reserve price for the B Block has been met, it too will not be re-auctioned and will be subject to the open access conditions imposed by the FCC.
Although the auction proceeds vastly exceed the expected $10 billion to $15 billion, not everything went according to plan. Only one bid for $472 million, placed in round one, has been received for the D Block nationwide license that is supposed to serve as part of a public-private interoperable broadband public safety network. Given that the bid is significantly below the $1.33 billion reserve price for the D Block license, it is unclear whether the FCC will immediately revise the conditions placed on the license and re-auction it with a lower reserve price, or whether it will pursue other options. The Rural Cellular Association has asked the FCC to suspend its anti-collusion rules after Auction No. 73 concludes even if the D Block license must be re-auctioned. Congressional leaders are paying close attention to the auction, and House Commerce Committee Chairman John Dingell (D-Mich.) has stated that he intends to work closely with the FCC, public safety officials, and industry members on the D Block issue.
DC Circuit Vacates FCC Ruling Regarding Environmental Impact of Wireless Towers
The U.S. Court of Appeals for the District of Columbia Circuit vacated in large part a 2006 decision in which the FCC rejected a petition by various environmental groups to study the environmental impact of 6,000 communications antenna towers in the Gulf Coast region and suspend registering antennas in that region until the FCC completes its environmental review. The environmental groups expressed concern in particular with the impact of towers on migratory birds in light of estimates by the U.S. Fish and Wildlife Service ("FWS") that 5 million to 50 million birds die annually from collisions with towers.
The court concluded that the FCC failed to: (1) apply the proper National Environmental Policy Act ("NEPA") standard; (2) provide "a reasoned explanation on consultation" with the FWS; and (3) provide sufficient notice of pending individual tower applications to allow meaningful public involvement. The court's decision was split 2-1, with Judge Brett Kavanaugh dissenting and arguing that the case was unripe because the FCC has since initiated a rulemaking proceeding to assess the impact of all communications towers in the United States, including those in the Gulf Coast region. The immediate impact of the court's decision is uncertain. The decision seems to focus on the adequacy of FCC processes, but the pending rulemaking could impose additional, more onerous regulations on tower companies and wireless carriers.
FCC Approves AT&T-Aloha and T-Mobile-SunCom Transactions
The FCC approved without conditions two notable wireless transactions in late January and February. First, the FCC approved AT&T, Inc.'s ("AT&T") $2.5 billion acquisition of Aloha Partners L.P.'s ("Aloha") 700 MHz spectrum, which consists of 281 Cellular Market Area licenses that cover the top ten U.S. markets and 70 of the top 100 U.S. markets (total population 196 million people). Second, the FCC approved T-Mobile USA, Inc.'s ("T-Mobile USA") $2.4 billion acquisition of SunCom Wireless Holdings, Inc., which provides wireless services in 27 markets in five southern states, Puerto Rico, and the U.S. Virgin Islands.
The FCC concluded in both cases that the transactions would not have an adverse impact on competition in the wireless market and would serve the public interest. While the T-Mobile-SunCom transaction was unanimously approved, however, Commissioner Michael Copps dissented and Commissioner Jonathan Adelstein concurred in the case of AT&T-Aloha. Copps and Adelstein both expressed concern that the AT&T-Aloha decision was hasty and lacked a substantive competitive analysis, and criticized the use of the 95 MHz spectrum screen that the FCC adopted in the order approving the AT&T-Dobson Communications merger in 2007.
Carriers Appeal E911 Location Accuracy Requirements
The Rural Cellular Association ("RCA"), T-Mobile USA, and Verizon Wireless appealed to the U.S. Court of Appeals for the District of Columbia Circuit the new enhanced 911 ("E911") location requirements that the FCC adopted in September 2007. RCA, T-Mobile USA, Sprint Nextel, and Verizon Wireless had previously requested that the FCC stay implementation of the new rules pending judicial review, but the FCC has not yet acted on the stay request. The appellants, as well as numerous other wireless industry members, argue that it is technologically impossible to comply with the new rules, which establish various milestones within a five-year period by which wireless carriers must measure Phase II E911 location accuracy on a public safety answering point level. The FCC recently clarified that the first milestone – carriers must achieve E911 location accuracy on an Economic Area ("EA") basis by September 11, 2008 – does not apply to carriers that operate in areas smaller than an EA.
Report Declaring CMRS Industry Competitive Finally Released
The FCC released in late January its long-awaited Twelfth Annual Report regarding the status of competition in the commercial mobile radio service ("CMRS") industry. The report, typically released in September, was delayed by four months due to concerns about how the FCC statistically measures competition. The report included new, more detailed data on the service boundaries of U.S. wireless carriers, which allowed the FCC "to estimate: (1) the percentage of the U.S. population covered by a certain number of providers, and (2) the percentage of the population covered by different types of network technologies based on census blocks, rather than counties."
The report concluded that 99.8% of Americans have access to at least one facilities-based wireless carrier, more than 95% of Americans have access to at least three carriers, and more than 50% of Americans have access to at least five carriers. According to the report, 99.3% of rural Americans have access to at least one wireless carrier. Approximately 82% of Americans have access to at least one wireless broadband provider.
Controversy, however, continues to surround the report. Commissioners Robert McDowell and Deborah Tate expressed concern that it does not take into consideration consumer preferences and product and service differentiation. Commissioner McDowell "strongly caution[ed] against attempts to 'spin' the data contained in this report into an ex post facto justification of regulatory mandates." Commissioner Michael Copps noted that the report "still fails to define the term 'effective competition.'"
On the heels of the release of the Twelfth Annual Report, the Wireless Telecommunications Bureau recently issued a public notice seeking comment for the Thirteenth Annual Report. Comments and replies are due on March 26 and April 10, respectively.
Challenges to Designated Entity Rules Continue
The U.S Court of Appeals for the Third Circuit gave the FCC 30 days to tell the court when it would act on a petition seeking reconsideration of the FCC's designated entity ("DE") rules that were adopted shortly before the 2006 advanced wireless service auction. The court mandate is the latest development in an attempt by Council Tree Communications, Inc., Bethel Native Corp., and the Minority Media and Telecommunications Council ("Challengers") to overturn the more restrictive DE rules.
In 2007, the court dismissed the Challengers' judicial appeal of the DE rules based on jurisdictional grounds because their petition for reconsideration was still pending before the FCC. Shortly thereafter, the Challengers petitioned the court for a writ of mandamus to compel the FCC to act on the reconsideration petition. Although the FCC argued that it had already denied the petition for reconsideration, the court in its most recent decision rejected the argument and confirmed that the reconsideration petition still is pending. Although the court denied the petition for a writ of mandamus, the court directed the FCC to inform the court when it will act on the reconsideration petition.
State Regulatory Developments
NARUC Rejects Controversial Wireless Consumer Resolution While Unanimously Approving Other Telecom Resolutions
At its annual winter meeting, the National Association of Regulatory Utility Commissioners ("NARUC") decided in a 16-9 vote not to approve a resolution that would call for states to enforce national wireless consumer protection standards. The proposed resolution provided for states to enforce national standards developed by a federal-state joint board or similar body and resolve consumer complaints regarding wireless services. Many feared that the standards, however, which would establish both the floor and the ceiling for state authority, would cede state authority to impose stricter consumer protection requirements and hamper state ability to respond to new types of market abuses. NARUC sent the resolution back to its Telecom Committee and Consumer Affairs Committee for further deliberation.
By unanimous vote, NARUC also approved and adopted three other telecommunications-related resolutions. The first resolution urges the FCC to act promptly to improve and standardize its forbearance review policies and give states and third parties a more meaningful opportunity to participate in and influence the FCC's forbearance decisions. The second resolution supports "digital literacy" programs that promote more effective use of broadband Internet access. The third resolution supports amending the universal service Lifeline and Link-Up programs to subsidize broadband services, such as relay services, used by low-income, disabled individuals.
NARUC's proposed wireless resolution was triggered in part by states' continued interest in wireless consumer protection issues. According to NARUC, state legislatures proposed more than 1,500 bills in 2007 regarding wireless consumer protection, and this trend persisted in early 2008. Maryland, Hawaii, Washington, Illinois, and Oklahoma all are considering wireless consumer protection bills in 2008. Various states, including Virginia, Indiana, Illinois, and Iowa, are considering bills that target use of wireless devices while driving. Utah is considering two wireless-related bills, one of which would require public wireless Internet access service providers to include access controls to prevent minors from accessing harmful material, and another which would require public schools to implement policies regarding possession and use of wireless devices. Michigan also is considering a bill that would require retailers of prepaid wireless phones to see a photo ID and record the name and address of purchasers.
Verizon-FairPoint Merger Receives Final State Approvals
The Vermont Public Service Board ("VPSB") approved FairPoint Communications, Inc.'s ("FairPoint") acquisition of certain landline operations of Verizon Communications, Inc. ("Verizon"), subject to certain conditions. The conditions go beyond the January settlement agreement between FairPoint, Verizon, and the Vermont Department of Public Service in which FairPoint agreed to: (1) make $40 million in capital expenditures for each of the first three years after the sale, and (2) expand broadband services to all customers in at least 50% of its markets by the end of 2010. The conditions imposed by the VPSB include Verizon depositing $6.7 million in an escrow account that will pay for removing numerous dual poles in Vermont, and allocating $25 million to pay for FairPoint to remedy various service quality issues under a performance enhancement plan.
The New Hampshire Public Utilities Commission ("NH PUC") also recently approved the transaction in a 2-1 vote. The parties had reached a settlement with NH PUC staff, but the NH PUC staff added four new conditions to the settlement: (1) FairPoint must establish a trust fund for pension liabilities for Verizon workers that move to FairPoint; (2) Verizon must pay FairPoint up to $15 million per year for two years if more landline customers are lost than the parties project; (3) FairPoint must notify the NH PUC if its debt rating is downgraded; and (4) FairPoint must obtain NH PUC approval before moving or closing a call center in Littleton, NH or a data center in Manchester, NH.
As reported in the December 2007 / January 2008 Bulletin, FairPoint and Verizon already have obtained the approval of the FCC without conditions and the approval of the Maine Public Utilities Commission with conditions. FairPoint and Verizon, now with all necessary regulatory approvals for the transaction, have set a March 31 closing date.
State Deregulatory Efforts
Various states are considering further deregulation of communications services, including traditional telecommunications services and VoIP services. The Wisconsin Public Service Commission ("WPSC") opened a new proceeding (Case No. 5-TI-1777) to comprehensively review its oversight of telecommunications service providers and determine what services may be deregulated. The WPSC seeks comment on what regulations are necessary for the protection of consumers and service quality, maintenance of a competitive market, promotion of broadband development, and continuation of universal service. Comments are due to the WPSC by March 25. In addition, the District of Columbia delayed until March 4 its consideration of an ordinance that would disclaim jurisdiction over and deregulate VoIP services (Bill No. B17-0332).
FCC Relaxes Media Ownership Rules and Increases Regulation of Leased Access
Democratic Commissioners and U.S. Senate Unhappy with Media Cross-Ownership Rules
On February 4, 2008, the Commission released the December 2007 order ending the 32-year-old absolute ban on a newspaper's ability to own television or radio stations. Subject to certain criteria and limitations, newspapers are now allowed to own one television or one radio station in the 20 largest U.S. markets. For a full discussion, see the December 2007 / January 2008 Bulletin.
Commissioners Copps and Adelstein released a joint statement criticizing the media ownership proceeding, explaining that the relaxation of the cross-ownership ban is "chock-full of loopholes" that permit any broadcast station to merge with any newspaper in virtually any market in the country, and expressing skepticism that the "hurdle" posed by the need to apply for rule waivers would slow media consolidation in light of the Commission's practice of routinely granting such waivers. In particular, Copps and Adelstein were troubled that the order "casually" grants five permanent waivers to proposed newspaper-broadcast combinations under the old rules. These waivers, they explain, would not have withstood the "public interest presumption" used for the top-20 markets and non-top-four TV stations under the new rule.
The U.S. Senate appears to share Adelstein and Copps' concerns. Senator Dorgan (D-N.D.) announced that the Senate may vote soon on a resolution to overturn the new media ownership rules. No action will take place, however, until the rules are published in the Federal Register.
FCC Changes Leased Access Rates to Promote Availability of Independent Programming
In early February, the FCC released an order adopted in November that revises the cable leased access rules in ongoing efforts to promote program diversity. Cable operators have a statutory obligation to set aside channel capacity for commercial use by unaffiliated video programmers. Under the current rules, cable operators calculate leased access rates differently for access to programming tiers with more than 50% subscriber penetration versus those with less than 50%. The order harmonizes the rate calculation methodology for full-time carriage of independent programmers and now will calculate leased access rates based on the cost and revenue characteristics of the tier on which the leased access programming seeks to be placed, with a maximum allowable leased access rate of $0.10 per subscriber per month.
The Commission hopes the new rules will reduce barriers for smaller programmers to bring a more diverse array of television shows to cable subscribers. Leased access initiatives have been criticized as primarily benefiting programmers of program-length infomercials. The order explicitly excludes infomercial programmers from the revised rate regime, but an NPRM seeks comment on, among other things, whether to include those programmers in the new rate structure.
The order's new rules will take effect 90 days after the order is published in the Federal Register, and the rest of the rule changes will become effective 30 days after publication, though some changes require OMB approval. Comments on the NPRM portion of the order will be due 30 days after publication.
Public Education About the Digital Television Conversion Ramps Up
In mid-February, the Commission voted 5-0 to adopt its long-awaited digital television ("DTV") consumer education order. The measure requires broadcasters to run public service announcements about the upcoming DTV transition. Pay-TV providers like cable companies must place DTV transition information on monthly customer bills. As pay-TV providers wanted, there is no requirement of a separate pamphlet or bill insert.
Video Franchising Reform Bills Continue in Several States Even as Federal Courts Defend the Rights of Incumbent Cable Companies
Legislative efforts shifting video franchising authority made progress in the following states:
Wisconsin: In early February, a Wisconsin federal court dismissed the City of Milwaukee's lawsuit against AT&T in which the city argued that AT&T's U-Verse IPTV service was subject to local franchising authorities. The court ruled that a 2007 state video franchising law, which eliminated local franchising authority in favor of franchising at the state level, made the case moot.
Pennsylvania: Pennsylvania's House of Representatives held hearings in early February to shift video franchising authority to state-level utilities regulators. Among other things, state franchisees would be subject to buildout requirements in their service areas.
Tennessee: The Tennessee House is pursuing its own bill to shift video franchising authority from municipalities to the state level. Reform efforts in 2007 stalled due to disputes between incumbent cable providers and new video entrants like AT&T over, among other things, buildout requirements incorporated into state franchises. AT&T had backed a statewide franchising bill that did not include buildout requirements, whereas incumbent cable interests pushed rules to require new entrants to expand into lower-density areas.
Meanwhile, the Fifth Circuit reversed a September 2006 lower court dismissal of the Texas Cable Association's ("TCA") challenge to a 2005 Texas law shifting franchising authority to the state level. In its original suit, TCA claimed the law was unfair to incumbent cable companies because incumbents were ineligible for state franchises for their existing service areas and new entrants were not subject to the same regulatory restrictions as incumbents. The lower court ruled that TCA lacked standing to challenge the law because it failed to show actual injury. The Fifth Circuit found that TCA in fact had alleged actual injury because the law denies incumbents the option of state franchises for existing service areas and thus inflicts an economic harm. TCA also had standing under the alternative theory that unequal treatment of cable companies and new video entrants could deny TCA equal protection of the law guaranteed by the Fifth Amendment. The case goes to the U.S. District Court in Austin for trial.
Upcoming Deadlines for Your Calendar
Note: Although we try to ensure that the dates listed below are accurate as of the day this edition goes to press, please be aware that these deadlines are subject to frequent change. If there is a proceeding in which you are particularly interested, we suggest that you confirm the applicable deadline. In addition, although we try to list deadlines and proceedings of general interest, the list below does not contain all proceedings in which you may be interested.
March 1, 2008 - Annual CPNI compliance certification due.
March 1, 2008 - Form 477 due (local competition and broadband reporting form).
March 7, 2008 - Reply comments due on NPRM regarding exclusive DBS and private cable agreements in MDUs.
March 7, 2008 - Effective date of new rules banning exclusive cable agreements in MDUs.
March 7, 2008 - Comments due on pole attachment NPRM.
March 7, 2008 - Comments due on forbearance procedures NPRM.
March 14, 2008 - Comments due on Public Knowledge petition for declaratory ruling that text messages and short codes are Title II services or otherwise subject to non-discrimination requirements.
March 14, 2008 - Reply comments due on (1) Feature Group IP petition for forbearance from access charges for VoIP and (2) Embarq petition for forbearance from ESP access charge exemption for IP-originated voice traffic that terminates on the PSTN.
March 14, 2008 - Comments due on broadcast localism NPRM.
March 17, 2008 - Reply comments due on DARS NPRM.
March 24, 2008 - Reply comments due on forbearance procedures NPRM.
March 24, 2008 - Effective date of new newspaper-broadcast cross-ownership rules in top 20 markets.
March 24, 2008 - Effective date of new local number portability ("LNP") rules for interconnected VoIP providers.
March 24, 2008 - Comments due on NPRM on extension of additional numbering rules to interconnected VoIP providers.
March 31, 2008 - Circuit addition reports due (for international private line resellers).
March 31, 2008 - Circuit status reports due (for international facilities-based carriers).
April 1, 2008 - Form 499-A due (Telecom Reporting Worksheet).
April 7, 2008 - Reply comments due on pole attachment NPRM.
April 14, 2008 - Reply comments due on Public Knowledge petition for declaratory ruling that text messages and short codes are Title II services or otherwise subject to non-discrimination requirements.
April 14, 2008 - Reply comments due on broadcast localism NPRM.
April 21, 2008 - Reply comments due on NPRM on extension of additional numbering rules to interconnected VoIP providers.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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