Communications Law Bulletin -March 2005 (continued)

D.C. Circuit Court Upholds FCC Orders Requiring Intermodal and Wireless-to-Wireless Number Portability, but Stays Effectiveness of Intermodal Order on Procedural Grounds

On March 11, 2005, the D.C. Circuit Court issued two separate decisions disposing of challenges to the FCC’s number portability orders addressing wireless-to-wireless porting and wireline-to-wireless porting. In the first case, Central Texas Telephone Cooperative v. FCC, the court rejected a challenge by certain rural telephone companies against an FCC order that (i) required wireless carriers to port numbers to other wireless carriers if their service areas overlap and (ii) declined to limit wireless-to-wireless porting only to wireless carriers with facilities or numbering resources in the same rate center. The court found that the FCC order qualified as an interpretative rule, rather than a legislative rule, under the Administrative Procedure Act ("APA") because the order interpreted regulations adopted in a prior FCC order. Consequently, the court ruled that the FCC was not required to prepare an analysis regarding the order’s impact on small entities under the Regulatory Flexibility Act ("RFA"), which applies only to legislative rules. The court also found that the FCC order was not arbitrary and capricious.

In the second case, United States Telecom Ass’n v. FCC, the court addressed a challenge by the U.S. Telecom Association and other wireline interests against an FCC order regarding wireline-to-wireless porting. The parties raised only procedural arguments and did not challenge the merits of the order. The FCC order required LECs to port numbers to wireless carriers whose service areas overlapped the wireline rate center associated with the number and declined to limit wireline-to-wireless porting only to carriers with facilities or numbering resources in the same rate center. The court concluded that the FCC order was a legislative rule because it constituted a substantive change in a prior rule. The court nonetheless found that the FCC effectively complied with the notice-and-comment requirements of the APA by publishing a public notice in the Federal Register, and that any deviations from the APA’s procedural requirements were harmless error. Because, however, the FCC failed to prepare the analysis required under the RFA, the court remanded the order to the FCC to prepare an RFA analysis and stayed the effect of the order as applied to carriers qualifying as small entities under the RFA.

FCC Initiates Rulemaking to Implement SHVERA Provisions Imposing Reciprocal Retransmission Consent Bargaining Obligations on MVPDs

On March 7, the FCC issued a notice of proposed rulemaking to implement Section 207 of the Satellite Home Viewer Extension and Reauthorization Act of 2004 ("SHVERA"). Specifically, the FCC proposed to extend to multichannel video programming distributors ("MVPDs") the existing good faith retransmission consent bargaining obligations imposed on television broadcasters. Comments are due on April 23, and reply comments on May 8.

FCC Streamlines Earth Station Licensing Rules to Expedite Satellite Broadband Deployment

On March 15, the FCC released two decisions that will expedite deployment of satellite broadband services and offer greater flexibility in implementing state-of-the-art earth stations by streamlining the procedures for licensing certain earth stations and modifying the technical rules governing those earth stations. In the Fifth Report and Order, the FCC adopted two new streamlined procedures for case-by-case review of non-routine earth stations, which have smaller antenna diameters or operate at higher power levels than those permitted under the FCC’s "routine" licensing procedures. Under the new streamlined procedures, an applicant can either (1) reduce the power transmitted from its non-routine antenna to prevent interference; or (2) provide certifications of prior coordination with adjacent satellite operators. These new streamlined procedures generally apply to earth stations communicating with geostationary satellite orbit ("GSO") systems in the conventional C-band (i.e., 3700-4200 MHz and 5925-6425 MHz) and with GSO and nongeostationary satellite orbit ("NGSO") systems in the conventional Ku-band (i.e., 11.7-12.2 GHz and 14.0-14.5 GHz). The FCC also relaxed certain mobile earth terminal ("MET") licensing requirements, such as revising the rules to require MET licensees to bring their network of METs into operation within a year, without requiring that all or a certain number of METs must be operational. Additionally, the FCC revised certain technical and licensing rules applicable to very small aperture terminals and Ku-band earth stations.

In the Sixth Report and Order, the FCC adopted additional revisions to its technical rules, including revisions to the earth station antenna gain pattern requirements and to the technical rules governing VSATs. In a related notice of proposed rulemaking, the FCC proposed to adopt an "off-axis EIRP envelope" approach for fixed satellite service ("FSS") earth stations in the C‑band and Ku‑band, consistent with the procedures for other earth stations such as Ka-band FSS earth stations.

Recent Universal Service Developments

FCC Adopts Additional ETC Requirements

The FCC has adopted additional requirements for carriers that seek designation as eligible telecommunications carriers ("ETC"), which are eligible to receive universal service support for providing service to high-cost areas. The decision is generally consistent with the recommendations that the Federal-State Joint Board on Universal Service made last year and codifies the ETC criteria adopted in the Virginia Cellular and Highland Cellular ETC cases in late 2003.

The FCC’s new ETC rules apply only when the FCC designates a carrier as an ETC. This occurs only when a state declines to exercise jurisdiction over the ETC-designation process, which is typically in the case of wireless carriers seeking ETC status. The FCC, however, encouraged states to incorporate the FCC’s new rules into state ETC-designation practices.

In order to obtain ETC status under the new rules, a carrier must: (1) provide a five-year plan demonstrating how it will use universal service support to improve its coverage, service quality or capacity throughout its ETC service area; (2) demonstrate its ability to operate in emergency situations; (3) demonstrate that it will satisfy consumer protection and service quality standards; (4) offer local usage plans comparable to those offered by local carriers in its ETC service area; and (5) acknowledge that it may be required to provide equal access if all other ETCs in the designated service area relinquish their designations. These requirements apply on a prospective basis to all ETCs previously designated by the FCC. These ETCs must submit evidence demonstrating how they comply with that new ETC designation framework by Oct. 1, 2006.

Each FCC-designated ETC must submit on an annual basis: (1) updates on its five-year service quality improvement plan; (2) information on network outages; (3) number of requests for service from potential customers that were unfulfilled for the past year and the number of complaints per 1,000 handsets or lines; (4) a certification that it is complying with applicable service quality standards and consumer protection rules, can operate in emergency situations, and is offering a local usage plan, and an acknowledgment that it may be required to provide equal access to long distance carriers.

The FCC also is expanding its public interest examination for ETC designations by considering the benefits of increased consumer choice offered by the applicant, unique advantages or disadvantages of the applicant’s service offering, and whether designating a carrier as an ETC may result in cream-skimming.

The FCC rejected the Joint Board’s recommendation that an ETC applicant demonstrate that it has the financial resources and ability to provide quality services throughout its ETC service area. In addition, the decision did not address a controversial "primary line" proposal that would limit universal service support to one line per customer. The FCC also: (1) concluded that its redefinition proceedings did not warrant a change at this time; (2) modified its rules so that newly designated ETCs can file high-cost certification and line count data within 60 days of their ETC designation date; and (3) delegated authority to the administrator of the universal service program to develop standards for any maps submitted under the FCC’s ETC rules.

Tenth Circuit Rejects Non-Rural High-Cost USF Decision

The U.S. Court of Appeals for the Tenth Circuit for the second time has rejected portions of the FCC’s rewrite of its non-rural high-cost universal service support rules. Specifically, the court denied the definition used by the FCC to evaluate when rates are "reasonably comparable" between urban and rural areas. The court, however, did affirm the portion of the FCC’s decision that creates a mechanism designed to induce states to implement universal service goals.

The court had previously reversed and remanded to the FCC a decision that costs, rather than rates, were the best indicator in achieving rate comparability between rural and urban areas. In that decision the FCC established non-rural high-cost support as a 135% benchmark of the national average cost per line, but this benchmark was rejected by the courts because the FCC failed to define certain statutory terms and to adequately justify the benchmark.

On remand, the FCC defined "sufficient" universal service support as "enough federal support to enable states to achieve reasonable comparability of rural and urban rates in high-cost areas served by non-rural carriers." It defined "reasonably comparable" in terms of a national urban benchmark rate: rural rates will be considered "reasonably comparable" if they fall within two standard deviations. On appeal, the court again struck down the FCC’s rules, concluding that the FCC failed to demonstrate "why reasonable comparability outweighs the principle of affordability, or any other principle, for that matter, in this context." The court did not set a deadline by which the FCC must revise its non-rural high-cost universal service rules, but stated that it fully expects the FCC to comply with its remand in an "expeditious manner, bearing in mind the consequences inherent in further delay."

Universal Service Contribution Factor Increases Again

The universal service contribution factor for the second quarter of 2005 has been set at 11.1%, which is an increase in the contribution factor from 10.7% for the first quarter of 2005. According to the FCC, the increase reflects a $50 million increase in projected demand for universal service support and related expenses, and a nearly $70 million decrease in industry revenues that are included in the contribution base.

Reform of the Universal Service Program

The FCC has contracted with the National Academy of Public Administration ("NAPA"), a nonprofit consulting group, to evaluate the effectiveness of the universal service mechanism and whether it can be improved. NAPA will be paid $400,000 for an analysis of the existing support system and alternatives that are used by other similar grant programs. The process is expected to take five to six months. The contract also includes a $350,000 option in which NAPA would make specific recommendations for improvements to the universal service program, if required.

The FCC’s review of the universal service program comes at a time when it and the program are under significant scrutiny. The House Energy and Commerce Committee’s subcommittee on oversight and investigations recently held a hearing in which the FCC was severely criticized for its poor management of the Schools and Libraries universal service support mechanism, or E-Rate Program. The criticism was fueled in large part by a recent study by the Government Accounting Office that suggested that the FCC was slow to take steps to prevent fraud and abuse in the program.

Jeffrey Carlisle, then-chief of the Wireline Competition Bureau, testified that the E-Rate Program "continues to experience operational and management challenges" and that the FCC is considering "whether to modify the manner in which the [Universal Service Fund] is administered, including possible changes to the underlying administrative structure." Carlisle also stated that the FCC is working to establish better defined performance measures for the program, although they likely will not be implemented until the FCC’s next fiscal year because of the need to seek public comment on them. In addition, Carlisle noted that there are more than 500 cases pending before the FCC appealing decisions of the administrator of the E-Rate Program, but that the FCC is committed to reducing the backlog of appeals by the end of 2005.

Recent VOIP Developments

Vonage Sued For Emergency 911 Services

The Texas Attorney General has sued Vonage for failing to adequately disclose to consumers the limitations of its emergency 911 services. The lawsuit, which charges Vonage with deceptive trade practices, claims that Vonage advertises its VOIP service as an alternative to traditional telephone service, but does not disclose that the company’s 911 service differs from that of traditional 911 service. Specifically, 911 calls are routed through administrative lines at emergency call centers rather than directly to a dispatch operator, and calls placed after regular business hours may go unanswered. Operators also may be unable to identify the caller’s phone number and thus the caller’s address. In addition, Vonage’s 911 service does not work during electrical or broadband service outages. The lawsuit was prompted in large part by a Vonage customer’s recent inability to contact emergency assistance during a home invasion which resulted in two people being shot. In addition to injunctive relief, the Attorney General is seeking $20,000 per violation of the state Deceptive Trade Practices Act. Vonage is disputing the lawsuit, claiming that it explicitly discloses the nature of its emergency 911 service to consumers through various types of customer notices. According to Vonage, its repeated requests to the incumbent local carriers for access to selective routers that connect directly to emergency call operators have gone unanswered, which is clearly leading to public safety issues.

Level 3 Forbearance Petition Withdrawn

On March 21, Level 3 Communications withdrew a controversial petition that asked the FCC to forbear from applying certain intercarrier compensation obligations to VOIP providers. Level 3 had argued in its petition that VOIP traffic (i.e., Internet protocol traffic that connected to the public switched telephone network) is an interstate information service that is not subject to interstate or intrastate access charges. Under FCC procedures, the FCC had until March 22 to either act on the petition or allow it to automatically go into effect. Level 3 Communications stated that it decided to withdraw the petition because of new leadership at the agency, referring to the recent appointment of Commissioner Kevin Martin as chairman. However, it had also been widely rumored that the petition was going to be denied, potentially on procedural grounds. Consequently, intercarrier payment obligations for VOIP traffic remains unclear, but the FCC could rule on this issue as a part of a comprehensive rulemaking on reforming the intercarrier compensation regime that is currently pending.

Additional VOIP Providers Seek Numbering Resources

Following the FCC’s decision last month allowing SBC Internet Services, Inc. ("SBCIS") to obtain telephone numbers directly from the North American Numbering Plan Administrator ("NANPA") or Pooling Administrator ("PA"), at least five additional VOIP providers have sought similar relief from the FCC. Under existing policies, the NANPA or PA will only allocate numbering resources to telephone companies with state operating certificates, thus excluding unregulated VOIP providers. Mirroring SBCIS’s arguments, the VOIP providers contend that it is inefficient and onerous to require VOIP providers to either become certificated or to obtain numbering resources from state certificated carriers. SBCIS’s waiver to obtain numbering resources is in effect only until the FCC adopts numbering rules for VOIP providers, which is being considered in a pending rulemaking regarding the regulation of IP-enabled services. If the FCC grants the other VOIP providers waivers, they will likely be similarly limited. They also would likely be required to comply with federal and state number utilization and optimization requirements and industry numbering guidelines and practices.

FCC Settles First VOIP Blocking Case

The FCC entered into a consent decree with Madison River Communications, a telephone company based in North Carolina that operates in rural areas throughout the Southeast and Midwest, pursuant to which Madison River agreed to stop blocking the ability of consumers to use VOIP calling services. Madison River also agreed to pay a fine of $15,000 under the consent decree. The case was prompted in large part by complaints from Vonage that Madison River was blocking consumers from using Vonage’s services. Vonage has stated that this is likely not an isolated incident, and is investigating possible instances of blocking by other small telephone companies.

The consent decree ended an investigation regarding Madison River’s compliance with Section 201(b) of the Communications Act, which prohibits telecommunications carriers from engaging in unjust and unreasonable practices. Former FCC chairman Powell, however, later remarked that the FCC’s ability to prevent similar blocking cases does not necessarily rest on Title II jurisdiction over broadband providers. Rather, Powell and other FCC staffers indicated that the FCC’s jurisdiction is largely premised on Title I of the Communications Act.

Nebraska, and Potentially Kansas, Imposing Universal Service Fees on VOIP

The Nebraska Public Service Commission ("NPSC") has ruled that VOIP providers must contribute to the state universal service fund based on the intrastate portion of their services. According to the NPSC, VOIP providers can determine whether a VOIP call is intrastate or interstate by looking at the termination point of the call, despite claims from the industry that they do not know where a VOIP call goes. The NPSC ruled that if VOIP providers cannot determine the percentage of intrastate calls based upon a sampling of actual call data, the universal service assessment will be based upon a default safe harbor of 71.5 percent intrastate and 28.5 percent interstate. The NPSC concluded that requiring VOIP providers to make equitable contributions to the state universal service fund places telecommunications providers operating in the state on a level playing field. The NPSC’s decision takes effect April 1.

The Kansas legislature also is considering imposing universal service fees on VOIP calls. The Kansas House Utilities Committee is holding hearings on a bill that would require VOIP customers to contribute to two state subsidy programs. Representative Tom Sloan (R-Lawrence) in testimony, however, warned that the FCC previously indicated that states cannot force VOIP customers to pay into state universal service funds.

FCC Rules on Wireless Termination Tariffs

At the end of February, the FCC ruled on a long-pending petition filed by several wireless carriers regarding local exchange carrier ("LEC") wireless termination tariffs. The wireless companies had asked the FCC to find such tariffs to be an improper method of establishing reciprocal compensation.

In a partial victory for the wireless industry, the FCC amended its rules on a going-forward basis to require negotiated interconnection agreements and to prohibit wireless termination tariffs. The FCC declined, however, to declare the wireless termination tariffs illegal on a retroactive basis, finding that the existing rules did not prohibit such tariffs and that the wireless carriers therefore were obligated to accept the terms of those tariffs. Going forward, LECs and wireless carriers are obligated, upon request, to negotiate interconnection agreements in good faith, and disputes over such agreements will be subject to state arbitration pursuant to Section 252 of the Communications Act.

Upcoming Deadlines for Your Calendar

Note: Although 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.

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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