Communications Law Bulletin, November 2007
In this issue:
Happy Holidays to Our Loyal Readers
This edition of our Bulletin is the last for 2007. A combined December – January Bulletin will be published in the new year.
New Calls for Net Neutrality
Comcast’s reported blocking or delaying of BitTorrent file sharing software (see related article in the October issue of this
Bulletin) has continued to reverberate, leading to additional calls for net neutrality. A new organization – the Network
Neutrality Squad – has been created as a clearinghouse for net neutrality complaints. The group reportedly has already received
complaints by Internet users about traffic control measures allegedly used by several cable companies and Internet Service
Providers.
On the Hill, perhaps fueled by the Comcast incident and Democratic presidential candidate Barack Obama’s pledge to enact net
neutrality laws if elected, Rep. Edward Markey (D-Mass.) is reportedly planning to introduce a revived version of his previous
net neutrality bill in the next few weeks.
In addition, web video distributor Vuze.com has filed a petition for rulemaking at the Federal Communications Commission (“FCC”
or “Commission”). The Vuze.com petition is broader than the specific complaint filed against Comcast last month, as discussed
in a related article in the October issue of this Bulletin. Specifically, Vuze.com asks the FCC to define the “reasonable
network management” exception to its 2005 Internet policy statement, so that the industry and the public will better understand
the scope of permitted traffic management and forbidden network discrimination. The FCC now has several possible vehicles
for addressing net neutrality, but it remains to be seen if the FCC will choose to act on any of the complaints or petitions
in the near term.
In a move toward wireless open access, Verizon Wireless announced in late November that it will permit any CDMA mobile device
tested and approved by Verizon Wireless (but not GSM devices) and any software application on its network beginning in the
second half of 2008. These so-called “bring your own” customers will be responsible for technical support for these devices,
and the pricing for these customers and services has not yet been announced. This announcement may signal Verizon Wireless’
seriousness about the upcoming 700 MHz C-block auction, which has an open access condition. Google also recently announced
a plan (called “Android”) to develop an open technological platform for mobile phones, in which T-Mobile and Sprint Nextel
are participating.
EC Proposes New European Telecom Regulatory Authority
The European Commission (“EC”) in November proposed a substantial overhaul of the EU’s telecommunications regulatory regime
by creating a single European telecom regulatory authority to apply rules consistently throughout Europe. Its new powers
would include the ability to hold national regulatory authorities (“NRAs”) to a timetable and the ability to veto remedies
ordered by NRAs. The specific substantive proposals are intended to free up additional wireless spectrum, deregulate certain
competitive markets, strengthen consumer rights, and include new Voice over Internet Protocol (“VoIP”) emergency service requirements
and the ability to set net neutrality standards. NRAs would continue to have a role, which is intended to focus on remaining
bottlenecks, and would have the new remedy of imposing functional separation (wholesale versus retail operations) for dominant
national telecom operators. The proposals, which are the subject of heated debate, still must be approved by the European
Parliament and the EU Council of Ministers, a process that is expected to take a few years, after which it must be adopted
by all 27 member countries into national law.
AT&T-Dobson Consent Marks Change in FCC Approach to Merger Review
The FCC’s recent decision consenting to the merger of AT&T Inc. (“AT&T”) and Dobson Communications Corporation (“Dobson”)
represents a shift in the how the FCC reviews mergers of wireless carriers, which will affect how carriers view and enter
into transactions in the future. Most significantly, the FCC adopted a higher spectrum threshold to screen transactions for
potential competitive harm. The FCC, as well as the Department of Justice (“DOJ”), conditioned the approval of the merger
on the divestiture of certain wireless operations.
Although the FCC no longer applies a cap to wireless carriers’ spectrum holdings, it does apply a screening test to determine
whether the combined spectrum holdings of merging companies could raise competitive concerns. The FCC increased its previous
spectrum screen of 70 MHz to 95 MHz or more. The 70 MHz represented approximately one-third of the 200 MHz of cellular, broadband
personal communications service (“PCS”) and specialized mobile radio (“SMR”) service spectrum the FCC had deemed available
for mobile telephony on a nationwide basis.
The FCC concluded in the AT&T-Dobson proceeding, however, that it also would include 80 MHz of 700 MHz spectrum that has or
will soon be auctioned. The new 95 MHz threshold represents approximately one-third of the 280 MHz spectrum that would be
suitable for mobile telephony. Although 62 MHz of the 700 MHz spectrum is not scheduled to be auctioned until January 2008,
the FCC stated that the spectrum is ideally suited for the provision of nationwide mobile telephony services and that it is
“confident… that it will be licensed and available on a nationwide basis in the sufficiently near-term – less than a year
and a half – that the prospect of its availability will discipline current market behavior.”
The FCC also concluded that it was premature to include advanced wireless service (“AWS”) or broadband radio service (“BRS”)
spectrum in the initial screen because neither AWS nor BRS spectrum is available on a nationwide basis. According to the
FCC, the spectrum currently is committed to other uses that effectively preclude its use for mobile telephony, and it is unclear
whether it will be available for mobile use in the sufficiently near-term. The FCC, however, also stated that it would consider
AWS and BRS spectrum in its case-by-case analyses to the extent the spectrum is available in any local market not eliminated
by the 95 MHz screen.
Commissioners Copps, Adelstein and McDowell expressed concern about changing the 70 MHz screening test, noting that it was
premature to revise the test before determining how competition in the wireless marketplace would be impacted by the 700 MHz
auction in particular.
In addition, AT&T and Dobson voluntarily agreed to an interim cap on the amount of high cost universal service fund (“USF”)
support they receive as competitive eligible telecommunications carriers (“ETCs”), based upon the level of support as of June
2007. The cap will not apply, however, if AT&T and Dobson: (1) file cost data showing their own per-line costs of providing
service in a supported service area upon which their high-cost USF support would be based, and (2) demonstrate that their
networks are in compliance with the FCC’s new Public Safety Answering Point (“PSAP”) -level E911 location accuracy requirements.
This condition, which is substantially identical to a condition adopted in the recent private equity fund acquisition of Alltel
Corporation, indicates that the FCC may continue to use the merger review process to help control the growth of the USF.
The FCC concluded that the AT&T-Dobson merger overall will serve the public interest, but that competitive harm likely will
result in certain markets in Kentucky, Oklahoma, and Texas. To remedy these competitive concerns, the FCC required AT&T and
Dobson to divest certain cellular licenses and related operational and network assets in these markets. AT&T and Dobson also
entered into a settlement agreement with the DOJ to resolve other competitive concerns. In addition to the FCC-ordered divestures,
under the settlement agreement AT&T must divest its minority interest in two partnerships in Texas and Missouri, as well as
Dobson’s interests in the “Cellular One” brand.
FCC Proposes to Extend Do-Not-Call Registrations
At its November 27 open meeting, the FCC announced its intention to make registrations of residential telephone numbers on
the national do-not-call (“DNC”) registry perpetual. Under current regulations, registrations expire after five years, and
the earliest listings would start to expire in June 2008.
Although the full text of the Commission’s notice of proposed rulemaking (“NPRM”) is not yet available, all of the commissioners
issued statements in support of the proposal. As some commissioners also noted, the DNC list is regulated jointly by the
FCC and the Federal Trade Commission, and the proposed rulemaking will be part of a collaborative effort between the two agencies.
In 2003, when the FCC placed the five-year limit on registrations, it pointed out that changes in telephone number assignments
would degrade the value of the list over time, requiring re-registrations every several years. The separate statements of
the commissioners do not address this concern, and the NPRM presumably will offer an explanation for the apparent change in
the FCC’s thinking.
FCC Seeks More Information on XM-Sirius Merger
The FCC made extensive requests for more information from XM Satellite Radio Holdings Inc. (“XM”) and Sirius Satellite Radio
Inc. (“Sirius”). The two subscription satellite radio companies have agreed to merge, and the deal is under review by both
the FCC and the Department of Justice. The merger is opposed by broadcasters, who have argued that the merger of the two
largest satellite radio companies will create an entity with excessive market power.
According to an article in Business Week, analysts are divided as to the significance of the request.
FCC Extends Pleading Cycle on Verizon/RCC merger
The comment cycle before the FCC on the proposed merger of Verizon Wireless and Rural Cellular Corporation (“RCC”), was scheduled
to close November 30, 2007, but now has been extended for 90 days by the Wireless Bureau.
The extension was prompted by a motion filed with the FCC by the Vermont Public Interest Research Group (“VPIRG”), which claimed
that the merger would eliminate wireless competition in some areas and severely reduce it in others. VPIRG also contends
that the merger would force RCC subscribers to make a rapid transition from GSM to CDMA technology and “would affect millions
of customers of other carriers who use GSM technology.”
Under the revised schedule, petitions to deny the merger are due February 11, 2008, and replies are due February 28, 2008.
Missouri Takes Another Swing at VoIP Providers While Text of FCC Decision Imposing LNP Requirements on VoIP Providers Is Released
VoIP service providers have lost another battle in the on going conflict with state regulators regarding authority to regulate
VoIP services. The Missouri Public Service Commission (“MPSC”) ordered Comcast IP Phone, LLC (“Comcast”) to apply by December
31 for state operating authority. Despite Comcast’s arguments to the contrary, the MPSC concluded that it has authority to
regulate Comcast’s fixed Digital Voice VoIP service. According to the MPSC, Digital Voice service fits within the state definition
of a telecommunications service. Moreover, the service is available only over the fixed coaxial cable that is connected to
a customer’s home or business, permitting Comcast to determine whether a call is intrastate, interstate, or international
in nature. The fact that the FCC preempted state regulation of VoIP services similar to those of Vonage Holdings Corporation
is irrelevant because the Vonage service was “nomadic” and its jurisdictional nature could not be determined.
The MPCS rejected Comcast’s request to reconsider its decision, concluding that Comcast presented no new information to justify
a rehearing. Comcast intends to appeal the MPSC decision in court.
In addition, the FCC released the text of its order (“Order”) and NPRM that extended local number portability (“LNP”) requirements
to interconnected VoIP providers. Going forward, consumers will be able to keep their current local phone number when moving
to or from an interconnected VoIP provider. The Order concludes that the FCC has authority under Section 251 of the Communications
Act to impose these requirements on interconnected VoIP providers, as well as on the local exchange carriers from whom they
receive telephone numbers. The FCC also concluded that interconnected VoIP providers must contribute to the costs associated
with number administration. All of the FCC commissioners supported the Order, noting that it further leveled the playing
field by removing a known disincentive that kept consumers from switching carriers.
The Order also addresses various non-VoIP-related LNP issues. Specifically, the FCC concluded that service providers cannot
impede number porting by demanding excess information from the customer’s new provider. According to the FCC, LNP validations
for simple number ports should be limited to four fields: (1) a 10-digit telephone number; (2) the customer account number;
(3) a five-digit zip code; and (4) a pass code, if applicable. In response to a D.C. Circuit stay of a prior FCC order and
mandate that the FCC analyze the impact of LNP on small entities, the Order also re-imposes LNP requirements on small wireline
carriers.
The NPRM seeks comment on whether other LNP requirements and numbering-related rules, including compliance with “N11 code”
assignments, should be extended to interconnected VoIP providers. The NPRM also questions whether the FCC should specify
the length of all porting intervals (wireline-to-wireline, wireless-to-wireless, and intermodal ports) and tentatively proposes
to reduce the porting interval for wireline-to-wireline and intermodal simple port requests to a 48-hour porting interval.
In other matters, the governor of New Jersey recently signed into law a bill (HB-4339) that prohibits state agencies from
regulating the rates and terms of VoIP and other IP-enabled services. The law, however, preserves the state’s authority to
regulate VoIP for purposes of 911 service, telecommunications relay service, and universal service compliance.
Joint Board Releases USF Reform Recommendations While USF Items Circulate at the FCC
The Federal-State Joint Board on Universal Service (“Joint Board”) released its long-awaited recommendations regarding reform
of the high-cost support mechanism of the USF. The recommendations call for major modifications to the allocation of high-cost
support and, if adopted by the FCC, would have a significant effect on the communications industry.
The Joint Board recommends that the existing high-cost support mechanism be replaced by three separate funds – the Broadband
Fund, the Mobility Fund and the Provider of Last Resort (“POLR”) Fund. The Broadband Fund would primarily facilitate construction
of facilities for new broadband services to unserved areas, and secondarily support enhancing broadband services in areas
with substandard service. Monies from the Broadband Fund would be allocated to the states, which then would award grants
to service providers.
The Mobility Fund would first support expanding wireless voice services to unserved areas. A secondary purpose of the fund
would be to provide assistance to wireless carriers where mobile service is essential but where usage is so slight that a
plausible economic case cannot be made to support construction in the area. Monies from the Mobility Fund would also be first
allocated to the states for distribution to service providers.
The Provider of Last Resort (“POLR”) Fund would support wireline carriers that act as providers of last resort. The Joint
Board recommends that the five major high-cost support mechanisms (high-cost loop, local switching, interstate common line,
interstate access, and high-cost model) be combined through the POLR Fund, but could not reach consensus on specific changes
that should be made to the legacy USF mechanisms that support incumbent wireline carriers.
Under the Joint Board’s recommendations, high-cost support would transition from the old support mechanism to the three new
funds over a set period of time. The existing high-cost support mechanisms would be separately capped at their 2007 levels.
Once the transition is complete, the three restructured funds together would be capped at $4.5 billion, $1 billion of which
would be allocated to the Mobility Fund and $300 million of which would be earmarked for the Broadband Fund. The Joint Board
further suggested that the FCC adopt policies encouraging states to provide matching funds for Broadband and Mobility Fund
support.
The Joint Board also recommended eliminating the “identical support” rule, which allows competitive ETCs, including wireless
ETCs, to receive support based upon the per-line support that incumbent carriers receive rather than the competitive ETCs’
own costs. Post-transition, one wireline, one wireless, and one broadband provider would ultimately receive high-cost support
in any given area.
In addition, the Joint Board noted that reverse auctions may offer advantages over the existing method for distributing high-cost
support and that the FCC should explore which auction mechanism would be most appropriate. The Joint Board further suggests
that the FCC seek comment on various issues relating to its reform efforts, including: (1) how high-cost monies should be
allocated among states, (2) how unserved areas would be identified; (3) how broadband should be defined for purposes of support;
(4) how the new support mechanism would affect the Lifeline and Link-Up USF programs; and (5) other implementation and transition
issues.
FCC Chairman Martin also is reportedly circulating several items that raise issues similar to those in the Joint Board’s recommendations.
Chairman Martin is circulating an order that would cap high-cost USF payments at June 2007 levels, which is similar to a condition
recently imposed in two wireless mergers (the recent acquisition of Alltel Corporation by two private equity groups and the
merger of AT&T Inc. and Dobson Communications Corporation). In addition, Chairman Martin is circulating rulemakings regarding
the use-reverse auctions to distribute high-cost support and to eliminate the identical support rule.
FCC Wireless Bureau Permits Filingof Applications for Nationwide, Non-Exclusive Licenses in the 3650-3700 MHz Band
The FCC’s Wireless Bureau issued a public notice announcing that, as of November 15, companies may file applications for nationwide,
non-exclusive licenses in the 3650-3700 MHz band. The Bureau also established a procedure allowing licensees to register
their fixed and base stations. In 2005, the FCC adopted licensing and service rules permitting wireless broadband services
in the 3650-3700 MHz band, but companies could not apply for licenses until the Bureau established licensing and registration
procedures. In June 2007, the FCC generally reaffirmed on reconsideration its original decision to permit nationwide, non-exclusive
licenses in the band. The order on reconsideration cleared the path for the Bureau to establish procedures allowing companies
to apply for licenses and to register their fixed and base stations.
The House of Representatives Overwhelmingly Passes E-911 and Broadband Mapping Bills
In mid-November, the House of Representatives, on a 406-1 vote, passed a bill (HR-3403) requiring VoIP providers to offer
E-911 service. The bill was previously 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.
Additionally, the House unanimously approved a bill (HR-3919) authorizing the creation of a map of broadband services nationwide.
The bill is intended to promote nationwide broadband deployment by requiring the collection of data that would allow regulators
and others to identify unserved or underserved areas. The Senate version of the bill (S-1492) has bipartisan support and
is expected to be passed by the Senate shortly. Differences between the two bills are expected to be worked out in conference,
and analysts predict that a final bill could be sent to the President before the session ends.
Wireless Developments
Text of FCC Decision Adopting PSAP-Level E911 Location Accuracy Testing Requirements Is Released
More than two months after the FCC adopted new wireless enhanced 911 (“E911”) location accuracy testing rules at its September
open meeting, the FCC released the text of its decision. As reported in the September edition of the Bulletin, the new rules
require wireless carriers to demonstrate location accuracy compliance on an Economic Area basis within one year. Within three
years, wireless carriers will have to demonstrate location accuracy compliance on a Metropolitan Statistical Area and Rural
Service Area basis and demonstrate PSAP -level compliance in 75% of the PSAPs they serve. Wireless carriers must have full
PSAP-level compliance within five years.
The text of the decision failed to allay industry concerns that it is technologically impossible to comply with the location
accuracy requirements, or at least the compliance deadlines. It is widely anticipated that the wireless industry will challenge
the decision.
FCC Waives Designated Entity Restrictions for 700 MHz D-Block
On its own motion, the FCC decided to waive certain small business designated entity (“DE”) rules for the 700 MHz D-Block
license that is scheduled to be auctioned in January 2008. The D-Block license will make up the commercial portion of a shared
private-public nationwide broadband network on 700 MHz spectrum. Specifically, the FCC waived its “impermissible material
relationship” requirement, which prevents an entity from qualifying as a DE if it leases or resells more than 50% of its spectrum
capacity.
According to the FCC, “the unique regulations governing the D Block license, which require the establishment of the 700 MHz
Band Public-Private Partnership subject to a Commission-approved Network Sharing Agreement – together with the application
of the Commission’s other designated entity eligibility requirements – eliminate for the D Block license the risks that led
the Commission to adopt the impermissible material relationship rule.” The waiver is considered a victory for Frontline Wireless
LLC, which lobbied the FCC vigorously to allow DE’s to bid on the D Block license.
The 700 MHz Public Safety Broadband Licensee Named
The FCC named the Public Safety Spectrum Trust Corporation (“PSST”) as the 700 MHz public safety broadband licensee. The
nomination was not unexpected, as the PSST was the only entity to apply for the position. In its role as the public safety
broadband licensee, the PSST will oversee the 10 MHz of 700 MHz public safety spectrum that will work with the 700 MHz D Block
licensee to construct a nationwide public-private broadband network. The PSST is comprised of representatives from a wide
range of public safety groups, including law enforcement, fire and medical emergency responders, forestry conservation and
transportion.
Fixed Wireless Industry Requests Wireless Backhaul Allocation
The Fixed Wireless Communications Coalition petitioned the FCC for a rulemaking to modify its rules to make two channel pairs
available in the 23 GHz band for backhaul service. The rule modification would implement a recommendation by the National
Telecommunications and Information Administration (“NTIA”). The spectrum is considered well suited for wireless backhaul
over short distances and is shared between federal and non-federal users. However, the Coalition argued the modification
would amount to a pro forma rule change because NTIA already endorsed it.
CTIA Continues to Fight New Back-Up Power Rules and Interference from Wireless Jammers, Boosters And Repeaters
CTIA continues to battle the FCC’s new rules that require wireless carriers to have an emergency back-up power source for
all assets necessary to provide communications services, including eight hours of back-up power for cell sites. The FCC initially
adopted back-up power rules in May, but faced significant opposition from service providers that were concerned that it was
not possible to comply with the new rules. CTIA subsequently appealed the new rules and sought a stay pending judicial review.
Shortly thereafter, the FCC in October modified the initial back-up power requirements to provide limited exceptions. Believing
that the modifications do not fully address the concerns previously raised by the wireless industry, however, CTIA filed a
new judicial appeal with the U.S. Court of Appeals for the District of Columbia Circuit. CTIA claims that adoption of the
back-up power rules exceeded the FCC’s statutory authority, violated the Administrative Procedures Act, and is otherwise contrary
to law.
In addition, CTIA requested that the FCC take immediate steps to protect wireless carriers from harmful interference from
cellular jammers and wireless boosters and repeaters. According to CTIA, the FCC’s Enforcement Bureau has been diligently
responding to case-by-case interference complaints, but the FCC must make clear that such interference with wireless communications
is unlawful. Specifically, CTIA petitioned the FCC for a declaratory ruling that: (1) the sale and use of cellular jammers
(except by the federal government) is unlawful; and (2) the unauthorized sale and use of wireless boosters and repeaters is
unlawful. CTIA further requests that the FCC deny any pending petitions that seek authorization to use and sell jamming equipment
in contravention of the Communications Act and FCC rules.
FCC Weighing Ban on Exclusive Apartment Building Telecommunications Service Contracts
It was reported on November 5 that, in the course of approving the Report and Order banning exclusive video service contracts
in multiple dwelling units (“MDUs”) and other real estate developments on October 31 (“Cable-MDU Order”), the FCC commissioners
agreed in principle to a similar ban on exclusive telecommunications service contracts in MDUs. Other commissioners reportedly
wanted the October 31 Report and Order to go further and ban exclusive MDU service contracts beyond the category of cable
TV services. Instead, Chairman Martin agreed to ban exclusive telecommunications service contracts in a separate order that
supposedly will be released two months after the Cable-MDU Order is published in the Federal Register. The Cable-MDU Order
was released on November 13, but an erratum was released on November 27, so it is not clear whether Federal Register publication
might occur by the end of the year.
Commissioner Copps signaled the agreement on telecommunications service contracts in his statement supporting the Cable-MDU
Order, in which he stated that “I’m pleased that my colleagues have agreed to conclude within the next two months the open
proceeding examining the permissibility of exclusive contracts for telecommunications services in residential MDUs.” In that
“open proceeding,” the FCC banned telecommunications carriers from entering into exclusive service contracts with commercial
building owners in 2000 and requested comment on whether a similar ban should be imposed on residential buildings. The FCC
asked parties to refresh the record on the exclusive residential MDU service issue earlier this year.
Commissioners are reportedly eager to act now on the issue because an exclusive contract to provide telecommunications service
to a residential MDU could lock out a cable provider attempting to sell competing VoIP service. A ban on exclusive telecommunications
contracts thus could spur competition in providing service bundles. One industry observer pointed out, however, that the
practical effect of such a ban could be limited because telecommunications carriers and cable TV providers use different wiring,
requiring that a cable provider rewire a building in order to serve tenants there.
Enforcement Bureau Enters Into Two Noteworthy Consent Decrees
On November 9, the FCC’s Enforcement Bureau (“Bureau”) released an order adopting a consent decree with NOS Communications,
Inc. (“NOS”), a telecommunications reseller, resolving an investigation of NOS’s compliance with the FCC’s “Do-Not-Call” prohibitions.
NOS telemarkets its services through an in-house staff as well as third-party telemarketing companies. In 2005, the FCC and
the Federal Trade Commission received numerous complaints from consumers allegedly receiving unwanted telephone marketing
calls from NOS. In March 2006, the Bureau sent a letter of inquiry to NOS regarding its telemarketing and compliance with
the Do-Not-Call rules, to which NOS responded.
Under the consent decree, NOS agreed to make a voluntary contribution to the U.S. Treasury of $500,000 and implement a compliance
program in order to ensure that no telemarketing calls are made on behalf of NOS, either by in-house staff or third-party
telemarketers, to consumers listed on the national Do-Not-Call Registry. The program includes: the preparation of written
policies and procedures to ensure compliance, requiring that no marketing call be made to a consumer whose number has not
been cross-checked against the Do-Not-Call Registry within the past 31 days; training for in-house and third-party marketing
personnel; an annual compliance certification process; mandatory Do-Not-Call compliance provisions in all contracts with third-party
telemarketers; implementation of audit procedures, including “seeding” call lists with the names of NOS representatives listed
on the Do-Not-Call Registry to check on telemarketers’ “scrubbing” procedures; establishment of a process to investigate and
resolve complaints of unauthorized telemarketing; implementation of a quality control monitoring program, including the random
monitoring of at least 7% of all telemarketing calls; and written compliance reports to the Bureau within 60 days of the release
of the order and every six months thereafter. The plan expires three years after the release date, except that all records
of the quality control monitoring program must be retained for four years after the release date.
On November 21, the Bureau released an order adopting a consent decree with CBS Corporation (“CBS”) and KUTV Holdings, Inc.,
the licensee of station KUTV in Salt Lake City, Utah (“KUTV”), terminating an investigation of their compliance with a previous
consent decree involving the Indecency Laws. The investigation began in 2006 when two Parents Television Council members
filed petitions to deny KUTV’s license renewal application because of its airing of an episode of Without a Trace, which they alleged contained indecent content (“Objections”). They cited an FCC Notice of Apparent Liability for Forfeiture
(“NAL”) against all CBS-owned and operated and affiliated stations airing that episode deeming it indecent (“Without a Trace
NAL”). They also alleged that CBS violated the terms of a previous consent decree entered into in 2004 by CBS’s predecessor-in-interest,
Viacom, Inc. (“2004 Consent Decree”), requiring it to suspend all employees involved in the airing of any programming that
is the subject of an indecency-related NAL and to investigate the decision to air such programming (“Suspension Provision”).
The episode in question was broadcast a few weeks after the 2004 Consent Decree. Following the filing of CBS’s opposition
to the Objections, the Media Bureau issued a letter directing CBS to answer a series of questions relating to its compliance
with the 2004 Consent Decree. CBS’s response explained that it was not readily apparent to CBS that the Suspension Provision
in the 2004 Consent Decree might apply in the case of scripted shows such as Without a Trace.
The November 21 consent decree settled the investigation of CBS’s compliance with the 2004 Consent Decree and dismissed the
Objections, as well as any similar pleadings pertaining to compliance with the 2004 Consent Decree in relation to the Without
a Trace NAL. CBS, however, acknowledged “that it inadvertently failed to comply with the remedial steps specified in [the
Suspension Provision] as contemplated by the Commission following issuance of the Without a Trace NAL” and that it has taken
steps to ensure that such “oversights do not recur.” The parties also agreed to amend the 2004 Consent Decree to continue
in effect the CBS plan ensuring its compliance with the Suspension Provision for an additional three years, until November
23, 2010. CBS also agreed to make a voluntary contribution to the U.S. Treasury of $300,000. On the same day, the Media
Bureau released an order denying the Objections and granting KUTV’s license renewal application.
All Four Major Wireless Carriers Will Prorate Early TerminationFees
Sprint Nextel and T‑Mobile recently joined AT&T and Verizon in announcing that they would also prorate the early termination
fees (“ETFs”) they impose on customers who cancel service prior to expiration of their term contracts. As noted in the September
and October Bulletins, the FCC and consumers have become increasingly critical of the carriers’ early termination policies
and these recent announcements are viewed by some in the industry as an effort to prevent increased FCC oversight of wireless
carriers. Sprint Nextel and T‑Mobile have yet to announce exactly how they will prorate their ETFs, although analysts expect
them to follow Verizon’s lead. Verizon’s ETF, which starts at $175, will be reduced by $5 for each month a customer remains
on a contract. Reaction to the announcements has been mixed. Representatives of the wireless industry say that the changes
demonstrate that the wireless marketplace is competitive. Consumer representatives cite ETFs as only one of several potential
costs that prevent customers from switching to the carrier of their choice, and therefore of limited effect. The FCC has
not commented on these most recent announcements, nor has it indicated whether it will follow through on earlier statements
that it would initiate an industry-wide investigation into ETF practices for all telecommunications providers.
California Regulatory Activity
The California Public Utilities Commission (“CPUC”) has approved an administrative law judge recommendation to partially approve
an AT&T request for an exemption from Section 851 of the Public Utilities Code. This statute requires CPUC review and approval
of all sales, leases, and other encumbrances of property that are used to provide utility services. As noted in our October
Bulletin, AT&T had sought a complete exemption from Section 851, something that the CPUC has not granted to any carrier, including
those carriers it has found to be competitive and therefore subject to less regulatory oversight. The CPUC did, however,
extend to AT&T and other incumbent carriers that are not subject to rate of return regulations the more limited exemptions
to Section 851 that the CPUC had previously granted to the competitive carriers. Under those rules, approval of non-controversial
transactions may be requested using the advice letter process rather than a formal application process and, if not protested,
are automatically granted after 40 days. The CPUC rejected AT&T’s request for a complete exemption on procedural grounds,
stating that an application by a single carrier is not the appropriate mechanism for granting a broad statutory exemption
and indicated that it will open a general rulemaking to consider the matter. The CPUC also clarified that “non-controversial”
transactions do not include transactions where the asset transfer involves the retirement of copper loops, requires environmental
review, or would impact a pending complaint case or if the acquiring entity is not already authorized to provide telecommunications
in California.
Also in California, an appeals court has stayed a CPUC decision that would have forced NAPs Network, Inc. (“Global NAPs”)
to cease operations in the state as a result of its refusal to comply with a CPUC decision. In January 2007 the CPUC ordered
Global NAPs to pay Cox Communications nearly $1 million plus interest in unpaid charges associated with the termination of
local traffic, per an interconnection agreement between the companies. In its many applications for rehearing and requests
for a stay of the decision, Global NAPs had argued that the CPUC did not have the authority to revoke its certificate for
failure to comply with the decision, could not use its contempt powers to enforce a monetary judgment, and that Global NAPs
did not have the funds to pay the amount due. The CPUC denied Global NAPs’s requests and in June of this year, Global NAPs
turned to the state and federal courts for relief while continuing to challenge the decisions at the CPUC. On September 7,
Global NAPs filed another writ of review with the 2d California Court of Appeals, Third District, challenging the legality
of the CPUC’s original January 2007 decision and order to cease providing service on November 11. The court granted Global
NAPs’s stay request and will rule on the merits of the appeal at a later date. Encouraged by the CPUC’s rulings in the Cox
complaint, on November 30 AT&T asked the CPUC for an order requiring that Global NAPs pay it $9.3 million in past-due access
charges and reciprocal compensation plus an additional $4.3 million past due charges for transit traffic. AT&T states that
its complaint is very similar to Cox’s and, because there are no material facts in dispute, the CPUC can decide its request
without hearings.
Finally in California, AT&T, Verizon, and TURN have asked the CPUC to reconsider its Phase II decision implementing the Digital
Infrastructure and Video Competition Act (“DIVCA”). As reported in the October Bulletin, the Phase II order adopted, over
the strong objections of AT&T, Verizon and other video providers, an additional requirement that all franchise holders report
the actual number of video subscribers by census tract. AT&T and Verizon have challenged this requirement on the grounds
that legislature expressly rejected such requirements during its debate when adopting DIVCA. In addition, the companies argue
that the CPUC does not have the inherent authority to adopt such a requirement because the companies are not public utilities
subject to its general jurisdiction. TURN, which represents residential and small business customers before the CPUC, also
challenged the Phase II decision, claiming that the rules should allow for objections to any application for a video franchise.
While the statute does not provide for challenges, it does not expressly prohibit them, TURN argues. In addition, TURN alleges
that the CPUC erred by not requiring the video franchisees to provide the data needed to detect cross-subsidization between
a franchisee’s video operations and its telephone services.
Arizona to Consider a Cellphone User Bill of Rights
A recent bill in the Arizona Senate will, if enacted, impose comprehensive regulations on wireless service providers in the
state. If adopted, SB-1010 will regulate the carriers’ contracts, invoices, use of subscriber information, and sale of equipment.
Amongst other things, the bill would limit contracts for wireless services to 12 months, require the wireless companies to
post service area maps with the “maximum practicable level of granularity” on their websites and provide them to the customers
at the time of contracting, require that all replacement telephones received under warranty be new and not rebuilt or refurbished
equipment. The bill will be considered during the legislature’s second session in 2008.
Media Ownership Firestorm Continues to Burn
The day before the sixth and final public media ownership hearing was held in Seattle on November 9, eight senators introduced
a bill they hope will slow down FCC Chairman Kevin Martin’s push for a media ownership vote on December 18. A bipartisan
effort, the Media Ownership Act of 2007 (“Media Ownership Act”) had ten co-sponsors as of November 14, including Byron Dorgan
(D-N.D.); Barack Obama (D-Ill.); John Kerry (D-Mass.); Bill Nelson (D-Fla.); Maria Cantwell (D-Wash.); Dianne Feinstein (D-Cal.);
Joseph Biden (D-Del.); Hillary Clinton (D-NY); Trent Lott (R-Miss.); and Olympia Snowe (R-Maine). Six of the senators are
Commerce Committee members, which is not surprising considering Committee Chairman Daniel Inouye (D-Haw.) told Martin in a
private meeting on November 7 that “rushing to judgment before the end of the year would be a mistake.”
If passed, the Media Ownership Act potentially places several additional requirements on the FCC before the agency could issue
a final media ownership order, prolonging the review that dates back to June 2006. The additional requirements include a
mandate that the Commission finish a proceeding on how well broadcasters serve local communities followed by a three-month
public comment period; form a panel of outside experts to review minority ownership proposals and issue recommendations; and
extend the public comment period on the final media ownership order from 30 to 90 days.
Apparently, Chairman Martin is not entirely impervious to the heat. On November 13, Martin released a scaled-back version
of his proposed media-ownership deregulation. Instead of a blanket repeal of the ban, the new version would allow cross-ownership
in the top 20 U.S. markets, representing 43% of U.S. households or 120 million Americans. The plan would also allow the FCC
to waive the ban on joint ownership of a broadcaster and a newspaper in smaller markets under specific circumstances.
The “moderate” plan appears to be an attempt to address lawmakers’ concerns. Lawmakers and fellow commissioners Jonathan
Adelstein and Michael Copps, however, were not appeased. Dorgan insists that Martin has yet to prove that any cross-ownership
is necessary and Adelstein and Copps call the plan “a wolf in sheep’s clothing.” Trade press and industry insiders report
that the waiver provision of the proposed rules will draw the closest scrutiny. Many questions remain concerning the operation
of the waiver process and how high the threshold will be for parties seeking the waiver. Martin also drew fire for his December
11 comment deadline on the plan, notably Representative Dingell (D-Mich.), who called for more time to review the proposal.
Not all members of Congress want to slow Martin’s march towards deregulation of media ownership rules. In late November 17
senators, including Senators DeMint, Sununu, Ensign, Hatch, and Brownback, sent letters calling for even greater deregulation
of media ownership rules than proposed by Martin. The senators recommended allowing any company to own 12 radio stations in the largest markets, 10 stations in markets of 60 to 74 stations total, and 12 stations
in markets with 75 or more stations.
Another media ownership issue is stalled, having been removed from the Commission’s November 27 Open Meeting agenda. The
Commission was scheduled to vote on proposals to promote minority media ownership through programs to assist persons of color
in acquiring television and radio stations. The item was pulled from the agenda minutes before the scheduled start time of
the meeting. The delay was likely caused by commissioners wanting more time to study the proposals and the order circulated
in November.
Court Rejects FCC’s “Fleeting Expletives” Policy
The United States Court of Appeals for the Second Circuit found the Federal Communications Commission’s (“FCC” or “Commission”)
new “fleeting expletives” policy and regulation of indecent and profane speech arbitrary and capricious because it represented
a significant departure from the agency’s 30-year-old precedence, and the FCC failed to articulate a reasoned basis for the
policy change. Well, no agency likes to be called the A- and C-words, so the FCC is petitioning the Supreme Court for certiorari.
Fox, CBS, and NBC (“the Networks”) sought review of the Commission’s November 2006 Remand Order, which cited two Fox broadcasts (the 2002 and 2003 Billboard Music Awards) for violating the FCC’s indecency and profanity prohibitions. The Remand Order’s precursor, the Omnibus Order, also cited an episode of ABC’s NYPD Blues and CBS’s The Early Show. In the Remand Order, the Commission dismissed the complaint against NYPD Blues on procedural grounds and reversed its findings regarding the Early Show because the expletive used occurred in the context of a “bona fide news interview.” In their complaint, the Networks and numerous amici raised seven administrative, statutory, and constitutional challenges to the FCC’s indecency regime. Because the Second
Circuit found the FCC’s new “fleeting expletives” policy arbitrary and capricious under the Administrative Procedure Act,
the Networks’ first assertion, it declined to reach the remaining arguments.
The Second Circuit began its analysis with a detailed history of the Commission’s indecency regulations under 18 U.S.C. 1464,
which originated approximately 30 years ago when the Supreme Court handed down its ruling in FCC v. Pacifica Foundation (“Pacifica”). Pacifica directly addressed the Commission’s statutory authority to sanction indecent speech occurring in broadcasts. In Pacifica, the indecent language at issue was a 12-minute George Carlin monologue called “Filthy Words.” A plurality of the Court
held that the Commission could constitutionally sanction indecent speech similar to the 12-minute monologue. The Court went
on to stress that the holding was narrow and limited to the facts of the Carlin broadcast and did “not speak to cases involving
the isolated use of a potentially offensive word in the course of a radio broadcast, as distinguished from the verbal shock
treatment administered by respondent here.”
From 1978 to 2003, the Commission engaged in some fine tuning and tweaking of its indecency standards, but restrained from
imposing liability for fleeting and isolated remarks. The tide turned during the broadcast of the 2003 Golden Globe Awards
when Bono stated in his acceptance speech, “[T]his is really, really, fucking brilliant. Really, really, great.” Although
the FCC Enforcement Bureau initially found Bono’s remarks did “not fall within the scope of the Commission’s indecency prohibition,”
a full Commission reversed the Bureau’s Golden Globes decision five months later. The Commission held that “the ‘F-Word’ was one of the most vulgar, graphic, and explicit descriptions
of sexual activity in the English language” and use of the word was patently offensive under contemporary community standards.
The Commission went on to find the fleeting and isolated use of the word irrelevant, effectively overruling 30 years of precedent.
It was under the policy announced in the Golden Globes Order that the FCC found the above mentioned Fox, ABC, and CBS broadcasts indecent and profane.
In applying its “arbitrary and capricious” analysis, the Second Circuit acknowledged that agencies are free to revise their
rules and policies, but bore the burden of providing a reasoned analysis for departing from prior precedent. The court then
went on to dismiss each of the Commission’s reasons for the change.
First, the Second Circuit found lacking the FCC’s explanation that sanctioning isolated or fleeting expletives was necessary
because a broadcast audience was not able to simply tune out and avoid the language. The Commission argued that it subjected
viewers, specifically children, to endure “the first blow.” The “first blow” analogy harkens back to a line of reasoning
the Pacifica court used to support its finding that the FCC could regulate indecent broadcast speech: “To say that one may avoid further
offense by turning off the radio when he hears indecent language is like saying that the remedy for an assault is to run away
after the first blow.” The Second Circuit found the argument unpersuasive in this context, however, because the Commission
failed to explain why a fleeting expletive was a harmful “first blow” in the present day but not a harmful “first blow” for
the nearly thirty years between Pacifica and Golden Globes.
Second, the court found the “first blow” theory bore no rational connection to the Commission’s actual policy regarding fleeting
expletives because FCC-created exceptions for journalistic or artistic broadcasts exempt would be “first blows.” In oral
argument, the Commission conceded that a news rebroadcast of precisely the same offending Billboard Music Award clips would
not result in any action by the FCC, even though in those circumstances viewers would be subjected to the same “first blow”
that resulted from the original airing of the material. Additionally, the Commission admitted that even repeated and deliberate
use of numerous expletives is not indecent or profane under the FCC’s policy if the expletives are “integral” to the work,
e.g., a broadcast of the movie Saving Private Ryan.
Finally, the court found the Commission’s remaining three arguments justifying its new indecency regulation regime were divorced
from reality and commonsense. The Second Circuit dismissed the FCC’s contention that the “f-word” and “s-word” had inherent
sexual and excretory connotations and discerning between the expletive and literal use was too onerous. The court pointed
out that the general public overwhelmingly used both words in everyday conversation without any sexual or excretory meaning,
and determining the difference between the expletive and literal uses was trivial. The court also found the Commission’s
fear that a per se exemption for fleeting expletives would “permit broadcasters to air expletives at all hours of the day so long as they did
so one at a time” unfounded because broadcasters have never barraged the airwaves with expletives, even prior to Golden Globes. And the court pointed out that the FCC’s assertion that “categorically requiring repeated use . . . is inconsistent with
our general approach to indecency enforcement, which stresses the critical nature of context” was itself inconsistent because
the Commission’s own policy of treating all variants of certain expletives as presumptively indecent and profane, whether
used in a literal or non-literal sense, failed to comport with the agency’s “general approach” that “stresses the critical
nature of context.”
The court determined that none of the Commission’s arguments explained why, when the Commission’s indecency test remains unchanged,
an isolated expletive now fits within the articulation of that test, especially when children today are subjected to profanity
more regularly and from more sources than they were in the 1970s when the Commission first began sanctioning indecent speech.
The court expressed further skepticism about the FCC’s reasoning for why a separate ban on profanity was necessary when, prior
to 2004, the Commission never attempted to regulate “profane” speech based on the agency’s own determination that a separate
ban on profane speech was unconstitutional. Ultimately, the Second Circuit found the Commission failed to provide a rational
basis for its new “fleeting expletive” and profane language regulation and did not overcome its burden under the Administrative
Procedure Act.
Before vacating the FCC order and remanding it to the Commission for further proceedings consistent with the opinion, the
Second Circuit embarked on a detailed constitutional analysis of the FCC’s indecency regime. Although the lengthy analysis
was dicta, it appears to be, in part, the catalyst for the Commission’s petition for writ of certiorari. The Second Circuit, the agency claims, has sent the Commission on a Sisyphean errand because the court commented that the FCC would probably be unable to adequately respond to the constitutional and
statutory challenges (which were not officially addressed) even if it offered a rational approach to the indecency policy
change. The Commission readily admits that seeking certiorari is uncommon when a court remands to an agency for a fuller explanation of a policy change, but presses the Supreme Court
to grant petition because the FCC contends the holding conflicts with Pacifica and is inconsistent with settled principles governing judicial review of agency action. The Supreme Court is expected to
decide whether to grant petition before June 2008.
FCC Issues Rulemaking to Revise Pole Attachment Policies
On November 20 the FCC released the text of its NPRM regarding further revisions to its regulations implementing Section 224
of the Communications Act. This statute confers on cable television systems and telecommunications carriers the right to
pole attachments at just and reasonable rates, terms, and conditions. Under current FCC regulations, which were revised most
recently to implement the expanded definition of pole attachment adopted by the Telecommunications Act of 1996, pole attachments
include any attachment to ducts, conduits, or rights-of-way owned or controlled by a utility. These regulations, however,
only provide pole attachment rights to cable television systems, competitive local exchange, and wireless carriers, as the
statutory definition of &
