Communications Law Bulletin, January 2008
In this issue:
The Month in Brief
This edition of our Bulletin, like the July/August edition we put out last summer, covers two months rather than one. The
two months that included the Holiday season have not been quiet, however, at the Congress, the state legislatures, the courts,
or the Federal Communications (“FCC” or “Commission”).
The principal events of December and January are covered here, along with our usual list of deadlines for your calendar.
President Renominates Commissioner Adelstein
On December 3, 2007, the White House submitted Commissioner Jonathan Adelstein’s name to the Senate for another term on the
FCC. If confirmed by the Senate, Adelstein’s term will run until June 30, 2013.
With ongoing friction between the Martin FCC and the Congress, and against the uncertain background of an election year, Senate
reconfirmations of Adelstein (and of Commissioner Deborah Taylor Tate) are in doubt. The Senate might decide to await the
outcome of the general election before deciding whether to give Adelstein an additional five-year term.
Forbearance Controversy Continues in Washington
Ongoing controversy regarding the FCC’s forbearance process has led to new developments at the FCC, the D.C. Circuit Court
of Appeals, and the Congress.
At the agency, the FCC released a Notice of Proposed Rulemaking (“NPRM”) on the procedural rules that should apply to forbearance
petitions. The FCC seeks comment on some specific proposals made by a coalition of competing local exchange carriers (“CLECs”)
(see “Broadband Forbearance Procedures Subject of Intense Focus at FCC” in our September 2007 Bulletin), plus some broader questions
the FCC raised. Although the CLEC petition had sought immediate rules without a rulemaking, the FCC decided to proceed with
an NPRM, albeit on a fairly short pleading cycle. Comments are due 30 days after publication of the NPRM in the Federal Register,
and replies are due 45 days after publication in the Federal Register.
Among other issues, the FCC seeks comment on:
- Whether the APA’s notice-and-comment rules should expressly be applied to forbearance petitions;
- Whether the FCC should impose various form and content rules, such as a “complete-as-filed” requirement, specified information
required to make a prima facie showing, or a clear burden of proof on the petitioner;
- The scope and use of protective orders, including whether all parties should have access to confidential information, whether
parties should be able to use this information in other forbearance proceedings invoking similar relief, and whether states
should be able to use this information in related state proceedings;
- Whether the FCC should establish a timetable, including a limited period for the cure of minor defects, a specific vehicle
for state public utilities commission (“PUC”) input, a standard comment cycle, and a time limit on substantive ex partes;
- Whether petitioners should be required to provide supporting data at the wire center level;
- Whether the FCC should be required to issue a written order on all forbearance petitions, including those previously deemed
granted;
- Whether the FCC has the authority to adopt procedural rules governing pending forbearance proceedings (not just future proceedings);
- Whether, in light of serious concerns expressed by companies and the Congress, forbearance is an effective means for the FCC
to regulate, and whether there are unintended consequences; and
- The appropriate remedy for a violation of any procedural rules adopted.
Both Commissioners Copps and McDowell noted that only the Congress can permanently fix the forbearance process, but that the
FCC can implement rules to mitigate some of its more egregious problems. Commissioner McDowell also specifically noted that
the FCC should look at the impact of forbearance petitions on the FCC’s broader rulemaking responsibilities.
The FCC also ruled on another forbearance petition – that of Verizon seeking forbearance from offering certain unbundled network
elements in six metropolitan statistical areas (“MSAs”). The FCC unanimously ruled (with Commissioners Copps and Adelstein
concurring) that Verizon and the evidence on the record failed to meet the forbearance standard and denied the requested relief
in full in all six MSAs, distinguishing these MSAs from earlier forbearance grants affecting the Omaha, Nebraska MSA and the
Anchorage, Alaska MSA. When faced with a forbearance denial, most companies in the past have withdrawn their petitions prior
to the statutory deadline, and Verizon’s failure to do so probably indicates that Verizon is preparing for an appeal.
The D.C. Circuit issued an order in December on various appeals of the controversial automatic grant in March 2006 of Verizon’s
broadband forbearance petition due to the failure of a split FCC (2-2, with Commissioner McDowell abstaining) to act by the
statutory deadline. Various parties argued that the deadlocked vote should be considered a denial of the petition, or, alternatively,
that the “deemed” grant was arbitrary and capricious. The court held that neither the deadlocked vote nor the press release
was a reviewable order of the FCC and did not constitute agency action (which requires a majority vote and the agency’s reasoning).
Where the FCC neither grants nor denies a forbearance petition, the court said that Congress has dictated the outcome and
the petition is “deemed granted.” Because Congress, and not the FCC, effectuated this grant, the court stated that there
is no action of the FCC for the court to review.
In the Congress, Senator Inouye (D-Hawaii), citing the recent D.C. Circuit decision, introduced a bill in December that would
eliminate the controversial “deemed granted” language in the statutory provision establishing the forbearance process. Although
companies would still be able to petition for forbearance, FCC inaction by the deadline would no longer lead to an automatic
grant of the petition. This bill is a companion to a House bill introduced earlier in 2007 by Congressman Dingell (D-Michigan).
Net Neutrality Isn’t Dead Yet…
Following two petitions in the fall raising net neutrality issues in response to Comcast’s reported blocking or degrading
of content, December brought a new petition focused this time upon text messaging. (For reports on the two petitions, see
“Series of Cable and Telco Incidents Reinvigorate Calls for Net Neutrality and Trigger Consumer Petition and Complaint,” from
our October 2007 Bulletin; see also “New Calls for Net Neutrality,” from our November 2007 Bulletin.) On December 11, 2007,
several public interest groups filed a petition for declaratory ruling with the FCC, seeking a ruling that text messaging
and short codes are either Title II services or, alternatively, if they are information services, that the FCC should use
its Title I ancillary jurisdiction to nonetheless subject text messaging to Section 202’s non-discrimination requirements.
These petitioners argue that text messaging and short codes have become a major method of communications and speech, and they
assert that mobile carriers are discriminating by blocking controversial and/or competing services. As examples, petitioners
point to Verizon Wireless’ initial refusal to issue a short code to NARAL Pro-Choice America and to the actions of several
carriers who allegedly block short codes for Rebtel (a VoIP competitor). They argue that such blocking would be illegal with
respect to voice communications, and that it should also be illegal in the context of text messaging.
In comments to reporters on these recent net neutrality petitions, Chairman Kevin Martin said that the FCC would investigate
all of them to ensure no customers are being blocked. He noted that the issue with Comcast is whether its practices were
reasonable network management (which is permitted under the FCC’s policy statement on the issue), but he indicated that reasonable
network practices should be publicly disclosed. Soon after these statements, Chairman Martin made good on his promises by
placing all three of the recent petitions out for public comment. Although the outcome of these proceedings is far from certain,
these proceedings will give all segments of the industry the opportunity to air their views on the need for net neutrality
regulation and might flesh out the scope of permissible and reasonable network management. In addition, the FCC reportedly
issued letters of inquiry (“LOIs”) to both Comcast and Verizon Wireless to investigate the specific incidents described in
the petitions.
Meanwhile, those interested in net neutrality continue to await legislation expected to be introduced in the near future by
Representative Edward Markey (D-Massachusetts).
FCC Revises Slamming Rules
The FCC has issued an order revising its requirements for proper verification of a consumer’s intent to switch carriers.
In short, these changes include a requirement that the verification process record the date on which the verification was
made, and an expansion and clarification of the disclosure obligations of third-party verifiers. In particular, the new rules
require verifiers to clearly state that the transaction is a carrier change, not a “service upgrade,” “bill consolidation,”
or other misleading description. Given the expense and abuses of international calling plans, the new rules also require
verifiers to confirm that the customer understands that long distance service includes international service.
The FCC left some of the precise form of implementation of these new rules to the carriers, as some carriers may already have
mechanisms in place that collect or provide the required information. Carriers need to review their own procedures to determine
if they already comply with the new requirements, or if they need to implement changes to their procedures. The new rules
will be effective thirty (30) days after publication in the Federal Register.
Universal Service Fund Developments
FCC Clarifies Toll Revenue Requirements for USF Contribution Purposes
The FCC released a long-awaited declaratory ruling addressing the treatment of toll revenues for purposes of contributing
to the universal service fund (“USF”). Overall, the decision is a reasonably positive result for the wireless industry, although
to the extent wireless carriers use traffic studies to determine revenues, carriers may need to change their traffic study
methodologies going forward.
The FCC clarified that, consistent with the definition set forth in its 2006 Contribution Methodology Order, “toll services” are “telecommunications services that enable customers to communicate outside of their local exchange calling
areas,” which for wireless carriers, means “outside the customer’s plan-defined home calling area for an additional charge.”
Accordingly, toll revenues reported for USF purposes generally would not include in-plan revenues (which would be reported
as “mobile services”). For example, in the case of a calling plan that provides nationwide calling for a bucket of minutes,
toll service revenue only would include the additional fees that are assessed for calls made outside that calling plan (such
as international calls).
The FCC also noted that revenues associated with toll services are predominantly the result of domestic long distance and
international calling and is often much higher than the per-minute revenue associated with a plan’s bucket minutes. Therefore,
the FCC clarified that on a going-forward basis, traffic studies must ensure that toll service revenues are accurately accounted
for by weighting that traffic appropriately. The traffic studies “must account for toll service traffic that is assessed
an additional charge(s) in a manner that reflects accurately both the jurisdiction of this traffic and the associated revenue.”
Proposed Order Would Cap High-Cost USF Support
FCC Chairman Kevin Martin is circulating an order that would cap high-cost USF payments at June 2007 levels for competitive
eligible telecommunications carriers (“ETCs”), which are primarily wireless carriers. According to a recent report by the
Federal-State Joint Board on Universal Service, high cost disbursements totaled $4.1 billion of the $6.6 billion that was
distributed from the USF in 2006, a $300 million increase from 2005. The report attributed the increase to competitive carriers
receiving more monies.
The cap would be similar to a condition recently imposed in two wireless mergers involving large wireless rural carriers (the
recent acquisition of Alltel Corporation by two private equity groups and the merger of AT&T Inc. and Dobson Communications
Corporation). Some industry players, however, believe that Chairman Martin currently does not have the votes to adopt the
cap. Republicans Chairman Martin and Commissioner Deborah Taylor Tate, reportedly support the cap while Democratic Commissioner
Michael Copps opposes the cap. Republican Commissioner Robert McDowell and Democratic Commissioner Jonathan Adelstein have
not yet stated their views and continue to be subject to significant lobbying efforts by parties on both sides of the issue.
Commissioner McDowell appeared to question whether the item is necessary given that the Commission’s goal of curbing growth
of the high-cost fund on an interim basis may have been accomplished by the conditions imposed in the wireless mergers. Rather,
“it might make more sense to move directly to long term USF reform,” according to McDowell.
Appropriations Act Extends USF Accounting Exemption and Prohibits Primary Line Restrictions
The Consolidated Appropriations Act of 2008 (Pub. Law No. 110-161), enacted December 26, 2007, extends the exemption of the
USF from the accounting requirements of the Anti-Deficiency Act (“ADA”) for one more year. Under the ADA, the USF administrator
must keep cash on hand to cover all of its funding obligations, instead of its past accounting practices which allowed it
to make commitments based upon monies it will collect in the future. Without the exemption, the USF administrator would have
to change its accounting practices from GAAP (generally accepted accounting principles) to government accounting principles.
The exemption now expires December 31, 2008.
The Consolidated Appropriations Act of 2008 also included language that prevents the FCC from using any of the appropriated
funds to “modify, amend, or change its rules or regulations for universal service support payments to implement the February
27, 2004 recommendations of the Federal-State Joint Board on Universal Service regarding single connection or primary line
restrictions on universal service support payments.”
FCC Inspector General Reports That Additional Oversight of the USF Is Necessary
In its semi-annual report to the Congress, the FCC’s Office of the Inspector General (“OIG”) concluded that the FCC has been
successful in establishing better oversight of the USF, but that further funds are necessary to support audits and investigations.
For the first time, OIG has audited all components of the USF. The 459 audits completed by the OIG showed that although general
compliance with USF rules and policies was high, erroneous payment rates exceeded nine percent. In the high-cost fund alone,
the OIG discovered approximately $909 million in erroneous FCC payments and approximately $385 million in improper collections
from USF contributors.
The Congress, in the Consolidated Appropriations Act of 2008, provided that funds “not to exceed $21,480,000 may be transferred
from the Universal Service Fund in fiscal year 2008 to remain available until expended, to monitor the Universal Service Fund
program to prevent and remedy waste, fraud and abuse, and to conduct audits and investigations by the Office of Inspector
General.”
The USF Contribution Factor Decreases to 10.2 Percent
The USF contribution factor will decrease for the first quarter of 2008 from 11.0 percent to 10.2 percent. The contribution
factor had risen sharply in the second quarter of 2007 from 9.7 percent to 11.7 percent, but since then has continued to drop.
Wireless Carriers End Seven-Year Tax Feud with Missouri Cities
Sprint Nextel recently joined other wireless carriers (including AT&T Mobility and Verizon Wireless) in settling a seven-year
dispute regarding their liability for local telephone service gross receipts taxes, for which the carriers will pay in total
more than $150 million of back local taxes to several hundred Missouri municipalities. The several years preceding the settlements
were marked by voluminous litigation, frequent trips to the Missouri legislature, and protracted negotiations between the
carriers and the Missouri Municipal League.
The wireless carriers initially claimed they were not liable for the local taxes because they did not provide “telephone service,”
in contrast to the many traditional landline telephone companies that were subject to such taxes. Several cities disputed
these claims, and brought suits for back taxes. Some readers, who use their mobile phones and services much like they use
their landline phones, may question why wireless carriers would seriously argue that that their services were not telephone
services. But the wireless carriers raised some worthwhile arguments to oppose the taxes, including that (1) these local
tax ordinances, many drafted well before the advent of wireless services, were expressly limited to “local” or “exchange”
services or telephone services “within the city” that traditionally applied to only local telephone companies and services;
and (2) for the cities to expand the traditional scope of these taxes to reach wireless services by administrative interpretation,
without voter approval, may have increased local taxes in violation of the Missouri Constitution.
However, one federal court was not persuaded, holding that wireless carriers were engaged in the business of providing “telephone
or telephonic” services subject to the tax under the plain language of the ordinance. City of Jefferson v. Cingular Wireless, L.L.C. et al., No. 04-4099-CV-C-NKL (W.D. Mo. July 3, 2007). The court concluded simply that the meaning of “telephone” was unambiguous
and unchanged since the turn of the twentieth century, and constituted the use of an instrument by which two persons may talk
directly to each other, whether or not connected by wires.
In 2005, while numerous similar court cases were pending in Missouri, the carriers and cities turned to the Missouri legislature
for some relief. Without going into the details, the ensuing law, known as the Municipal Telecommunications Business License
Tax Simplification Act (H.B. 209), was viewed by several municipalities as unfair and constitutionally infirm. The Missouri
Supreme Court agreed, and struck the law down as an invalid and unconstitutional “special” law. City of Springfield v. Sprint Spectrum, L.P., 203 S.W.3d 177 (Mo. 2006). The carriers and cities then returned to the legislature to correct the law, but this time the
legislation stalled. Recognizing the financial risk of continuing not to pay the tax or recover it from their customers,
several wireless carriers began to pay the tax under protest, but the cities could not spend these protested tax monies under
Missouri law. Thus, left on their own to resolve the dispute and finding themselves at a financial impasse, the carriers
and cities finally reached the above settlements.
Under these settlements, the carriers have also agreed to pay these local telephone service taxes going forward to almost
400 municipalities. Of course, the brunt of these taxes prospectively will be borne ultimately by wireless service customers
who will see varying increases in their wireless service costs, because the carriers will pass through these local telephone
service taxes via surcharges. Even with these settlements, though, the controversy may not be over as certain wireless carriers
have not settled and continue to fight their liability for the local telephone service taxes in the Missouri courts.
FCC Seeks Comment on Satellite Radio and WCS Issues
The FCC released an NPRM seeking comment on various interference and licensing issues concerning satellite digital audio radio
service (“SDARS”) in the 2.3 GHz band. The NPRM was initially going to be adopted at the FCC’s December open meeting, but
the item was pulled from the meeting agenda voted on circulation before the meeting.
Sirius Satellite Radio Inc. and XM Radio Inc., the two SDARS providers that have been licensed by the FCC, have already deployed
satellite systems and are providing commercial services despite the lack of a regulatory framework for operating SDARS repeaters.
The NPRM seeks to update the record and resolve interference issues between SDARS repeaters and the proposed operations of
terrestrial wireless communications service (“WCS”) licensees in the adjacent band by adopting new or modifying existing rules
so that SDARS and WCS licensees may coexist.
The NPRM specifically seeks comment on proposals made by Sirius and the WCS Coalition including: (1) power limits and out-of-band
emissions; (2) restrictions on collocation of SDARS and WCS stations; (3) coordination, notification, and recordkeeping requirements;
(4) grandfathering of existing SDARS repeaters; (5) compliance with international agreements; (6) environmental and other
safety issues; (7) licensing procedures; (8) use of SDARS spectrum for repeaters; (9) retransmission of regional spot beams;
and (10) local programming from SDARS repeaters. SDARS and WCS providers have heavily criticized each other’s proposals.
Comments and replies in response to the NPRM are due February 14 and March 17, respectively.
Wireless Developments
Bids Start Rolling in for the 700 MHz Auction
The 700 MHz auction began on January 24 as scheduled, in which 214 entities have an opportunity to bid on 1099 licenses covering
62 MHz of “beachfront” spectrum. The auction, however, which some hope will produce revenues of $10-$15 billion, started
the week that U.S. economic markets fell sharply due to fears of a recession. Only time will tell how these fears will affect
the auction, although it appears the economic downturn may already have affected at least one major player, Frontline Wireless,
which could not secure funding in time to participate in the auction.
The FCC initially received 266 “short form” applications from entities seeking to participate in the auction. After the FCC
returned 170 of them as incomplete and asked for additional information, ultimately 214 of the applications were approved,
119 of which qualified to receive designated entity (“DE”) bidding credits. Although national carriers T-Mobile USA and Sprint
Nextel did not file applications, AT&T Mobility and Verizon Wireless were approved, as were several cable companies, including
Advance/Newhouse Communications, Cablevision Systems, and Cox Communications. Many regional and smaller companies also were
approved, including Alltel, MetroPCS Communications, and Leap Wireless. Rural and smaller companies generally are expected
to bid on the smaller Cellular Market Area licenses that are located in the lower portion of the 700 MHz band. Other notable
applicants include Google, Inc., EchoStar Communications, and Qualcomm.
A surprising exclusion from the list of approved applicants, however, was Frontline Wireless. Although Frontline Wireless
filed an initial short-form application, it was unable to secure the necessary funding to submit the auction upfront payment.
Frontline Wireless was widely expected to bid on the D Block license, which will be responsible for constructing and operating
a shared nationwide public safety-private wireless network. The FCC set the reserve price for the D Block license at $1.33
billion, which likely limits potential bidders to larger more established companies that have access to significant resources.
Frontline Wireless’ absence from the auction creates some concern that no one will win the D Block license, but Chairman Kevin
Martin has said he is optimistic that the reserve price for the license will be met.
Frontline Wireless had been successful in convincing the FCC to relax some of its rules to help DEs bid on the D Block license.
Verizon Wireless sought reconsideration of the FCC’s decision, as did Council Tree Communications, Bethel Native Corp., and
the Minority Media and Telecommunications Council. Now that Frontline Wireless is not participating in the auction, however,
the issue may become moot if no other DEs bid on the D Block license.
CMRS Competition Report Stalled
The release of the FCC’s annual competition report on the market for commercial mobile radio services (“CMRS”) has been delayed
by four months. For the last three years, the report was released in September. After various delays, the FCC placed the
report on the agenda for its December open meeting, but pulled it prior to the meeting. The 2007 edition reportedly contains
data regarding competition by census block in response to prior criticism that measurements based upon larger market areas
did not provide an accurate competitive picture.
FCC Seeks Comment on Cellphone Alerts
Pursuant to the Warning Alert and Response Network (“WARN”) Act, the FCC released an NPRM seeking comment on recommendations
from its Commercial Mobile Service Alert Advisory Committee (the “Committee”) regarding the voluntary deployment of wireless
emergency alerts. Although it is generally believed that many carriers will participate in the wireless alert program, concerns
that they may be required to target alerts to very small geographic areas may discourage participation.
The Committee stated that the goal of the alert system is to “deliver geo-targeted alerts,” but acknowledged that technical
limitations may prevent targeting small geographic areas. The Committee suggested that alerts be disseminated on a county
basis, except in certain urban areas with populations exceeding one million people where more precise targeting would be utilized.
Although FCC Chairman Kevin Martin has strongly supported targeting below the county level, the NPRM reaches no tentative
conclusions on this issue.
The NPRM also seeks comment on the availability of existing and new technologies (e.g., SMS, 3G, point-to-point, and point-to-multipoint)
that can facilitate wireless alerts and whether the alert system should use a Common Alerting Protocol and character limits.
In addition, the NPRM asks what role the federal government should take in the alert program, whether alerts should be disseminated
in languages other than English, and how carriers should inform customers about the availability (or lack thereof) of wireless
alerts.
The WARN Act provides a fairly rapid implementation timeline – the FCC must adopt technical standards and procedures to enable
wireless alerts by April 2008. The FCC then must establish within 90 days the process by which wireless carriers can choose
to carry the alerts. Carriers will have 30 days to decide whether to participate. Comments and replies to the NPRM are due
February 4 and 19, 2008, respectively.
FCC Adopts New Media Ownership Rules
Despite Congressional bipartisan legislation, public statements, threats from the Hill, criticism from his own fellow Commissioners
(the Democrats), and a barrage of lobbying, FCC Chairman Kevin J. Martin did not postpone the December 18, 2007 media-ownership
vote. The vote took placed as promised, ending the 32-year-old absolute ban on a newspaper’s ability to own television or
radio stations. Subject to certain criteria and limitations, newspapers are now allowed to own one television or one radio
station in the 20 largest U.S. markets.
The new rule presumptively permits cross-ownership in the largest markets if: (1) the market is one of the 20 largest Nielsen
Designated Market Areas (“DMAs”); (2) the transaction involves the combination of only one major daily newspaper and only
one television or radio station; (3) the transaction involves a television station, at least eight independently owned and
operating major media voices (defined to include major newspapers and full-power TV stations) would remain in the DMA following
the transaction; and (4) the transaction involves a television station, that station is not among the top four ranked stations
in the DMA.
Although all other proposed newspaper and broadcast transactions will continue to be presumed not in the public interest,
the new rules identify two circumstances when this negative presumption could be reversed. First, waivers may be granted
if a media outlet was failing or failed. Second, the negative presumption could be reversed if the proposed transaction resulted
in at least seven hours of new local news programming per week on a broadcast station that had not previously aired local
news. Applicants attempting to overcome a negative presumption about a newspaper-television combination, however, will need
to demonstrate by clear and convincing evidence that post-merger, the merged entity will increase the diversity of independent
news outlets (e.g., separate editorial and news coverage decisions) and increase competition among independent news sources
in the relevant market. The Commission will also consider the level of concentration in the DMA; the effect on the market’s
local news; the retention of independent news and editorial staff; the medial outlets’ financial condition; and the proposed
owner's commitment to invest significantly in newsroom operations.
Chairman Martin lauded the new rules as striking “a balance between preserving the values that make up the foundation of [the]
media regulations while ensuring those regulations keep [pace] with the marketplace….” Reactions from fellow Democratic Commissioners
Michael Copps and Jonathan Adelstein, and the Hill, were less than warm, however, and there are already predictions of a legal
challenge.
FCC DTV Transition Plan?
The Government Accountability Office (“GAO”) released a report December 11, 2007 recommending that the Federal Communications
Commission (“Commission” or “FCC”) develop a comprehensive digital-television (“DTV”) transition plan. The report, which
examined efforts by the FCC and the National Telecommunications and Information Administration (“NTIA”) to educate consumers
about the February 17, 2009 transition deadline, stated that neither agency had a comprehensive plan or strategy in place
to manage the process.
The GAO puts most of the blame for the poor planning on the FCC and refused to classify the 96-page document Chairman Kevin
J. Martin submitted, which listed all the Commission’s DTV transition-related actions, as a plan. Additionally, the GAO said
various DTV transition orders currently in the Commission’s dockets do not qualify as a strategic plan, because, among other
things, neither is sufficiently transparent to guide stakeholders trying to meet the DTV goals to ensure a successful transition.
In its defense, the Commission released a 99-page response that included technical, policy, and consumer outreach goals, some
of which were completed years ago and some of which are ongoing. The report explained that the FCC has been planning for
the DTV transition for more than 20 years and many of the DTV deadlines and congressionally imposed milestones were driven
by the Commission’s timeline. Additionally, the report accused the GAO of violating procedural rules by omitting submitted
FCC comments.
Comments from the Hill regarding the report’s findings echoed the GAO’s concern about the negative impact the lack of planning
will ultimately have on consumers, especially the elderly and poor. And, based on both the report and the Commission’s response,
it appears that Commissioner Jonathon Adelstein’s summary of the current state of affairs is correct – the FCC does not have
a DTV-transition strategic plan and there is no plan to come up with a plan.
More Broadcast News
- In addition to issuing new media cross-ownership rules, the Commission addressed broadcast-ownership diversification and localism
in the December 18, 2007 open commission meeting.
- The Commission released broadcast-ownership diversification rules designed to help eligible entities (new entrants and small
and minority-owned businesses) gain access to financing and spectrum, expanding the opportunity to participate in the broadcast
industry. The new rules include changes to construction permit deadlines; revisions to the equity/debt plus (“EDP”) attribution
standard; and modifications to the distress sale policy.
- The Commission adopted a Report on Broadcast Localism and issued a Notice of Proposed Rulemaking (“Report”) in an effort to
increase local programming content and diversity in U.S. media markets. Based on more than 83,000 comments and testimony
from 500 panelists during six field hearings, the Report tentatively concludes: qualified LPTV stations should be granted
Class A status and be required to provide three hours per week of locally produced programming; licensees should establish
permanent advisory boards (including representatives of underserved community segments) in each station community of license
with which to consult periodically on community needs and issues; and Commission application renewal processing guidelines
should ensure that all broadcasters provide some locally oriented programming. The text of the report was released January
24, 2008.
- Broadcasters gained some additional flexibility in making the transition from analog to digital in the Commission’s Third
Periodic DTV Review Order (“Order”) released on December 13, 2007. Under the Order’s terms, TV stations may continue to transmit
digital broadcasts in analog channel slots until February 18, 2010 in certain situations, and waivers will be considered if
a broadcaster is unable to finish building their digital facilities by February 17, 2009. The industry did not, however,
get everything they wanted. Notably, the Order did not include waivers for equipment shortages on supplies that were not
already ordered or for a requested one-year ramp-up period following the transition deadline.
- In an order released January 24, 2008, the Commission now requires broadcasters to provide local programming information by
filing a quarterly standardized programming form. Implemented to facilitate the public’s access to local programming information
by homogenizing what type of information is provided and where it resides, the types of programming broadcasters must list
include local civic, electoral affairs and independently produced programming, as well as public service announcements. Additionally,
broadcasters must submit information about their efforts to ascertain various community segments’ programming needs and about
close captioning and video-described content.
Happenings on the Hill
- Lawmakers spent considerable time and effort in the beginning of December on the FCC Chairman Martin’s plan to vote on new
media-ownership rules at the Commission’s December 18 open meeting. In addition to bringing all five FCC Commissioners to
testify before the House Commerce Committee on December 5, the Senate introduced and passed a bill (S-2332) that would require
the FCC to complete a rulemaking on local programming before proceeding with a vote on the new media-ownership rules. But
not even a letter signed by 25 bipartisan senators and sent directly to Chairman Martin stopped him from calling for a vote
and adopting new newspaper-broadcast cross-ownership rules that lifted the 32-year-old absolute ban. (See “FCC Adopts New Media-ownership Rules,” in this Issue).
- Chairman Martin kept the promise he made to the House Energy and Commerce Committee to provide more transparency into the
FCC’s decision-making process by publishing weekly lists of items on circulation. The first list was published December 5,
2007.
- Broadband mapping legislation (S-1492) stalled in early December after Republicans lodged objections. The House passed a
similar bill (HR-3919) in November. Both bills ask the FCC and NTIA to build a publicly available database of broadband subscribers
based on zip codes to highlight where service is lacking.
- The Congressional Budget Office (“CBO”) gave the Senate municipal broadband bill (S-1853) a “thumbs up,” saying it would not
violate federal budget rules. If passed, local governments would be allowed to build broadband networks, affecting state
and local laws in 15 states that ban such investment. Before public entities could provide broadband service, however, they
would have to publish a notice of intent, including details of the services to be offered, and allow private bids for the
services.
- Senate Commerce Committee Ranking Member Ted Stevens (R-Alaska) is co-sponsoring the Protecting Children from Indecent Programming
Act (S-1780), which would authorize the FCC to fine broadcasters for airing any program that includes a single obscenity or
nude image. If passed, the bill would nullify the U.S. Court of Appeals for the Second Circuit’s remand of the FCC’s fleeting
indecency policy. (See “Court Rejects FCC’s ‘Fleeting Expletives’ Policy, in the November 2007 issue.)
- Chairman Martin’s efforts to use the “70-70” rule, which authorizes the FCC to impose additional rules on cable TV systems
once the industry passes “70-70” penetration, spawned new legislation by Representatives Marsh Blackburn (R-Tennessee) and
Edophus Towns (D-New York). The Consumer Freedom of Choice in Cable Act would remove the “70-70” tool from the FCC toolbox.
- Both the House and Senate passed “do-not-call” bills in December. The House bills (HR-2096, 2601 and 3541) would make the
Do Not Call registry permanent; eliminate the automatic removal of telephone numbers from the registry unless a number is
disconnected or reassigned; and give the FCC the power to charge telemarketers $14,850 a year for access to list data in every
area code of the nation, or $54 per area code for every numbering area that exceeds the five areas that companies can access
for free. The Senate’s sister bills (S-781 and 2096) include similar provisions.
- Rural broadband provisions were included in the Farm, Nutrition, and Bioenergy Act (HR-2419 as amended or “Farm Bill”), which
the Senate approved on December 14. The telecom riders included providing Rural Utility Service (“RUS”) loans to areas where
at least 20% of households did not have access to terrestrial-broadband service providers or where there are no more than
two existing broadband providers. Additionally, the bill would authorize the designation of a nationwide center to assess
and report on rural broadband services and establish a “Connect the Nation” grant program to encourage state broadband initiatives.
Chairman Martin Defends FCC Processes
Chairman Martin told the Congress November 30 that the Commission would begin to publish a weekly list of items on circulation
at the FCC. Chairman Martin made the announcement in response to an October 3 Government Accountability Office (“GAO”) report
criticizing the Commission’s handling of information about upcoming meetings, specifically alleging that FCC staffers were
leaking information to industry insiders about agenda items. During its review of four completed FCC rulemakings, the GAO
discovered that nine of the twelve stakeholders interviewed had access to nonpublic information, giving them a lobbying advantage
over those without inside connections. The remaining three respondents said they could not learn what rules were scheduled
for vote until the information was publicly released in a Sunshine Act notice approximately a week before open Commission
meetings. At the end of the day, those not among the FCC’s most favored, which the report identified as consumer and public-interest
groups, face a distinct disadvantage when it comes to presenting their sides because the window to lobby regulators closes
once the Sunshine notice is released.
On December 5, Chairman Martin made good on his promise and a circulation list that included more than 140 draft orders, notice
of proposed rulemakings, enforcement actions, and other items circulating among commissioners’ offices en route to a full
Commission vote appeared on the FCC’s website (and has been updated weekly since then). Chairman Martin touted that, by making
all items currently on circulation for a vote public, everyone (insiders or not) will have equal access to issues under consideration
and staff leaks would stop.
Wanting even more assurances that the Commission’s processes are fair, open, and transparent, House Commerce Committee Chairman
John Dingell (D-Michigan) pressed Chairman Martin for a firm commitment that the text of proposed rules would also be published
before Commission meetings, providing everyone with a chance to review them. In a letter sent to Chairman Martin and the
other commissioners, Rep. Dingell also asked for details about the Commission’s policies for the retention of internal and
external communications and whether they had changed since Martin became chairman.
Chairman Martin responded to Rep. Dingell’s request by declining to commit to publish the exact text of a proposed rule in
advance of Commission meetings, stating it was not required under the Administrative Procedure Act and not a standard FCC
practice. Unlike the staff-leak issue, the GAO report showed that the FCC generally followed the rulemaking process in the
four case studies it reviewed; each rulemaking included an NPRM and a notice and comment period. The GAO report also revealed
that most ex parte filings complied with the ex parte rules, and there was no evidence that the Commission violated its Sunshine
rules. In response to the inquiry about retention policies, Chairman Martin asserted that Commission has had the same policy
for more than 20 years.
In a December 13 Senate Commerce Committee hearing, however, Chairman Martin did entertain the possibility that in addition
to the publication of the circulation list, the Commission would announce when an item on the list was “white copied” (a term
used to signal when the Chairman is going to place an item on the agenda for an upcoming meeting) and make public how commissioners
were planning to vote on circulating items. Although Chairman Martin has not made any “white copied” announcements yet, he
has contacted the other commissioners in an attempt to set the monthly meeting dates for the next six months. In recent years,
monthly meetings were scheduled one at a time and often only a few weeks in advance.
Chairman Martin’s publication of the circulation list and move towards longer monthly meeting lead times, however, has not
shielded the Commission’s processes from continued scrutiny. On January 8, the House Commerce Committee sent a follow-up
letter to Chairman Martin, informing him that it had opened a formal probe into the agency’s regulatory procedures. The letter
directed Chairman Martin to immediately preserve all electronic records in anticipation of a comprehensive document request,
and to notify Commission employees about their right to communicate with Congress without the fear of retaliation. The letter
was bipartisan in nature – it was signed by House Commerce Committee Chairman John Dingell (D-Michigan), ranking member Rep.
Joe Barton (R-Texas), subcommittee Chairman Bart Stupak (D-Michigan), and panel ranking member Rep. John Shimkus (R-Illinois.)
– which appears to support Rep. Barton’s comments regarding the reasoning behind the probe: “[I]t’s time to take a complete
review of the FCC. Not political, just pure structural reform. We’re in the 21st century now; what we need to do is make it more effective, open, [and] transparent.”
Verizon – FairPoint Merger Slowly Obtaining the Necessary Regulatory Approvals
One year after Verizon announced that it intended to sell its wireline local exchange operations in Maine, New Hampshire,
and Vermont to FairPoint Communications, each state’s regulatory commission continues to review the merger with a critical
eye. The FCC, not waiting for the states to decide, narrowly approved the transfer on December 20 without any conditions.
The states are concerned that FairPoint is not financially qualified to assume operation of the Verizon assets, which are
significantly greater than FairPoint’s current operations. They also want to ensure that the networks are upgraded to expand
the provision of broadband services.
The first state to approve the merger, Maine, did so after an exhaustive review, including a thirteen hour hearing in early
January where the Commissioners grilled representatives of both companies and extracted significant concessions. These concessions
include lowering the purchase price, promising to expand the availability of broadband in the state, and a pledge not to claim
federal preemption in Maine. The Maine Commission attempted to enforce service quality and privacy commitments, agreeing to
reduce basic rates over a five-year period and to freeze DSL rates for two years. In a final effort to gain approval, the
FairPoint CEO, Gene Johnson, promised that the company would take “extraordinary measures” if necessary to reduce its debt
ratio to investment-grade levels if that had not happened by 2011. If, by that date, FairPoint’s leverage ratio is greater
than 3.5, the company will cease dividend payments, issue new stock, or sell assets to generate cash that would be applied
directly to paying off debt.
In December, Vermont refused to approve the merger but indicated that it would reconsider if the companies revised their applications
to address the financial and operational concerns. Soon after the agreement in Maine was reached, Vermont’s Department of
Public Service and FairPoint reached a similar stipulation incorporating key components of the Maine agreement. The stipulation,
which requires approval by the Public Service Board, also requires FairPoint to allow independent third party monitoring of
the conversion of Verizon to FairPoint systems, to adopt a dual pole remediation project, and to increase capital expenditures
in the state. Despite these concessions, members of the Vermont legislature have questioned whether FairPoint will be able
to ensure basic service quality and broadband deployment. A decision is expected on February 11.
The Vermont stipulation, however, caused Maine’s Office of Public Advocate to announce that the Maine Commission may need
to reconsider its approval of the deal, as the new investment commitments in Vermont would violate a key feature of Maine’s
approval barring the companies from accepting any conditions in Vermont or New Hampshire that would have a “material adverse
impact” on Maine’s conditions for approval. The additional spending required by Vermont would make it difficult for FairPoint
to reduce its debt ratio to 3.5 in the time required by the Maine Commission, the Office of Public Advocate said. At this
time, the Maine Commission has not announced plans to reconsider its earlier decision in light of the supplemental commitments
in both Vermont and New Hampshire.
On January 24, FairPoint announced that it had reached a stipulation with staff of the New Hampshire Public Utilities Commission
for approval of the merger. The New Hampshire agreement is consistent with the terms and conditions reached in Vermont and
Maine, according to FairPoint, as well as some additional commitments. Verizon will increase its total capital infusion for
debt reduction to $297 million from the $235 million agreed to in Maine. FairPoint will invest an additional $254 million
in New Hampshire’s infrastructure, with $56 million of that earmarked for broadband investment in order to achieve agreed-upon
availability levels, and it will remove hundreds of abandoned telephone poles around the state. Hearings are scheduled for
February 4 and the PUC expects to issue a decision later in the month.
Despite these agreement and stipulations, the merger remains unpopular with unions in the region. On January 24, the Communications
Workers of America and the International Brotherhood of Electrical Workers announced a media campaign against approval. During
a swing through New Hampshire as part of the early January presidential primary, former candidate Dennis Kucinich urged regulators
to reject the sale. Kucinich criticized FairPoint for only committing to deploy DSL service, rather than fiber. The economic
security of the rural region requires fiber, Kucinich stated, and he questioned whether FairPoint would have the resources
to upgrade to fiber.
In contrast with the exhaustive state review, the FCC’s approval, although a close 3-2 vote, was without conditions. Commissioners
in the majority indicated that the merger could produce benefits, such as the increased availability of broadband services
in the region. The minority criticized the merger, however, saying that they did not believe that FairPoint could deliver
on the promises it has made and will be shackled by the cost of the agreement. If the sale closes, FairPoint will become
a Bell Operating Company as it will be a successor or assignee of a Bell Operating Company, Verizon.
FCC Closes Out 2007 and Starts the New Year with a Flurry of Enforcement Activity
Austin Hughes Solutions, Inc. NAL
On December 3, the FCC released a Notice of Apparent Liability for Forfeiture (“NAL”) against Austin Hughes Solutions, Inc.
(“Austin Hughes”) for repeated violations of the FCC’s radio frequency interference regulations. Austin Hughes is the U.S.
subsidiary of a Hong Kong-based design and manufacturing company offering a broad range of electro-mechanical digital products.
Based on a complaint that Austin Hughes was marketing digital devices in the United States without the proper testing and
documentation to confirm compliance with the interference regulations, the Spectrum Enforcement Division of the FCC’s Enforcement
Bureau (“Bureau”) sent Austin Hughes a letter of inquiry (“LOI”) on June 9, 2006 seeking further information as to its products.
In its response to the LOI, Austin Hughes admitted that it imported nine products manufactured by its Hong Kong parent into
the United States without verifying their compliance with the interference rules. Although Austin Hughes asserted that they
were not tested for compliance because they were “‘[i]mported in limited quantities for demonstration, testing and evaluation
for [technical] compliance . . . or marketing suitability,’” the NAL found that these nine products appeared in Austin Hughes’
2005 catalog and that it sold units of five of the nine products. R
