Communications Law Bulletin, October 2007
This issue of our Bulletin was delayed slightly so that we could include the items taken up at the Federal Communications
Commission (“FCC” or “Commission”) open meeting held on October 31, 2007. With the meeting now behind us, we present our
summary of developments in October, along with our usual list of deadlines for your calendar.
In this issue:
Two FCC Orders Facilitate Bells’ Video Offerings; AT&T’s Battle with the Connecticut PUC Rages On
FCC Shuts Down Exclusive Video Deals for MDUs
On October 31, the FCC adopted an order banning exclusive deals for cable service to multiple dwelling units (“MDUs”), which
the Commission determined injured competition in the video market. The order is controversial because it prohibits the enforcement
of existing exclusivity clauses, as well as the creation of new exclusive arrangements. Cable companies have argued that the ban would
deprive MDU residents of the lower costs associated with negotiated agreements covering an entire building. The Bell telephone
companies, which stand to benefit from the ban when MDUs are opened up as potential subscriber bases for new Internet Protocol
Television (“IPTV”) offerings, argue that the residents of MDUs will benefit from increased competition in the video marketplace.
The next several weeks and months likely will bring lawsuits challenging the order, for several reasons. Some cable operators
could challenge the FCC’s authority to abrogate existing contracts. Affected parties also may challenge the order because
the FCC, just four years ago, encouraged exclusive deals of the kind now prohibited, reasoning that such arrangements would
encourage installation of wiring for broadband services in MDUs. The order also may be challenged as conflicting with the
states’ authority, given that 20 states already have passed legislation similar to the FCC’s action. The FCC, however, has
taken the position that the order merely extends the prohibition to states that have yet to pass legislation.
The ban currently applies only to some cable operators, including those using public rights-of-way and/or operating under
franchise agreements. The Commission has opened a rulemaking to consider extending the exclusivity ban to other video services
providers, such as private cable operators and direct broadcast satellite (“DBS”) providers.
FCC Adopts Rules to Ensure Reasonable Franchising Process for Incumbent Video Providers
At the October 31 open meeting, the FCC extended to incumbent video providers rules that prohibit local franchising authorities
from unreasonably refusing to award competitive video franchises. The Commission’s first report and order on the issue, adopted
in December of 2006, had provided such protections only to new video entrants.
AT&T’s Battle with Connecticut PUC Continues
In mid-October, AT&T Connecticut sought an emergency declaratory ruling from the state superior court that the Department
of Public Utility Control (“DPUC”) erred in its order that required AT&T to obtain a cable license rather than a video franchise
in order to offer IPTV. Granting the video franchise as requested rather than the cable license would have placed AT&T’s
U-verse video offering under less stringent regulation. The DPUC’s decision was based on its finding that AT&T had been illegally
offering cable TV for nearly a year without a cable franchise, and also was based on a July 2007 federal court ruling that
U-verse is a cable TV service rather than an interactive Internet application. AT&T plans to exit the video market in the
state if the DPUC’s decision is not reversed, leaving behind more than 7,000 U-verse subscribers. The Connecticut Office
of Consumer Counsel (“OCC”) stepped into the fray in late October, urging the superior court to dismiss AT&T’s petition.
AT&T has had better luck offering U-verse in other states. In late October, the Illinois Commerce Commission granted AT&T
a statewide video franchise to offer U-verse anywhere in the state where it provides telephone service. The franchise was
the first granted under a new state law passed over the summer.
Broadcast Developments
Media Ownership Rules Ignite Controversy
Perhaps this media ownership outtake, courtesy of Senator Byron Dorgan (D-N.D.), most accurately illustrates the challenges
FCC Chairman Kevin Martin faces as he attempts to get the 32-year-old media ownership rules overhauled: Senator Dorgan stated
that if the FCC issues a rulemaking on media ownership rules, there’s going to be a “firestorm and I’m going to be carrying
the wood.”
Senator Dorgan directed his comment to Commissioner Jonathan Adelstein during a Senate Commerce Committee digital television
(“DTV”) hearing October 17. The Senator, however, was preaching to the choir; Commissioner Adelstein and Commissioner Michael
Copps are both refusing to vote on the ownership-rule, public notice draft, currently circulating among the commissioners,
until the FCC establishes an independent panel to review several minority ownership proposals and a vote is taken on the recommendations.
The public notice draft includes an announcement that the last of six media ownership hearings would take place November 2
in Seattle. The meeting would be followed by a further rulemaking November 13, giving the public a chance to provide comments
before the commissioners vote on the order December 18.
Chairman Martin’s push to wrap up the comprehensive media ownership rules review by the end of the year, however, has spawned
a firestorm of opposition from within and outside the Commission. Approximately 40 House Democrats appealed to Chairman Martin
to extend the public comment period, stating that a full round of public commentary is essential given the amount of controversy
surrounding the rule revamp. Several members of the Senate Commerce Committee said they want additional time to scrutinize
media ownership, and Senator Bill Nelson (D-Fla.) and Senator Olympia Snowe (R-Maine) issued a joint letter asking Chairman
Martin to finish the localism proceeding, which began in 2004, before tackling the ownership rules. Both Senators see the
localism proceeding, which they believe should include a 2-3 month public comment period, as a key tool the Commission needs
to move forward with the ownership review. Senator Dorgan and Senator Trent Lott (R-Miss.) threatened to use a rare legislative
veto to block ownership deregulation if Chairman Martin succeeds in getting the commissioners to vote on the rewrite by December
18. Senator Dorgan and Senator Lott’s warning that they will co-sponsor a resolution of disapproval reinforces the fact that
concerns over the impact of changes to the media ownership rules transcend party lines. A more covert bipartisanship appears
to be permeating the Commission as well. Although Republican Commissioners Robert McDowell and Deborah Tate do not necessarily
oppose Chairman Martin’s proposal, they are apparently withholding their votes while the talks between Chairman Martin and
Democratic Commissioners Adelstein and Copps progress.
Opponents cite two major reasons for their concern: first, they contend that Chairman Martin is trying to force the review
to a premature conclusion; and second, they believe that Chairman Martin’s anticipated removal of the ban on companies from
owning both a TV station and a newspaper in the same city, as well as letting companies own more radio or TV stations in the
same town, will result in additional consolidation. Although the media ownership review commenced in June 2006, critics assert
that the process, which included commissioning 10 media ownership studies costing the FCC a total of $300,000, was flawed
from the beginning and premised on a bias in favor of deregulation. The result, they contend, is that the Commission is rushing
to rewrite the rules without understanding the impact additional consolidation will have on minority and diversity ownership.
They question why the Commission is looking to deregulation when the continuing trend of decreasing ownership diversity and
increasing media outlet consolidation points to the need for tightening regulations.
Proponents of revamping the media ownership rules, such as Free State Foundation President Randolph May, give Chairman Martin
credit for pushing for more relaxed media ownership rules in spite of the intense political pressure, calling the assertion
that interested parties have not had enough time or opportunity to comment “silly.” Others, including Senator John Sununu
(R-N.H.), state that concentration is not per se bad. Deregulation supporters argue that loosening the ownership rules will improve local news because cross-ownership allows
stations to pay for the coverage, and additional revenue incentivizes broadcasters to hire more reporters. Supporters contend
that the FCC’s media ownership reports show that cross-ownership of different media outlets and common ownership of more than
one broadcast station within the same market promote the Commission’s goals of competition, diversity, and localism.
The debate flared up again on October 25, when Chairman Martin angered critics further by announcing that the Commission would
hold a second and final localism hearing on October 31, after the Commission’s monthly meeting. The announcement was not
completely unexpected: all the commissioners had previously agreed to the date. However, because Chairman Martin had linked
the localism hearing to his obtaining a vote on the ownership-rules public notice, the commissioners assumed the hearing would
be postponed. The assumption proved wrong, and the late notice gave commission members only one day to suggest witnesses
for the hearing. The chosen time slot also attracted some criticism; the hearing was to begin after the FCC’s monthly meeting,
which commences at 9 a.m., and was to end at 2 p.m. Previous meetings were held in the evening when interested parties were
not working, so they could attend to testify. Opponents question how a meeting on localism can be held without giving the
local community adequate notice or opportunity to be heard.
On a Related Media Ownership Note
On October 25, Commissioner Copps sent Chairman Martin a formal letter requesting that the Commission open a proceeding on
News Corporation’s proposed takeover of Dow Jones & Company. News Corp., founded by Rupert Murdoch, owns hundreds of media
properties in film, television, cable, magazines, newspapers, publishing, and other enterprises worldwide. The takeover does
not involve the transfer of any FCC licenses, but would put News Corp. in control of one of the biggest broadcast networks
and two of the five largest U.S. newspapers. It also would mean that a single company would hold the power to direct two
top New York TV stations and two of the city’s most popular newspapers. Commissioner Copps previously raised the issue of
FCC review in August, contending that previous Commission actions exempting national newspapers from cross-ownership rules
needed to be revisited.
Who’s Driving the DTV Education Train? And, Do You Have the Authority to Drive?
In separate hearings on October 17, House and Senate Commerce Committee Democrats expressed concerns that no one was in charge
of the digital television (“DTV”) transition. The concern stems from the perception that although numerous separate entities,
including the FCC and the National Telecommunications and Information Administration (“NTIA”), are implementing education
plans, no one organization is ultimately responsible for the transition. Mark Goldstein, director of physical infrastructure
at the Government Accountability Office (“GAO”), reinforced the assessment by informing the House Commerce Telecom Subcommittee
that the GAO has determined that no comprehensive plan exists to inform consumers about the digital transition. He said that
a voluntary program is not in the best interest of the government and that the GAO was working on an estimate of how much
it would cost to set up a proper program.
Senate Commerce Committee Chairman Daniel Inouye (D-Haw.) proposed establishing a DTV task force to drive DTV transition efforts,
which Commissioner Jonathan Adelstein endorsed. Both FCC Chairman Kevin Martin and NTIA Administrator John Kneuer balked
at the task force idea, reassuring everyone that the FCC and the NTIA were working together to ensure that consumers were
educated about the February 2009 transition. Chairman Martin said the FCC was in charge of overseeing the consumer education
efforts while the NTIA was managing the converter box coupon program. Chairman Martin also tried to alleviate Democrats’
apprehensions by pointing to an order circulating at the FCC that would require broadcasters to air public service announcements
about the transition and would require TV receiver manufacturers to include information about the transition’s impact on their
equipment. He also said that the FCC planned to work with the NTIA to ensure that retailers participating in the converter
box coupon program were properly training employees and informing customers.
Putting the FCC in charge may be risky, however, if the Commission does not have the power to adopt certain DTV consumer education
rules. House Republicans sent a letter to Chairman Martin in early October asking the Commission to determine, by October
12, if it even has the authority to engage in education efforts. If the Commission determined it did not have sufficient
authority to withstand a court challenge, Ranking House Telecom Subcommittee members, Reps. Joe Barton (R-Tex.) and Fred Upton
(R-Mich.), offered to move up the Barton-Upton bill (H.R. 608), authorizing the Commission to implement education rules and
set consumer education requirements like those stripped from the February 2009 DTV transition law. The letter also requested
that Chairman Martin reveal how the Commission plans to rule in the ongoing consumer education proceeding and when the next
video competition report would be released.
More Broadcast News
- Debate over the FCC’s product placement rules picked up at the end of September. House Telecom Subcommittee Chairman Ed Markey
(D-Mass.) sent a letter to Chairman Martin encouraging the Commission to enforce its product placement rules to protect viewers.
The Communications Act of 1934 requires broadcast licensees to make an announcement when airing material for pay. The rule
was extended to the cable industry. It was a video news release (“VNR”) that Comcast’s CN8 regional cable network aired in
September 2006 that appears to have spawned the letter. The FCC fined Comcast $4,000 for not identifying the sponsor of the
VNR. Comcast fired back, however, claiming the FCC’s sponsorship identification rules did not apply to the VNR because neither
Comcast nor its employees were paid to air the material.
- Five cable, videogame, music, and broadcast executives were subjected to a five-hour-plus marathon of questions about objectionable
content. On September 25, the House Consumer Protection Subcommittee wanted to know what the industry was doing to ensure
that music videos, radio shows, albums, and games avoided racial epithets, sexism, and cursing. Witnesses from Radio One,
Viacom, Take-Two, Universal Music Group, and Warner Music stressed the plethora of voluntary steps the industry currently
takes to warn parents, including refusing to air some content. The consensus from the panel, however, was that any type of
an outright ban would be unconstitutional. The executives explained that it was not their role to censor the creative expression
of artists and disclaimed responsibility for provocative content, because the performer controlled the material.
FCC Gives Consumers a Halloween Treat by Expanding Local Number Portability to VoIP
The FCC gave consumers a Halloween treat by extending local number portability requirements to Voice over Internet Protocol
(“VoIP”) providers at the Commission’s October open meeting on October 31. Going forward, consumers will be able to keep
their current local phone number when moving to or from an interconnected VoIP provider. All of the commissioners supported
the order, touting it as an opportunity to further level the playing field by removing a known disincentive that kept consumers
from switching carriers. In conjunction with the local number portability ruling, the FCC initiated a Notice of Proposed
Rulemaking, seeking comment on additional VoIP numbering issues, including the allocation of porting costs.
The FCC order also addresses another source of consumer pain relating to number portability – the amount of time it takes
to transfer or port the number. The Commission tentatively concluded that it would require all providers to complete simple
ports within 48 hours. In addition, the Commission stated that telephone companies could not impede number porting by demanding
excess information from the customer’s new provider. The FCC determined that local number portability validations for simple
number ports should be limited to four fields: (1) a 10-digit telephone number; (2) the customer account number; (3) a 5-digit
zip code; and (4) a pass code, if applicable.
Finally, the FCC order re-imposes local number portability requirements on small wireline carriers, ensuring that their customers
can keep their numbers as well. The decision addresses a D.C. Circuit stay of a 2005 order, which required the FCC to analyze
the impact of local number portability on small entities under the Regulatory Flexibility Act.
Wireless Developments
Auction Rules and Procedures for 700 MHz Auction Released; Debates About 700 MHz Open Access and Designated Entity Requirements
Continue
The Wireless Telecommunications Bureau released a public notice establishing deadlines, rules, and filing procedures for the
upcoming 700 MHz auction, Auction No. 73. The short-form application deadline is December 3, 2007, upfront payments are due
December 28, 2007, and the auction is scheduled to commence on January 24, 2008. The rules and filing procedures generally
track those for previous auctions, with some notable exceptions.
Reserve prices, totaling more than $10 billion, have been set for each of five blocks of spectrum available for auction of
the 700 MHz band. Licenses located in spectrum blocks for which the aggregate reserve price is not met in the initial Auction
No. 73 may be subsequently reauctioned (designated as Auction No. 76). Auction Nos. 73 and 76 are being treated by the FCC
as a single auction for purposes of assessing bidders’ qualifications and applying the anti-collusion rules. The auction(s)
also will be conducted under anonymous bidding rules, which will require bidders to focus even more intensely on compliance
with the anti-collusion rules.
In related developments, Verizon Wireless withdrew its appeal from the U.S. Court of Appeals for the D.C. Circuit challenging
the FCC’s open access requirements imposed on the 700 MHz C Block licensee. CTIA, however, filed its own appeal challenging
the same requirements. According to CTIA, the open access requirements are “at odds with prior Commission rulings and with
the realities of the competitive marketplace for wireless services.” CTIA is not seeking to delay the auction. Although
FCC Chairman Martin circulated a new item that would allow the C Block licensee to block or disable applications or features
on devices that it sells, the item has been opposed by Democratic Commissioners Michael Copps and Jonathan Adelstein. Chairman
Kevin Martin also later stated that he does not want to weaken the open access requirements.
Chairman Martin also has circulated an item that would modify the 700 MHz rules to allow small businesses, or designated entities
(“DEs”), to lease their 700 MHz spectrum on a wholesale basis without compromising their DE status. The draft order follows
significant concerns expressed by industry members as well as members of the House Small Business Committee during a recent
Congressional hearing. Under the existing rules, DEs would lose their DE status and bidding credits obtained at auction if
they leased certain amounts of their spectrum to other parties on a wholesale basis. Several companies, however, have argued
that providing wholesale services is necessary for small businesses to capitalize on market opportunities. Under the proposed
new rules, a DE could not make more than 17 percent of its spectrum capacity available to any one entity. In addition, Council
Tree Communications, Inc. has asked the U.S. Court of Appeals for the Third Circuit to reverse and set aside the DE rules
as they apply to the 700 MHz auction (see below for an update on Council Tree’s challenge of the DE rules as they apply to
the Advanced Wireless Service auction).
FCC Loosens Back-Up Power Requirement
The FCC has loosened its requirement that larger local and wireless carriers provide back-up power for key network facilities,
including central office facilities, cell sites, remote switches, and digital loop terminal equipment. The decision comes
on the heels of significant opposition from the industry. Despite the FCC’s decision to relax the rules, carriers still are
concerned about compliance with the back-up power mandate. CTIA also has asked the U.S. Court of Appeals to stay the back-up
power rules pending judicial review.
Under the modified rules, exempt larger local carriers and wireless carriers are exempt from the requirements if they demonstrate
that compliance is precluded by: (1) federal, state, tribal, or local laws, (2) risk to safety of life or health, or (3) private
legal obligations or agreements. Carriers also must file reports within six months providing an inventory of assets that
would and would not comply with the new rules, and those where compliance is precluded under the three reasons above. Carriers
then would have another six months to ensure that facilities are in compliance with the mandate.
Advisory Committee Makes Wireless Alert Service Recommendations
The FCC’s Commercial Mobile Service Alert Advisory Committee recommended certain technical standards, protocols, and procedures
to the FCC by which wireless carriers can voluntarily deploy emergency alerts under the Warning Alert and Response Network
(“WARN”) Act. The Committee recommended three types of alerts – (1) presidential, (2) those that notify subscribers of an
“imminent threat to life and property,” and (3) Amber Alerts. Wireless subscribers could opt out of the latter two categories.
The Committee also recommended that alerts be distributed on a county level, but urged carriers to target more granular levels
if feasible. Although the alert system initially would be text-based, streaming audio and video and multimedia may be possible
in the future. Therefore, the Committee recommended “fundamental technological neutrality” in alert service profiles and
protocols. Additional recommendations included designating a government entity to authenticate and process alerts, which
would be passed through a gateway to carriers, and creating an industry group that would convene regularly to address ongoing
implementation issues. In addition, the Committee passed a controversial amendment that states that wireless carriers may
pass on to subscribers additional costs associated with developing and manufacturing mobile devices that can transmit alerts.
Pursuant to the WARN Act, upon receiving the Committee’s recommendations the FCC has 180 days to adopt technical requirements
for the alert service. The FCC then must complete a proceeding within 120 days that would allow carriers to start transmitting
alerts and would require carriers not participating in the alert service to notify subscribers.
Carriers Challenge “Home Market Exception” to New Automatic Roaming Rule
Several parties filed petitions seeking reconsideration of the “home market exception” to the recently adopted new automatic
roaming rule. Under the exception, wireless carriers are not required to provide automatic roaming services to other carriers
if they have access to spectrum in the same geographic area, regardless of whether that spectrum has been built out. Although
the FCC adopted the exception to promote facilities-based competition, challengers argue that it ignores market realities
and actually will harm consumers and competition. The exception is particularly troubling for carriers who cannot use spectrum
purchased in the Advanced Wireless Service (“AWS”) auction until the spectrum is cleared of incumbents. Similar issues could
arise in the 700 MHz auction context because high bidders may not have access to their spectrum until the DTV transition date
in February 2009.
Battle Regarding AWS Designated Entity Rules Continues
In late September, the U.S. Court of Appeals for the Third Circuit dismissed a lawsuit filed by Council Tree, Bethel Native
Corp., and the Minority Media and Telecommunications Council (“Appellants”) challenging new FCC DE rules that were adopted
shortly before the Advanced Wireless Service Auction in 2006. The Third Circuit’s decision was based solely on jurisdictional
and procedural grounds, noting that the FCC had not yet acted on the Appellants’ petition for reconsideration of the same
rules and that the lawsuit was filed before the underlying order was published in the Federal Register. The Appellants more
recently petitioned the Third Circuit for a writ of mandamus on an expedited basis to direct the FCC to act on the Appellants’
pending petition for reconsideration. Council Tree indicated that if the FCC denies reconsideration, the Appellants will
refile their appeal with the Third Circuit.
USF Audit Showing High Erroneous Payment Rates Seems to Have Little Effect on High-Cost Reform Efforts
An analysis by the FCC’s Office of Inspector General (“OIG”) of universal service fund (“USF”) audits has revealed a high
percentage of “erroneous payments” made under the program. The OIG defines an “erroneous payment” as “any payment that should
not have been made or that was made in an incorrect [over or under payment] amount under statutory, contractual, administrative,
or other legally applicable requirements.”
The OIG reviewed more than 450 USF audits conducted by commercial audit firms and overseen by the USF administrator and the
FCC. The OIG concluded that 20.6 percent of payments to those seeking rural health care funds were incorrect. Similarly,
payments under the high-cost, schools and libraries, and low-income mechanisms were incorrect 16.6 percent, 12.9 percent,
and 9.5 percent of the time, respectively. The mechanism governing contributor payments had the lowest error rate at 5.5
percent. Auditors noted that errors were often caused by inadequate documentation and internal auditing processes and the
lack of proper data collection, reporting, and monitoring mechanisms.
Efforts to reform the high-cost USF mechanism, however, appear to be making slow progress. Although Commissioner Deborah
Taylor Tate stated that the FCC is expected to act in the near future on a six-month-old proposal by the Federal-State Joint
Board on Universal Service (“Joint Board”) to temporarily cap the amount of support competitive eligible telecommunications
carriers (“ETCs”) may receive, there have been no other indications that a decision is imminent. One member of the Joint
Board also noted that its target date of November 1 to send additional recommendations on reforming the high-cost mechanism
to the FCC will likely slip. Efforts on Capitol Hill also appear to be struggling. Although USF-related bills are pending,
telecom reform is not a top priority, and some Congressional members expressed doubt that the bills would make it out of committee.
Private Equity Buyout of Alltel Approved with Novel USF and E911 Conditions
The FCC approved the sale of Alltel Corp. (“Alltel”), the fifth-largest wireless phone company in the United States, to private
equity firms TPG Capital (formerly Texas Pacific Group) and GS Capital Partners (the private equity arm of Goldman Sachs).
The deal, valued at approximately $27.5 billion, is the largest leveraged buyout in the history of the telecommunications
industry. The FCC, however, imposed novel and controversial universal service and enhanced 911 (“E911”) conditions on the
transaction. Alltel, a publicly traded company based in Little Rock, Arkansas, will be a privately held company after the
transaction. The parties expect to close before Thanksgiving.
The FCC concluded that the transaction will serve the public interest, convenience, and necessity and will not harm competition
in the mobile telephony market. The FCC, however, also stated that “the transaction raises issues regarding universal service
and E911” and imposed conditions on the approval. Specifically, the high-cost universal service support Alltel receives as
a competitive eligible telecommunications carrier (“ETC”) is capped at the June 2007 level of support. The cap applies until
the FCC comprehensively reforms the methodology by which high-cost support is distributed, which is subject to a pending rulemaking
proceeding. Alltel also will not be subject to the cap if it immediately: (1) files cost data revealing its per-line costs
of providing service in universal service supported areas, and (2) demonstrates that it complies with new E911 public safety
answering point (“PSAP”) location accuracy standards.
Several FCC commissioners expressed concern about the universal service and E911 conditions imposed on the transaction, particularly
given that these issues were not substantively raised in the record of the proceeding. Moreover, Commissioner Robert McDowell
stated that the universal service condition “prejudices the Commission’s open docket considering universal service support
distribution” and could “skew future treatment of similarly-situated parties.” Similarly, Commissioner Michael Copps stated
that the universal service condition “is even more piecemeal than what the Joint Board recommended in May” and that the condition
may be “an even greater hindrance to rational, comprehensive [universal service] reform.” Commissioner Jonathan Adelstein
also called the E911 provision an illogical “‘jack in the box’ surprise,” noting it was unclear “how Alltel might fulfill
this condition given that the Commission currently has an open proceeding addressing the details of how carriers must implement
PSAP-level accuracy.”
The Realities of Imposing TRS Requirements on VoIP Providers
The FCC’s Consumer and Governmental Affairs Bureau (“CGAB”) granted interconnected VoIP providers a limited, six-month waiver
of the telecommunications relay service (“TRS”) rules. TRS enables individuals with hearing or speech disabilities to access
the public telephone system and communicate with voice telephone users through a communications assistant at a TRS relay center.
The Commission imposed 711 TRS calling requirements on interconnected VoIP providers, those connected to the public switched
telephone network (“PSTN”), earlier this summer. The rules require VoIP providers to route incoming calls to the “appropriate”
relay provider based on the caller’s location and the relay provider’s location. The realities of VoIP service, unlike PSTN
service, mean customers’ telephone numbers are not necessarily correlated to their geographic location. The CGAB granted
a limited waiver of the requirement to route the call through the “appropriate” relay center in those instances when the interconnected
VoIP provider cannot determine which relay center is the most appropriate because the caller’s telephone number does not correspond
to the caller’s actual location. The limited waiver does not remove the requirement that interconnected VoIP providers provide
711 TRS services. The same VoIP-related telephone number and location correlation issues are complicating the handling of
emergency 711 TRS calls on the outbound end. TRS providers handling emergency calls from VoIP customers are, in some instances,
unable to match the geographic location of the 711 caller with the “appropriate” Public Safety Answering Point (“PSAP”).
As a result, the CGAB granted a similar limited, six-month waiver to TRS providers receiving 711 emergency calls, temporarily
lifting the requirement to route calls through the “appropriate” PSAP. The waiver only applies to emergency 711 calls placed
via text telephone (“TTY”) by an interconnected VoIP user. In conjunction with the limited waivers, the CGAB is seeking public
comment on the petitions for waiver.
Questions Aired Concerning FTC and FCC Antitrust and Regulatory Jurisdiction
The Federal Trade Commission (“FTC”) shares jurisdiction over antitrust enforcement with the Department of Justice (“DOJ”)
and lacks jurisdiction to regulate common carrier communications services. Both of these jurisdictional peculiarities were
the subject of comment in September and October.
On the regulatory front, a panel of the Federal Communications Bar Association considered whether the FCC’s various forbearance
orders have left a regulatory vacuum that the FTC should fill. Repeating a theme that has been sounded by others at the FTC,
one panelist, Maureen Ohlhausen of the FTC Policy Planning Office, told the October 17 panel that the exemption from FTC regulations
for communications common carriers should be removed. In the absence of that exemption, the FTC presumably could regulate
communications services without regard to their status as information services or telecommunications services under the Communications
Act, and without attempting to discern the jurisdictional significance of FCC decisions to forbear from regulating those services.
The separate issue of antitrust jurisdiction was raised in a September 25 hearing before the House Judiciary Committee Antitrust
Task Force. Representatives of both the DOJ and the FTC agreed that the overlapping authority of the two agencies to review
mergers for antitrust compliance presents a challenge for interagency coordination. FTC Chairman Deborah Majoras suggested
that Congress should more clearly define the two agencies’ antitrust jurisdiction.
Recent Enforcement Activity Ranges from Universal Service and Regulatory Fee Obligations to Sponsorship Identification Requirements
On September 28, the FCC’s Enforcement Bureau (“Bureau”) released an order adopting a consent decree with TELUS Communications
Co. (“TELUS”) terminating an enforcement proceeding arising from possible violations of carrier registration requirements
and universal service and other contribution obligations. TELUS, a Canadian carrier, provides international telecommunications
service to and from the United States. On January 6, 2006, the Bureau issued a letter of inquiry (“LOI”) directing TELUS
to respond to questions relating to its apparent failure to meet its registration, filing, and payment obligations. TELUS
replied and registered with the FCC shortly thereafter. As of the effective date of the decree, TELUS paid all universal
service and other contribution obligations and regulatory fees that it owed.
TELUS also agreed to make a voluntary payment to the U.S. Treasury of $450,000 and to develop an internal compliance plan
regarding its reporting and contribution obligations. The plan is to include the creation of a compliance manual, to be submitted
to the Bureau within 60 days, a compliance training program for any employee engaged in compliance-related activities, and
an annual report to the Bureau verifying compliance with the decree. The plan terminates after two years.
On October 18, the FCC released a Notice of Apparent Liability for Forfeiture (“NAL”) against two broadcasters, Sonshine Family
Television, Inc. (“Sonshine”) and Sinclair Broadcast Group, Inc. (“Sinclair”), for repeated violations of the sponsorship
identification requirements in connection with political broadcasts. The NAL arose from thousands of complaints that political
commentator Armstrong Williams was paid by the Department of Education (“DoEd”) to promote the No Child Left Behind (“NCLB”)
Act in programs that he produced, including “The Right Side with Armstrong Williams” (“RSAW”), or in which he appeared, including
“America’s Black Forum” (“ABF”), without disclosing the DoEd sponsorship.
In response to the LOIs, Williams’ media company, The Graham Williams Group (“GWG”), a public relations firm, identified broadcast
licensees whose stations aired programs in which Williams discussed the NCLB Act. In response to a second round of LOIs,
Sonshine admitted that one of its stations aired five episodes of RSAW on a total of ten occasions, in which Williams discussed
the NCLB program, without any sponsorship identification. Sinclair admitted that nine of its stations aired an episode of
ABF, during which Williams discussed the NCLB program, also without any sponsorship identification.
Sonshine argued that it had no reason to believe that any sponsorship identification was necessary because of the “nominal”
amount of $100 it was paid for each broadcast and because it was not informed that anyone received any consideration for including
any message intended for broadcast in connection with the programs. The FCC concluded, however, that the receipt of any money
in exchange for the broadcast of material triggers the sponsorship identification rules. Moreover, contrary to another Sonshine
argument, only the terms “sponsored by” or “paid for” meet the requirement; the term “presented by” does not clearly inform
the audience that it is hearing or viewing matter for which money has been paid. Sinclair argued that no identification was
required because it neither received nor was promised any consideration in connection with the ABF broadcast and had no reason
to believe that anyone else received any consideration for including a political message in connection with the broadcast.
The FCC concluded, however, that the sponsor of any “political broadcast matter” must be identified under its rules, whether
or not any consideration is paid for the broadcast.
Accordingly, the FCC proposed a forfeiture of $40,000 for Sonshine’s apparent violations, representing the base amount of
$4,000 for each of ten broadcasts, and $36,000 for Sinclair’s violations, representing the base amount of $4,000 for the broadcast
of the ABF program over each of nine Sinclair stations. On the same day, the FCC also released a citation issued to Williams
and GWG on July 23, 2007, in connection with the same investigation. The citation concludes that they failed to notify the
licensees broadcasting the NCLB-related material of the DoEd sponsorship of that material, in violation of Section 507 of
the Communications Act. The citation states that if either Williams or GWG violates the Act in the same manner in the future,
the FCC may impose forfeitures not to exceed $11,000 for each such violation.
The FCC is not the only agency imposing penalties for communications-related violations. It was reported on October 5 that
the Ohio Public Utilities Commission (“PUC”) fined Buzz Telecom Corp. (“Buzz”) $251,000 for repeated violations of state telephone
marketing rules and canceled its state operating authority. The PUC found that Buzz engaged in slamming and deceptive sales
practices and failed to respond to complaints. The PUC had ordered Buzz to stop signing up new customers in December, but
Buzz ignored the order. Buzz also has a history of ignoring FCC requirements, as reported in last month’s Bulletin.
Order Granting Neutral Tandem, Inc.’s Direct Interconnection Petition Reported to Be Circulating Among FCC Commissioners
On October 16, it was reported that an order granting Neutral Tandem, Inc.’s request for direct interconnection with Verizon
Wireless is circulating on the eighth floor of the FCC. On August 2, 2006, Neutral Tandem, a competitive tandem switching
service provider, filed a petition requesting that the FCC order Verizon Wireless to interconnect directly with Neutral Tandem
to enable it to provide more efficient tandem services to carriers exchanging traffic with Verizon Wireless. Neutral Tandem
asserts that Verizon Wireless is the only major carrier that refuses to interconnect directly with Neutral Tandem and that
dependency on legacy incumbent local exchange carrier tandems creates a critical choke point in the nation’s telecommunications
infrastructure, exposing the public to serious homeland security risks. Verizon Wireless argues that Neutral Tandem requests
the extraordinary relief of reinstating a commercial contract that has lawfully expired and that, under Section 251(a)(1)
of the Communications Act, carriers have the right to choose whether to connect “directly or indirectly” with other carriers.
There was speculation that an order might be adopted at the October 31 open meeting, resulting in a flurry of FCC lobbying
by wireless carriers attempting to head off or at least limit the scope of the order. CTIA and Sprint Nextel argued that
the FCC should not overturn longstanding precedent giving wireless carriers flexibility in choosing the most efficient and
economical method of direct or indirect interconnection, and CTIA cautioned the FCC not to resolve the dispute in a way that
prejudges the outcome of the pending intercarrier compensation reform rulemaking. Verizon Wireless discounted Neutral Tandem’s
arguments that the requested relief would add to network redundancy, stating that additional switches like those employed
by Neutral Tandem do not promote network diversity in the absence of separate connecting facilities. No action concerning
the petition appeared on the FCC’s “sunshine notice” for the October 31 meeting, and it is not clear when the FCC will act.
Disputes over Access Charges Continue to Absorb Regulatory Attention, from “Traffic Pumping” Issues to the Treatment of Internet
Protocol Traffic
While the FCC’s long-running intercarrier compensation reform rulemaking remains pending, the current access charge regime
continues to spawn new issues. On October 2, the FCC released a Notice of Proposed Rulemaking (“NPRM”) to investigate cost,
demand, and tariffing issues raised by the ongoing “traffic pumping” dispute (reported in the July/August 2007 edition of
this Bulletin). The NPRM notes that chat lines, conference calling, and similar services can generate substantial growth
in access traffic to local exchange carriers (“LECs”) serving such providers and that the interexchange carriers (“IXCs”)
delivering the traffic pay access charges for its termination by the LECs. The access rates of the incumbent LECs (“ILECs”)
and competitive LECs (“CLECs”) serving the providers generating increased terminating traffic are typically quite high because
they are small carriers serving rural areas with low demand based on historical levels.
The purpose of the NPRM is to examine whether existing tariff rules provide incentives and opportunities for LECs to increase
access demand far above the level assumed in setting the access rates, with the result that the relatively high tariffed rates
are no longer just and reasonable, as alleged by IXCs in a number of pending complaints. IXCs also allege that these LECs
share their access revenues with the service providers generating the demand growth. Such growth allegedly results in LEC
earnings far above the authorized rate of return.
The NPRM accordingly requests comment on:
- the activities generating increased access traffic, how the services are provided, and compensation between the parties involved;
- data bearing on the FCC’s assumption that average costs per minute fall as demand grows, resulting in excessive earnings if
demand increases substantially above the level assumed in setting access rates, including any additional costs accompanying
increased demand and the effect of increased demand and costs, if any, on LEC rates of return;
- the FCC’s tentative conclusion that a rate of return (“ROR”) ILEC that shares revenue with, or provides other compensation
to, a customer or provides traffic stimulation activity, and bundles those costs with its access costs, is engaging in an
unreasonable practice in violation of Section 201(b) of the Communications Act (the “Act”) and AT&T’s contention that such
payments violate Section 201(b) whether or not the LEC seeks to recover them in its access rates;
- the FCC’s tentative conclusion that, because streamlined tariffs are conclusively “deemed lawful” (and thus immune from retroactive
damages liability) unless they are suspended, it should have the opportunity to review the relationship between rates and
costs through the filing of a revised tariff whenever a ROR ILEC experiences significant increases in traffic, as well as
proposed language in ROR ILEC tariffs committing them to file revised tariffs if demand increases a specified amount within
a specified period and what those triggers should be;
- whether the FCC should forbear from enforcing the “deemed lawful” provision of Section 204(a)(3) of the Act for any mid-course
tariff filing triggered by an increase in demand;
- whether ILECs that leave the National Exchange Carrier Association (“NECA”) traffic-sensitive pool should be required to stay
out for a certain period, or even permanently, in order to prevent ILECs from gaming the tariffing process by leaving the
pool, tariffing high rates based on low demand, and then rejoining the pool after generating high demand to avoid having to
file reduced individual rates;
- whether similar concerns require regulatory action with regard to price cap ILECs and CLECs, or categories of intercarrier
compensation other than interstate access, such as reciprocal compensation.
Comments are due 30 days after publication of the NPRM in the Federal Register, and reply comments 15 days later.
On the same day, the FCC granted in part a complaint filed by Qwest Communications Corp. against Farmers and Merchants Mutual
Telephone Co. (“Farmers”), a rural ILEC, alleging similar traffic-pumping activities. Qwest claimed that Farmers had left
the NECA pool, filed higher individual terminating access rates, and then deliberately increased its terminating traffic volume
through traffic-generating agreements with conference calling companies. The increased access traffic resulted in an excessive
rate of return, in violation of Section 201(b) of the Act. Farmers also compensated the conference calling services.
The FCC found that Farmers exceeded its authorized ROR during the period from July 2005 to June 2007, but denied damages to
Qwest because Farmers’ access tariffs had been filed on a streamlined basis under Section 204(a)(3) of the Act and were thus
conclusively “deemed lawful” for the entire period that they were in effect. The FCC denied Qwest’s request to declare Farmers’
access rates void ab initio and thus not deemed lawful, finding that Farmers did not violate any tariffing or other FCC rules in basing its access rates
on low historical demand. Although the FCC “agree[d] that Farmers manipulated the Commission’s rules to achieve a result
unintended by the rules,” Qwest did not identify any improper accounting or other violations and did not allege that Farmers’
revenue-sharing arrangements with the service providers constituted a per se violation of Section 201(b).
Following the FCC’s order denying Qwest’s complaint, Farmers and other rural ILECs requested that the Iowa Utilities Board
(“IUB”) suspend parallel complaint proceedings brought against them by Qwest in order to allow parties time to evaluate how
the FCC’s ruling narrowed or disposed of issues before the IUB. The IUB denied the request, agreeing with Qwest that the
FCC did not settle issues falling within the state’s jurisdiction and that if parties believe that certain issues have been
resolved, they should petition for dismissal of just those issues.
On October 23, Feature Group IP (“FGIP”) filed a petition requesting that the FCC grant forbearance relief that would remove
the obligation to pay switched access charges on certain categories of calls involving what FGIP terms “voice-embedded Internet-based
communications,” or “voice-embedded IP” calls. FGIP provides local exchange service to providers of voice-embedded IP communications
– a category that includes VoIP and Internet applications that integrate voice with data, video, or other features. FGIP
seeks relief from interstate and intrastate switched access charges assessed by LECs with which it exchanges such traffic.
FGIP takes the position that the particular applications for which it seeks relief should not be assessed access charges because
the traffic involved is “enhanced,” and thus covered by the “enhanced service provider exemption.” If, however, the FCC ultimately
does not adopt that position, FGIP requests forbearance from Section 251(g) of the Communications Act and related FCC regulations
so that such traffic is subject only to reciprocal compensation under Section 251(b)(5), and not interstate or intrastate
access charges.
In particular, FGIP seeks relief from switched access charges for three categories of voice-embedded IP traffic:
- traffic originating in IP format and terminating on the PSTN;
- traffic originating on the PSTN and addressed to an IP-based end point; or
- traffic that originates and terminates on the PSTN but is connected to an IP-based platform during the call, and for which
there is a change in content or “non adjunct-to-basic enhanced functionalities” are offered to the user.
FGIP also indicates that at least the first two categories are limited to calls in which the point of interconnection between
itself or another LEC serving a voice-embedded IP provider and the LEC serving the PSTN user is located in the same local
access and transport area as the PSTN end point, although the petition is somewhat ambiguous on this restriction.
FGIP argues that the requested forbearance would “ensure that consumers and users of Voice-Embedded Internet-based communications
services and applications are allowed to employ new Internet-based technologies and applications to the fullest extent possible
and that providers and enablers of [such] applications are given the assurance that they may deploy and offer such services
without the threat that they will be mired in the archaic access charge quagmire that currently plagues legacy telecommunications.”
FGIP claims that immediate relief is needed because ILECs “are exercising their continuing . . . stranglehold over access
to their existing base of consumers” by “attempting to extend the access charge regime to Voice Embedded Internet-based communications
services and applications.” FGIP concludes that forbearance relief is justified because the Section 251(b)(5) reciprocal
compensation regime that will govern the traffic covered by the request will ensure that rates and practices are just and
reasonable and that consumers are protected and because elimination of access charges for the covered services will promote
competition and innovation. The FCC has not yet released a public notice requesting comments on the petition.
FCC Modified 17/24 GHz BSS Rules to Provide Additional Flexibility
On September 28, in an effort to provide additional flexibility to broadcasting satellite service (“BSS”) providers, the FCC
on its own motion modified its earlier decision establishing licensing and service rules for BSS in the 17.3-17.8 GHz and
24.75-25.25 GHz (“17/24 GHz”) bands. In the earlier decision, the FCC required 17/24 GHz BSS space stations to operate at
specified orbital locations spaced at four-degree intervals. On reconsideration, the FCC modified this requirement by allowing
17/24 GHz BSS space stations to operate at an offset of up to one degree from the previously specified orbital locations,
without being required to reduce power or accept additional interference.
Broadband Mapping, Wireless Rate Integration, and DTV Bills Are Introduced in Congress, While the House Telecom Subcommittee
Approves E911 Amendment
At the end of October, the House Commerce Committee approved bills addressing broadband mapping (HR-3919) and E911 service
by VoIP providers (HR-3403). The House broadband mapping bill would require the FCC to collect data on broadband services
by nine-digit zip code, census tract, or a “functional equivalent.” The bill also would direct NTIA to implement a searchable
broadband mapping program and a $300 million grant program encouraging service providers to build new broadband facilities
in unserved areas.
The House VoIP E911 bill would require all voice over Internet protocol (“VoIP”) providers to offer E911 service. The bill
was amended to clarify that existing FCC rules governing VoIP and 911 would remain effective and that VoIP providers would
have the same interconnection rights as wireless carriers.
Meanwhile, the Senate Commerce Committee passed a measure (S-1853) that would enable state and local governments to build
their own wireless broadband networks. The bill was amended to prohibit the use of federal money for municipal broadband
projects, and to allow companies to bid on these projects.
Additionally, House delegates from Guam, Puerto Rico, and the U.S. Virgin Islands introduced a measure (HR-3565) requiring
