Communications Law Bulletin -- July/August 2004
The Month in Brief
The summer months saw important developments involving many hot issues in the communications industry. This issue of our bulletin
reports on a wide range of topics, including a long-awaited industry proposal to reform the current intercarrier compensation
regime, the restructuring of the ITFS/MDS 2.5 GHz band, and the Federal Communications Commission's ("FCC" or "Commission")
decision to give Nextel coveted spectrum. This issue also provides continuing coverage of developments regarding indecency
and media ownership, the Triennial Review Order, the regulation of voice-over-Internet-protocol services, and many more topics. As always, a list of deadlines for your calendar
is also included. Please let us know if you have any questions about any of these or related matters.
[Top]
Intercarrier Compensation Forum Unveils Plan to Overhaul Intercarrier Compensation
Referring to the current intercarrier compensation scheme as "broken" and "outmoded," the Intercarrier Compensation Forum
("ICF") recently unveiled a bold plan to reform intercarrier compensation. Intercarrier compensation is a system in which
carriers pay other carriers for originating and/or terminating switched telephone calls. The nine ICF members backing the
plan are AT&T Wireless; General Communications, Inc.; Level 3 Communications, LLC; Iowa Telecom; Global Crossing North America,
Inc.; MCI, Inc.; SBC Communications, Inc.; Sprint Corporation; and Valor Telecommunications, LLC.
The plan consists of three major components. The first component establishes uniform network interconnection rules, which
the ICF plan calls "an essential prerequisite for restructuring rates to unify intercarrier compensation." The plan designates
three categories of carrier networks: hierarchical, non-hierarchical, and rural. Each of these categories has specific interconnection
rules, based on "Edges," which are the points at which the different networks interconnect in order to deliver terminating
traffic. The ICF claims that these rules, which would become effective July 1, 2005, are "explicitly designed to protect universal
service in rural America."
The second component of the ICF plan is rate restructuring, which would begin July 1, 2005, and ultimately establish a uniform
termination rate of $0.000175 per minute for all intercarrier traffic by July 1, 2008. By July 1, 2011, the uniform termination
rate would be zero. However, beginning July 1, 2007, and with no sunset, rural carriers are eligible to receive inbound traffic
transport revenues at approved rates. The plan calls for end-user charges and new federal universal service support to replace
the revenue that the current intercarrier compensation system raises.
The third major component of the ICF plan consists of two new universal service mechanisms. The first new mechanism, Intercarrier
Compensation Recovery Mechanism, would support the Bell operating companies and non-rural incumbent local exchange carriers
("ILECs"). The other new mechanism, Transitional Network Recovery Mechanism, would support rural carriers.
In order to fund the new and existing universal service mechanisms, the ICF plan provides for a universal service contribution
methodology based on "units." This part of the plan assigns one unit to each working telephone number and allows carriers
to add units for additional telephone numbers in a household. ICF claims that this system will facilitate carriers' efforts
to offer "flat-rated, all-distance plans" and that it will also "promote economically rational pricing and efficient competition."
ICF maintains that its plan will advance public policy goals, such as enhancing universal service, promoting carrier efforts
to offer innovative services, minimizing arbitrage opportunities, and decreasing the cost of regulation. Analyst Scott Cleland
referred to the ICF proposal as "a big deal." However, Legg Mason analyst David Kaut predicted that the proposal would generate
"substantial controversy."
Although the ICF has not yet filed a narrative detailing the specifics of its plan with the FCC, it has urged the FCC to seek
comment on the plan once it is filed. FCC sources claim that the agency has drafted a Further Notice of Proposed Rulemaking
("FNPRM") requesting comment on how the FCC can reform the intercarrier compensation system. Medley Global Advisors predicted
that the FCC would not release the FNPRM until after ICF files its plan, which will likely be late September. Industry sources
generally agree that FCC action on the ICF plan is unlikely to occur before the November elections.
Wireless industry reactions to the ICF plan were mixed. A Sprint spokesperson said that the ICF plan offers "considerable
benefits to the wireless industry." One source expressed support for the plan because it addresses the current discrepancy
in which wireless carriers pay access charges on long distance calls between major trading areas to terminate with a local
exchange carrier ("LEC"), but wireless carriers do not receive access charges when those calls terminate on their systems.
A T-Mobile spokesperson indicated that the company had no comment in addition to the letter it filed on May 19 to drop out
of the negotiations. In that letter, T-Mobile concluded that the plan contained many provisions that were "disadvantageous
to wireless carriers and subscribers." Michele Farquhar, outside counsel to Western Wireless, characterized the plan as a
"completely one-sided deal" that favors LECs over their wireless counterparts. Another source claimed that the plan's access
recovery fund proposal for rural ILECs was "especially objectionable" because it does not require a showing of need, does
not sunset, and lacks a cap.
[Top]
New Services Rules for the 2.5 GHz Band
On July 29, 2004, the FCC released the long-awaited Report and Order ("R&O") and Further Notice of Proposed Rulemaking ("FNPRM")
detailing the actions the Commission will take to fundamentally restructure the 2.5 GHz band (the "Band," 2495-2690 MHz),
and posing further questions for industry consideration. The R&O states: "The Commission has sought for several decades to
develop regulatory policies in the 2500-2690 MHz band that would tap this band's great potential to host a variety of services
. . . Our actions today represent a major step toward unleashing the unrealized potential of this spectrum." The anticipated,
predominant future use of the Band will be low-power mobile uses.
Most of the details for the new band plan and the new regulatory scheme for the Broadband Radio Service ("BRS," formerly known
as the Multipoint Distribution Service or "MDS") and the Educational Broadband Service ("EBS," formerly known as the Instructional
Television Fixed Service or "ITFS") track the press release issued in June following the Commission's adoption of the R&O.
At least two aspects of the R&O are controversial and will likely result in the filing of petitions for reconsideration: (1)
the decision to allow sharing of the newly-designated spectrum for BRS Channel 1 (formerly MDS 1), 2496-2502 MHz, with the
Mobile Satellite Service ("MSS") and other services; and (2) the decision to allow low-power unlicensed devices to operate
on 6 channels in the Upper Band Segment ("UBS"), 2655-2690 MHz, which will be used by BRS and EBS.
The Commission decided to retain the EBS eligibility restrictions and to only license EBS to the three categories of "ITFS-eligibles."
The Commission noted that while this decision appears to digress from its policy goal of eliminating eligibility restrictions,
it believes that the public interest warrants this decision because EBS is the only spectrum specifically reserved for educators.
EBS licensees who do not wish to use their facilities can sell their facilities to other educational organizations or non-profit
educational organizations.
As expected, the new band plan deinterleaves and regroups the channels in the Band, separates high power uses from low power
uses, and adopts a three (3) year transition mechanism for migration to the new band plan on a region-by-region basis. The
spectrum will be transitioned on the basis of 52 regional Major Economic Areas ("MEAs"). Incumbent operators may request a
Commission waiver to continue high power operations. Although the Commission has allocated the Band for both fixed and mobile
services, it previously required BRS and EBS licensees to obtain separate authorizations before commencing mobile service.
In the R&O, the Commission adopts its proposal to authorize licensees to engage in mobile operation by blanket licensing of
such operations under the licensee's geographical service area authorization.
After the spectrum in a market is transitioned, high power uses will be allowed in the Middle Band Segment ("MBS"), which
includes seven 6 MHz wide channels. Low power operations will be allowed in the UBS and in the Lower Band Segment ("LBS"),
each of which includes twelve 5.5 MHz wide channels, a 4 MHz guard band and either BRS 1 or BRS 2 (6 MHz each). The new regulatory
scheme will be technologically neutral and will allow licensees the flexibility to use either Frequency Division Duplexing
("FDD") or Time Division Duplexing ("TDD") anywhere in the Band. The new rules eliminate site-specific licensing and allow
geographic area licensing for all BRS and EBS licensees. License holders can place transmitters anywhere in their defined service area, whether it is a Basic Trading
Area ("BTA") or a Protected Service Area ("PSA"), without prior authorization from the Commission so long as the operations
comply with the service rules. Based upon its geographic area licensing decision, pursuant to which site-specific applications
will no longer be required, the Commission directed the Wireless Telecommunications Bureau to dismiss all pending applications
to modify MDS or ITFS stations with certain exceptions. Applications for Special Temporary Authority must be filed for any
facility licenses that are needed for operations in advance of the effective date of the new rules.
Given the evolving nature of how the spectrum in this Band is used, and especially given that much of the spectrum is no longer
used for video purposes, the Commission will allow cable and digital subscriber line ("DSL") interests to acquire and use
BRS spectrum and lease EBS spectrum in order to provide non-video services like broadband internet access. However, cable
operators are prohibited from acquiring or leasing BRS/EBS licenses for the purpose of providing multichannel video programming
distribution ("MVPD") service.
The Commission decided to extend the rules and policies adopted in the Secondary Markets Report and Order to the lease of BRS/EBS spectrum. Most critically, such policies restrict leases to the license term. The Commission will
allow grandfathering of longer ITFS lease terms (i.e., 15 years) for existing leases so long as the leases remain in effect and are not materially changed.
The Commission will consolidate all BRS and EBS procedural rules into Subpart F of Part 1 of the Commission's Rules. The service
specific rules for BRS and EBS will be consolidated, harmonized, and incorporated into Part 27 of the Commission's Rules,
which governs the Wireless Communications Service today.
In the FNPRM, the FCC seeks comment on a number of issues, including alternative methods for licensing unassigned spectrum
and transitioning to the new band plan to the extent that licensee-negotiated transitions do not occur within the three-year
transition period. Specifically, the FCC proposes to auction unassigned spectrum to all bidders, both incumbents and new entrants,
that are potentially eligible to hold the licenses offered. For areas where an initiation plan is not timely filed within
the three-year transition period, the FCC proposes: (1) to allow incumbents to continue their operations until new licensees
give notice of intent to offer incompatible new services; and (2) to issue transferable bidding offset credits to enable incumbents
to obtain spectrum of comparable value.
[Top]
FCC Unanimously Agrees to Give Nextel Spectrum in the 1.9 GHz Band
On July 8th, the FCC unanimously voted to give Nextel 10 MHz of spectrum in the 1.9 GHz band which the FCC values at $4.8
billion. The plan calls for Nextel to exchange the portions of the 800 MHz band it currently occupies, estimated to be worth
$1.6 billion, and to provide a $2.5 billion letter of credit to serve as the funding source to reconfigure the 800 MHz spectrum.
Nextel is also obligated to cover any additional reorganization costs above the $2.5 billion. If the reorganization costs
and the value of the 800 MHz spectrum do not add up to $4.8 billion, the FCC order calls for Nextel to make an anti-windfall
payment to the U.S. Treasury to cover the remaining costs of the 1.9 GHz spectrum. The plan is an attempt to move Nextel out
of the 800 MHz band and reduce interference with the public safety groups that occupy the band.
Nextel originally offered to turn over the spectrum it occupied in the 800 MHz band and pay $850 million to relocate the companies
and public safety groups that occupy the band. Under the new plan, by requiring Nextel to pay the full FCC estimated value
of the spectrum in relocation costs and a return of the airwaves in the 800 MHz band, the FCC hopes to prevent the decision
from being invalidated for illegally selling-off spectrum. Even with the new plan the FCC still faces opposition from Nextel
opponents, and members of Congress.
FCC Chairman Michael Powell noted that the decision is one of the hardest he has struggled with in his time with the Commission.
When Powell first announced that he would support the plan to give Nextel the spectrum in the 1.9 GHz band in late July, Cellular
Telecommunications & Internet Association ("CTIA") claimed that the plan would essentially give away the spectrum which it
estimated to be worth at least $10.7 billion based on high reserve prices from a NextWave auction of adjoining spectrum in
the 1.9 GHz band. Verizon General Counsel William Barr wrote a letter to the FCC warning the Commission that by supporting
Nextel the Commission would open itself up to criminal prosecution by using "federal funds to support the relocation costs
of public safety agencies or companies like Nextel." Verizon pushed for an auction of the spectrum and offered to pay $5 billion
for the airwaves. Verizon is currently seeking congressional action to overturn the FCC order.
In addition to opposition from wireless competitors, the Nextel plan faces potential resistance from state representatives
and government agencies. House Budget Committee Chairman Nussle (R-IA) introduced legislation that would require the FCC to
auction spectrum allocations. Nussle stated that the legislation was not introduced out of concern for the Nextel agreement.
Following concerns from Senator Lautenberg (D-NJ) regarding the legality of the Nextel deal, the GAO agreed to investigate
the proposal to see if "it violated the Anti-Deficiency Act and the Miscellaneous Receipts Act by illegally selling off spectrum."
With all of the opposition it is not clear what the outcome will be. Currently Nextel is reviewing the terms of the FCC order
and will decide whether or not to go forward with the plan.
[Top]
Indecency Update
A petition that would fine CBS's 20 owned stations for airing Janet Jackson's breast exposure during the Super Bowl half-time
show began circulating through the FCC Commissioners' offices in June. The fine could be the largest ever imposed by the Commission.
Each station could face a $27,500 fine.
In early July, shock jock Howard Stern's company, One Twelve, and Infinity Broadcasting sued Clear Channel in U.S. District
Court in New York for $10 million, claiming that Clear Channel had no right to retire Stern's show from 6 markets earlier
this year. Two weeks later, Clear Channel filed a countersuit, claiming that Stern and Infinity failed to ensure that programming
complied with FCC decency laws, as provided in their agreement. The countersuit seeks $3 million in damages, including the
$495,000 fine Clear Channel paid as part of its $1.75 million settlement with the FCC in June.
On August 9, 2004, the full Commission rejected complaints by the Parents TV Council, Americans for Decency and others by
ruling that episodes of "Will & Grace" and "Buffy the Vampire Slayer" that contained sexual material did not violate the FCC's
decency rules. In the past, the Enforcement Bureau would have issued the order, but the Commissioners have said that they
want to be more involved in dealing with indecency complaints. In regard to both the "Will & Grace" scene in which a woman
photographer kisses a woman author and then performs what she calls a "dry hump" and the "Buffy the Vampire Slayer" scene
in which Buffy kisses and straddles Spike shortly after fighting with him, the Commission found that they were "not sufficiently
explicit or graphic" to be deemed indecent.
On August 12, 2004, the FCC entered into a $300,000 consent decree with Emmis Communications Corporation to resolve investigations
into whether Emmis stations had violated the prohibition against broadcasting obscene, indecent or profane material. Emmis
also committed to implementing a company-wide compliance plan to prevent future violations.
Retention of Recordings NPRM Released. In a notice of proposed rulemaking ("NPRM") released July 10, 2004, the FCC proposed a requirement that TV and radio stations
retain program recordings for 60 or 90 days to improve the Commission's process for reviewing complaints and enforcing its
rules regarding the prohibition against obscene, indecent or profane broadcasts. Under this proposal, stations would be required
to retain recordings of all material they air during the hours of 6 a.m. and 10 p.m., when children are likely to be in the
audience. The goal is to establish a retention period that is long enough to ensure that the recording will be available in
response to a letter of inquiry from the FCC staff, but not so long that it imposes unreasonable burdens. The Commission seeks
comment on the retention period and on whether the requirements should be crafted to be useful in the enforcement of other
types of complaints based on program content (such as children's television commercial limits and sponsorship identification).
Comments and reply comments are due on August 27, 2004 and September 27, 2004, respectively. Response to the NPRM has been
mixed, although the majority oppose the proposal. The Association of Public TV Stations, representing more than 350 stations,
said it would oppose the proposal because retaining recordings would be terribly expensive. WGNS (AM), Murfreesboro, TN and
WVJW (FM), Benwood, WV filed separate ex parte petitions, stating that the requirement would bring tremendous hardship on
small broadcasters that could drive them off the air. A coalition comprised of The Alliance for Better Campaigns, Benton Foundation,
Campaign Legal Center and Norman Lear Center supports the proposal, saying that it would help determine whether stations were
living up to their public interest obligations.
Violent TV Programming NOI Released. Whether the FCC's definition of indecency should include violent programming is one of the many issues raised in the Commission's
July 28 notice of inquiry ("NOI") on the presentation of violent programming on television and its impact on children. The
NOI was issued in response to a March 5 letter signed by 39 members of House Commerce Committee, including Chairman Joe Barton
(R-TX). Through the NOI, the Commission seeks to explore the following issues: the amount of violent programming on television;
the trends in that area; the effects of viewing violent programming on children and other segments of the population; the
kinds of programming that should be the focus of further public policymaking; the definition of violence and excessive or
gratuitous violence; any mechanisms in addition to the ratings system and the V-chip, if needed, to control exposure to media
violence; and the legal constraints on either Congress or the Commission to regulate violent programming. Comments are due
on September 15, 2004 and reply comments are due on October 15, 2004.
[Top]
Media Ownership Developments
FCC Asks Court to Lift Stay on Radio Ownership Rule. On August 6, 2004, the FCC asked a federal appeals court to reconsider its decision to stay the FCC's new radio ownership
limits. The FCC's June 2003 media ownership decision changed the methodology for defining a radio market (by replacing the
signal contour method with geographic markets defined by Arbitron and counting both commercial and noncommercial stations
in determining the number of stations in a market) but retained the numerical limits on common ownership of stations in the
same market. The U.S. Court of Appeals for the Third Circuit upheld the new definition of local markets but rejected the decision
to retain the numerical limits as arbitrary and capricious and remanded the numerical limits for further justification. The
Court continued to stay the effectiveness of the rule pending its review of the Commission's actions on remand. The FCC's
petition asks the Court to lift the stay with respect to the radio rule because it prevents the Commission from implementing
regulatory changes that the court has upheld. Specifically, the stay forces the FCC to define all radio markets using the
flawed contour-overlap methodology, which the Court already agreed that the Commission should replace.
FCC Issues Broadcast Localism NOI. On July 1, 2004, the FCC released a notice of inquiry ("NOI"), seeking comment on "how broadcasters are serving the interests
and needs of their communities; whether [the FCC needs] to adopt new policies, practices or rules designed directly to promote
localism in broadcast television and radio; and what those policies, practices or rules should be." The FCC already has established
a Localism Task Force to conduct field hearings around the country and gather empirical data on broadcast localism. The NOI
seeks direct input from the public on these issues. Specifically, the NOI asks for comments on the following issues and policies:
broadcaster communication with communities, political programming, underserved audiences, disaster warnings, network-affiliation
rules, unreported payments for airplay ("payola"), sponsorship identification, national playlists, voice-tracking, license
renewals and spectrum allocation. After granting requests for extensions by the National Association of Broadcasters and others,
the Commission issued deadlines for comments and reply comments of November 1, 2004 and December 1, 2004, respectively.
July 23 FCC Localism Task Force Hearing. Before a sympathetic crowd of nearly 800 attendees at the FCC's broadcast localism hearing in Monterey, California, Commissioners
Adelstein and Copps praised the rejection of the media ownership rules by the U.S. Court of Appeals for the Third Circuit
and called for a renewed effort to battle media concentration. The hearing was chaired by Commissioner Abernathy and featured
a 13-member panel, including representatives from Telemundo, Bonneville International, Hearst-Argyle Television, American
Federation of Television and Radio Artists, the United Way, National Center for Missing & Exploited Children, Maui Community
Television, and San Francisco Community Television. The broadcasters on the panel argued that affiliation with large companies
strengthens localism by providing greater resources for local coverage and that good business practice spurs commitment to
the community. The 5 ½ hour hearing, however, was a lopsided one, with the audience responding enthusiastically to critiques
of the Commission and commercial broadcasters. Several panelists and most of the audience speakers denounced local broadcasters
for ignoring local politics, minority groups, and local artists, and called for policies that would impose requirements for
more local coverage.
Attribution of JSAs. The FCC is considering whether to count joint sale agreements ("JSAs") in local television markets as attributable interests
for media ownership purposes. The Commission's attribution rules define what interests are counted for purposes of applying
the broadcast ownership rules. Under the current rules, a party with a cognizable interest in a radio station that brokers
more than 15 percent of the weekly advertising time of another radio station in the same local market is considered to have
an attributable interest in the brokered station. On August 2, 2004, the FCC released a notice of proposed rulemaking ("NPRM")
seeking comment on whether JSAs for television are similar enough to JSAs for radio such that same-market TV JSAs should be
attributable and tentatively concluded that they should be. In general, the attribution rules seek to identify those interests
in licensees that confer on their holders a degree of "influence or control such that the holders have a realistic potential
to affect the programming decisions of licensees or other core operating functions." In 2003, the FCC decided to attribute
radio JSAs because it found that the structure of the arrangements may undermine broadcast competition sufficiently to warrant
limitation under the multiple ownership rules. The NPRM seeks concrete information about JSAs, such as the fee structure,
terms, benefits, efficiencies and impact on competition of such arrangements to determine whether they should be treated in
the same manner as radio JSAs for purposes of attribution. Comments and reply comments are due 30 days and 45 days, respectively,
after publication of the NPRM in the Federal Register.
[Top]
FCC Release of Interim Network Access Rules Provokes More Controversy, Including a Mandamus Petition to the D.C. Circuit,
as AT&T Withdraws From the Residential Service Market and FCC Ponders Possible Reconsideration of the Interim Rules on its
Own Motion
Following the government's decision in June not to appeal the D.C. Circuit decision overturning much of the FCC's Triennial Review Order ("TRO"), the telecommunications industry began lobbying the FCC to shape its interim network access rules to replace the
rules struck down by the D.C. Circuit. Meanwhile, the competitive side of the industry and state regulators continued to press
their litigation positions. On June 30, AT&T, more than 20 other competitive local exchange carriers ("CLECs"), the National
Association of Regulatory Utility Commissioners ("NARUC"), and other parties filed petitions requesting the Supreme Court
to review the D.C. Circuit decision, arguing that it jeopardizes local service competition. NARUC stated that the Supreme
Court should reverse the lower court's decision to vacate the TRO's unbundling of switching and transport as well as its decision
to uphold the TRO's phase-out of "line sharing" - the previous requirement that ILECs lease the high frequency portion of
their customers' subscriber lines, or "loops," to CLECs.
Interim Rules
Following weeks of intensive lobbying, the FCC, by a 3-2 vote along party lines on July 21, adopted interim unbundled network
element ("UNE") rules pending the results of an expedited rulemaking to establish permanent rules. Although the full text
was not released at that time (see below), it was reported that the interim rules would impose a six-month freeze on rates
contained in current interconnection agreements. After six months, it was reported, if new permanent rules have not been issued,
the FCC would allow ILECs to increase UNE rates to existing customers by 15 percent. CLECs would have to negotiate rates to
sign up any new customers after the initial six months. Commissioners Copps and Adelstein dissented. The FCC also voted to
adopt a notice of proposed rulemaking with the interim rules seeking comment on permanent rules. In response to the interim
rules, AT&T announced on July 22 that it would no longer market its services to any residential customers, although it would
continue to serve existing customers and would serve people requesting service.
The split within the FCC over the adoption of interim rules led to further internal discussions prior to the release of the
text of the rules, as well as continued industry lobbying, over unresolved issues. In an August 2 letter to the two dissenting
commissioners, Chairman Powell asked whether there are any provisions that could be added that would gain their support. He
proposed line sharing as an area of agreement and asked them to reconsider their TRO votes to eliminate line sharing, which
they reportedly cast against their actual preferences as part of an overall compromise. Sources indicated that Chairman Powell
would have preferred to release the text of the interim rules with a separate "sua sponte" (i.e., FCC-initiated) order on reconsideration of the interim rules addressing line sharing and access to high-capacity loops
and transport. Powell reportedly proposed to the other commissioners that the line sharing transition not be phased out until
the end of the six-month freeze and that the FCC agree on a tentative conclusion that CLECs are impaired without access to
high-capacity loops and transport. The dissenting commissioners reportedly were happy to reconsider line sharing but could
not agree to the high-capacity loop and transport terms that Powell proposed. When it became evident that agreement could
not be secured on a reconsideration order without a prolonged delay, the FCC released an order setting forth the text of the
interim rules on August 20. The FCC has until September 20 to release a sua sponte reconsideration order modifying the interim
rules.
The August 20 order states that interim rules are necessary in order to prevent unnecessary disruption to the telecommunications
industry and to the millions of consumers depending on CLEC services and that the Regional Bell Operating Company ("RBOC")
commitments to maintain stable UNE rates are too inconsistent and vague to offer the requisite stability. The order emphasizes
the FCC's legal authority to establish interim rules to provide reasonable transitions. It sets forth a two-phase, one year
plan. Under the first, or interim, phase, ILECs are required, for six months, unless final rules become effective sooner,
to continue providing both existing and new customers unbundled access to "mass market" (i.e., residential and small business customer) switching, "enterprise market" (i.e., large business customer) loops, and dedicated transport under the same rates, terms, and conditions that applied under
effective interconnection agreements as of June 15, 2004. The interim requirements will remain in place unless they are superseded
by voluntarily negotiated agreements, an intervening FCC order affecting specific unbundling obligations, or a state commission
order raising UNE rates. ILECs are not precluded from initiating change of law proceedings under their interconnection agreements,
and modifications approved by state commissions pursuant to such proceedings may take effect if the FCC's final UNE rules
do not require unbundling of the elements at issue or if new rules are not in place by the end of the interim phase. Other
CLECs may not opt into interconnection agreements during the interim phase. The FCC rejected a "true-up" provision, under
which CLECs would have had to pay the difference between interim UNE rates and market-based rates for UNEs ultimately not
required to be made available.
The second six-month phase, the transition phase, would become effective if the FCC still has not promulgated final rules
or has promulgated rules that do not require the unbundling of mass market switching, enterprise loops, or dedicated transport.
The transition rules require ILECs to continue providing the same UNEs to existing customers at "moderately higher" rates
under certain conditions. Specifically, in the absence of a final rule that mass market switching is required to be unbundled,
ILECs will only be required to make that element available in a UNE-P package (i.e., combinations of the local loop, local switching, and shared transport UNEs) at the higher of the June 15, 2004 UNE-P rate
plus one dollar or the UNE-P rate established after June 15 by the relevant state commission plus one dollar. In the absence
of a final rule that enterprise market loops and/or dedicated transport are required to be unbundled in a particular case,
ILECs will only be required to offer those elements to requesting carriers at the higher of 115 percent of the June 15 rate
or 115 percent of the relevant state commission-established rate. The transition requirements will apply only to existing
customers; for new customers, the rates for these elements can rise above these caps (and presumably would rise to the level
of special access rates).
In his dissent, Commissioner Copps blasted the August 20 rules as placing the FCC "on track to butcher the pro-competitive
vision of the 1996 Act." He charged that after the interim phase, "existing enterprise market loop and dedicated transport
customers can expect rate increases of 15 percent," and that for new customers, enterprise loop and transport rates could
increase "more than 300 percent — a potentially lethal blow to any carrier that built its business plan on the core tenets
of the 1996 Act." Commissioner Adelstein characterized the interim rules as "an ambiguous approach that … grants stability
to none."
Chairman Powell vehemently defended the approach taken in the order against what he characterized as "the melodrama of my
dissenting colleagues" and their "inaccurate and revisionist statements," pointing out that "[t]he unbundling rules have been
tossed out because of [the dissenters'] ill-considered UNE-P decision. … We are not free to simply plop the rules back into
place as they seem to think." He denied that the transition phase imposes automatic price increases. Rather, the transition
"will only take effect if the Commission does not act on final rules, or fails to justify an unbundled element. … In other
words, no price increases if we get the job done." He expressed confidence that the final rules would keep high-capacity loops
and transport as UNEs. He also criticized the dissenters for "refusing overtures by us to modify today's decision to provide
greater confidence to [facilities competitors] going forward."
Copps responded to Powell's point that the transitional rate increases should motivate the Commission to act promptly on final
rules by characterizing it as "point[ing] a loaded gun at industry's head." He responded to Powell's comment about overtures
to the dissenters by agreeing that the future of line sharing must be addressed and that reconsideration "is a good idea,"
but not at the expense of "competition-killing price increases" in the interim, which he characterized as "the Commission's
version of Survivor." Commissioner Adelstein also stated that he "remain[s] open to reconsideration of [unresolved] issues." Qwest, Verizon,
and the U.S. Telecom Association ("USTA") immediately filed a petition seeking mandamus relief from the interim UNE rate freeze
at the D.C. Circuit, arguing that, in approving the interim rules, the FCC granted itself the stay of the D.C. Circuit mandate
that the court had denied in June.
The FCC also released a cursory notice of proposed rulemaking ("NPRM") in the August 20 order requesting comment on how to
respond to the D.C. Circuit's decision in establishing sustainable new unbundling rules. The FCC requests comment on the appropriate
product and geographic market definitions to use in its unbundling analysis and on the method of making sufficiently granular
determinations as to which network elements should be unbundled and in which markets. The NPRM incorporates the NPRM that
led to the TRO, the petitions for reconsideration of the TRO and other relevant filings, including the RBOC petitions regarding
obligations to file interconnection agreements. The NPRM also requests comment as to any transition mechanisms that might
be required in addition to the second phase of the interim rules. The pleading cycle is extremely short, reflecting the Chairman's
stated intent to vote on the permanent rules at the FCC's December open meeting.
Related Developments
In an earlier related development, the FCC resolved an issue that had been raised in a further NPRM released with the TRO
involving the interpretation of Section 252(i) of the Communications Act ("the Act"). That provision requires a LEC to make
available to any other carrier any interconnection or UNE it provides under an interconnection agreement on the same terms
and conditions. The FCC initially interpreted that provision to permit CLECs to opt into selected provisions from an existing
interconnection agreement. Although that "pick-and-choose" interpretation was upheld as reasonable by the Supreme Court, the
FCC found, in an order adopted on July 8 and released on July 13, that it was a disincentive to the give-and-take of commercial
negotiations because it made ILECs reluctant to offer favorable terms to one CLEC that might be demanded by other CLECs. Finding
that the pick-and-choose rule is not compelled by the statutory language, the FCC, also by a 3-2 vote along party lines, revised
its interpretation to require that a CLEC opt into an existing interconnection agreement in its entirety, so that, in the
words of Commissioner Abernathy, "we ensure that third parties take the bitter with the sweet." The FCC found that this "all-or-nothing"
rule, which applies to all approved interconnection agreements, whether negotiated or arbitrated, will promote more give and
take in negotiations, resulting in individually tailored agreements reflecting the typical trade-offs of commercial negotiations.
Commissioner Copps dissented, stating that where the only wholesaler is also the dominant retailer in a market, it is not
clear that "[t]ake-it-or-leave-it bargaining" will result in more negotiated agreements.
CompTel/ASCENT and four CLECs, in an emergency petition filed on August 3, asked the FCC to stay the all-or-nothing order
pending judicial review. USTA and the RBOCs opposed the emergency stay petition, arguing that a stay would harm the public
because the pick-and-choose rule has become a barrier to meaningful negotiations. On August 19, the FCC not having acted on
their emergency stay motion, CompTel/ASCENT and the four CLECs filed an emergency motion for stay pending appeal with the
9th Circuit, which denied the motion the following week. At the FCC, at least one party also has filed a petition for reconsideration
and/or clarification of the all-or-nothing order, seeking a ruling that CLECs may still opt into regional agreements on a
per state basis — i.e., that a CLEC operating only in one state may opt into an agreement used by others in that state, even if that agreement
also covers other states in a particular RBOC region.
On July 16, the D.C. Circuit remanded a related FCC decision rejecting a Verizon petition. Verizon had requested the FCC forbear
from enforcing unbundling requirements under Section 271 of the Act when they have been lifted under Section 251 of the Act.
Section 271(c)(2)(B) of the Act requires an RBOC to meet a competitive checklist, including compliance with the unbundling
requirements of Sections 251 and 252 of the Act, as a condition for grant of authority to provide long distance service. The
FCC had denied Verizon's request to forbear, in reviewing RBOC Section 271 applications for long distance service authority,
from enforcing those unbundling requirements that the FCC had eliminated under Sections 251 and 252. The D.C. Circuit ordered
the FCC to reconsider Verizon's petition and, in the event that the petition is denied again, to provide a reasoned explanation.
In another related development, the FCC, on August 9, granted a petition for partial reconsideration of the TRO filed by BellSouth
and SureWest, holding that the fiber-to-the-home ("FTTH") rules relieving the ILECs from unbundling obligations for broadband
services will be extended to apply to multiple dwelling units ("MDUs") that are "predominantly residential," such as multistory
apartment buildings with retail stores on the ground floor. Commissioner Copps dissented, and Commissioner Adelstein concurred
in part and dissented in part. Copps strongly criticized the decision, saying that it "is ... an overbroad and ill-conceived
expansion of the Commission's exemption for fiber facility unbundling in the [TRO]" and "saddles every state commission in
this country with the task of determining just what buildings in their state fit the blurry parameters of ‘primarily residential.'"
The RBOCs, USTA, and National Telecommunications and Information Administration Director Michael Gallagher applauded the decision
as pro-competitive, stating that it removed disincentives to broadband investment. CLECs criticized the decision as overbroad
deregulation.
State Commission Proceedings
Because of the continued role of private negotiations and state commission actions under the FCC's interim rules, the ongoing
skirmishes in the state commissions are likely to persist. Furthermore, the interim rules encourage ILECs to initiate change-of-law
proceedings in advance of the release of permanent rules, and the states now must scramble to file the information that they
have compiled in their TRO-related proceedings in response to the FCC's request to the states and other parties in the NPRM
to prepare and file "summaries" of the state proceedings.
Commissions in a number of states, including Texas, Arkansas, Kansas, and Michigan, have addressed or are considering whether
to terminate their TRO-related proceedings in light of the D.C. Circuit decision. For example, it was reported on July 1 that
the Michigan Public Service Commission ("PSC") denied an SBC motion to terminate its proceeding concerning batch "hot cuts"
— the process by which multiple loops are transferred from one LEC to another — because the D.C. Circuit decision did not
affect the states' authority to review hot cut processes. Instead, the Michigan PSC adopted interim rules for making mass
hot cuts under current hot cut rates. SBC has challenged the Michigan PSC decision in federal district court.
Prior to the FCC's release of the interim rules, state commissions were also considering whether to issue standstill orders
requiring continued provision of UNEs pending further action by the FCC. The Connecticut, Texas, Pennsylvania, Tennessee,
Washington, and Maryland commissions are considering or have imposed such requirements under their authority pursuant to state
and federal law to review unbundling and the terms of interconnection agreements. The issue of whether interconnection agreements
negotiated after the D.C. Circuit decision must be filed with state commissions under Sections 251 and 252 of the Act also
remains unsettled, although the FCC has requested comment on that issue in its August 20 NPRM. The Wisconsin and Michigan
PSCs ordered SBC and Sage Telecom to file their April interconnection agreement, while the North Carolina commission said
it would not rule on whether BellSouth must file commercially negotiated interconnection agreements until the FCC or the courts
have ruled on whether such pacts are subject to Sections 251 and 252. It was reported on July 8 that an Illinois Commerce
Commission administrative law judge held that the amendments proposed by SBC and Sage Telecom, which include a requirement
that Sage use SBC facilities to serve at least 95 percent of its customers, should be rejected because they discriminate against
other facilities-based CLECs.
Industry Negotiations
In early July, AT&T and McLeodUSA, a CLEC, announced a long-term agreement that would allow AT&T to begin a transition from
the RBOCs' UNE-P platform to McLeod's loop facilities. Because finalization of the agreement would depend on the UNE rules
supporting facilities-based competition, it is not clear what the current status of the AT&T/McLeod agreement is, given AT&T's
withdrawal from the residential market in response to the FCC's adoption of the interim rules. Just prior to the FCC's adoption
of the interim rules, Qwest and MCI announced that they had finalized a four-year agreement giving MCI continued wholesale
access to Qwest's local network at UNE-P rates rising $4-5 in the next three years. In the week following release of the interim
rules, Verizon and Granite Telecommunications, a CLEC, announced an agreement under Verizon's Wholesale Advantage program
replacing their current UNE-P arrangement.
[Top]
VOIP Issues Continue to be Debated on the Federal, State, and International Levels
As we have reported in prior editions, the FCC has initiated a comprehensive investigation into the appropriate regulatory
framework for so-called Internet Protocol-enabled services, including Voice-over-Internet-Protocol ("VOIP") services that
offer an alternative to the traditional voice telephone call. Although the FCC's rulemaking remains pending, additional VOIP
issues continue to develop on the domestic and international levels. In addition, various VOIP providers recently formed an
alliance in an effort to increase self-governance within the industry.
Federal Legislative Developments
In a Q&A session at an industry conference, Chairman Powell noted that Congress was considering multiple bills that may address
sensitive issues, including the application of the Communications Assistance for Law Enforcement Act ("CALEA") and E911 requirements
to VOIP services. Without expressing support for any particular legislation, Powell stated "maybe if we're really lucky it
will get done this year." These hopes, however, may be unrealistic as the end of the fall session draws near. Congress will
be adjourning early this fall due to the national election, and both the Senate and U.S. House of Representatives currently
are considering different pieces of legislation.
The U.S. Senate Commerce Committee has approved legislation that would generally give the FCC exclusive authority over VOIP
services for three years. The VOIP Regulatory Freedom Act of 2004 (S.2281) also would prohibit the FCC from delegating that
authority to the states, although states would continue to have authority to enforce criminal and consumer protection laws.
A controversial last-minute amendment to the bill introduced by Senator Wyden (D-OR), however, would also allow states to
apply state universal service and intrastate intercarrier compensation requirements to VOIP providers.
The Senate bill exempts VOIP services from the FCC's access-charge regime, but allows the FCC to establish some form of federal
intercarrier compensation regime to recover costs. Under the bill, VOIP providers would contribute to the federal universal
service fund, provide law enforcement agencies access to certain information, and comply with certain 911 requirements.
The House Judiciary Commercial & Administrative Law Subcommittee held a hearing on VOIP on July 23. During the hearing, Subcommittee
Chairman Cannon (R-UT) suggested that the growth of VOIP services would likely reduce state funding that is currently collected
based upon telecommunications revenue. He suggested that states may need to consider replacing the revenue from telecommunication
services with another revenue stream, such as a streamlined sales tax that would apply to goods purchased over the Internet,
including VOIP services. Issues concerning VOIP's impact on the universal service fund and ensuring competitive entry into
the telecommunications market also were addressed by the witnesses at the hearing.
Federal Regulatory Developments
One of the regulatory issues facing many VOIP providers is their inability to obtain telephone numbers directly from the North
American Numbering Plan Administrator ("NANPA"). Telecommunications carriers must have a state operating certificate in order
to obtain numbering resources directly from the Pooling Administrator ("PA") or the NANPA. Because VOIP providers typically
are not state-certified, they have to acquire telephone numbers from local exchange carriers.
As reported in the June edition, the FCC permitted SBC IP, a subsidiary of SBC Communications, on a trial basis to obtain
numbering resources directly from the PA for a non-commercial trial of VOIP services. Shortly thereafter, SBC IP filed a waiver
request with the FCC, this time seeking approval to acquire numbers directly from the NANPA or the PA in order to deploy VOIP
services on a commercial basis to business and residential customers. Comments on SBC IP's waiver request were due August
16, 2004. Replies were due August 31.
The FCC also adopted a Notice of Proposed Rulemaking generally investigating the regulatory framework for implementing CALEA,
and specifically addressing the treatment of VOIP services. The rulemaking tentatively concluded that CALEA should apply to
facilities-based providers of "any type of broadband Internet access service — including wireline, cable modem, wireless and
power line — and to managed or mediated [VOIP] services." Inclusion of VOIP in the CALEA rulemaking was prompted in large
part by a joint petition filed by various federal enforcement agencies who expressed concern that their investigative efforts
would be significantly hampered if they were unable to obtain information from the rapidly increasing number of VOIP providers
under the FCC's CALEA requirements.
Specifically, the FCC asked in its CALEA rulemaking about: (1) "the feasibility of carriers relying on trusted third parties
to manage their CALEA obligations," (2) "whether standards for packet-mode technologies are deficient and thus preclude carriers
from relying on them as safe harbors for complying with CALEA," and (3) the period of time in which entities previously not
subject to CALEA must come into compliance with any final rules adopted in the proceeding. The FCC proposed fairly short deadlines
for such compliance. The technological differences between a VOIP network and a traditional switched telephone network may
make it more difficult for VOIP providers to tap calls without significant expenditures for new software and network modifications.
Sharp lines regarding this issue have already been drawn, with law enforcement agencies claiming VOIP and other broadband
providers must be subject to CALEA and public interest groups arguing that CALEA will make VOIP providers "spies" for the
government.
The FCC's Internet Policy Working Group and International Bureau held a roundtable discussion in July, which showed that many
international regulators question whether IP-based services and technologies should be regulated and suggest different regulatory
schemes. The roundtable demonstrated that industry members and international regulators significantly differ about the proper
approach to regulation of IP-based services and technologies. At the conclusion of the roundtable discussion, FCC officials
stated that global coordination regarding VOIP issues is needed, but that the FCC did not necessarily support a single, global
regulatory regime.
Industry representatives generally stressed that regulatory certainty would allow vendors and service providers to solidify
business plans and further invest in IP services and technologies. They overwhelmingly advocated the need for consistent treatment
by regulators, but argued that regulation should not unduly stifle the development of IP-based technologies and services.
The industry panelists also acknowledged regulators' concerns regarding certain "social responsibilities," such as E911, quality
of service, universal service, and network security, but argued that the industry already is working to establish standards
and guidelines for these issues. The panelists also noted that the use of numbering resources by VOIP providers is becoming
an issue of serious concern in some countries, and that some countries have proposed the use of separate country codes or
numbers for IP-based services. The panelists emphasized that whether VOIP and other IP-based services continue to develop
will depend upon whether and how countries regulate such services, and noted that many countries look to the United States
for direction.
State Developments
As we also mentioned in the June edition, the New York PSC determined that VOIP provider Vonage Holding Corporation is a "telephone
corporation" under New York state law. According to the New York PSC, Vonage is subject to New York's basic telecommunications
statutory requirements and such state regulation is not preempted by federal law. Vonage sought from a New York federal district
court, and was recently granted, a preliminary injunction against the New York PSC from imposing any state regulations on
Vonage until the FCC addresses whether VOIP providers are subject to state jurisdiction. The court indicated, however, that
it may entertain motions to review the injunction if the FCC does not issue a decision by January 2005.
The California Public Utilities Commission ("CA PUC") expressed concern that the state universal service fund, which subsidizes
the provision of telephone services to high-cost areas and low-income end-users, could become significantly harmed by the
expansion of VOIP services. The CA PUC estimates that VOIP will usurp more than 40 percent of the voice traffic in California
by 2008. If VOIP services are not subject to the state universal service requirements, the state fund could be depleted by
$400 million by 2008. The CA PUC also noted that it could issue a decision regarding the appropriate regulatory framework
for VOIP services by the spring of 2005.
International Developments
The German Regulator, RegTP, recently concluded that VOIP providers cannot assign geographic-based telephone numbers to a
customer outside that customer's local calling area. As in the U.S., certain VOIP providers operating in Germany had been
offering customers their choice of area codes, regardless of where those customers were located in Germany. RegTP curbed this
practice, however, stating that it "would have a serious impact on the entire national numbering plan and cause disadvantages
for those providers who assign local numbers only to customers within a local network." RegTP is still considering whether
non-geographic number blocks should be assigned for national VOIP services.
Global IP Alliance
Led by Jeff Pulver of Pulver.com, an international consortium of IP-based communications providers is banding together in
an effort to address regulatory concerns that have been raised by state, national, and international regulators. According
to Pulver, the Global IP Alliance "is committed to establishing industry-based solutions to the operational hurdles and social
issues confronting the emerging IP communications industry. It is my hope that regulators around the world will look to the
Global IP Alliance and recognize that the IP industry is capable of self-governance and will not feel compelled to intercede
before a clear demonstration of a problem that cannot be fixed by industry and competitive market forces."
Chairman Powell and the FCC's International Bureau have expressed support for the alliance, noting that the FCC supports companies
developing voluntary solutions for many of the key regulatory issues the FCC is currently investigating, such as E911. Given
that regulators are each working on different types of solutions for public policy issues such as E911, universal service,
and CALEA, a voluntary effort by VOIP providers to create consistent global solutions would benefit service providers, regulators,
and consumers.
Initial members of the alliance include Pulver.com, SBC, Global Crossing, Skype, KMC and Volo. Eventually, the alliance will
have a board of governors consisting of 21 representatives from large and small IP-based application providers. Pulver will
serve as interim chairman of the alliance. A representative from Pulver.com stated that they expect to have 20 core members
within the next several months and up to 200 members within a couple of years.
[Top]
Universal Service Developments
The courts and the FCC have recently made significant findings regarding the universal service support mechanism. Specifically,
the Fourth and Fifth Circuits have addressed how states and carriers can collect universal service fees. The FCC has adopted
new rules in its oversight of the Universal Service Schools and Libraries Program ("E-Rate Program"). The Federal-State Joint
Board on Universal Service ("Joint Board") also is seeking comment on reforming the high cost support mechanism for rural
carriers. Each of these developments, which are explained in greater detail below, should provide carriers and E-Rate Program
participants with greater certainty about the funding mechanism.
Collection of Universal Service Fees
The U.S. Court of Appeals for the Fourth Circuit, reversing a lower court decision, concluded that lawsuits challenging the
amount that carriers bill customers for federal universal service support must be brought in federal court. The court then
dismissed the case under the filed-rate doctrine. The case concerned a class action lawsuit contesting a 53-cent monthly universal
service surcharge BellSouth billed to its customers in North Carolina prior to 2002. The plaintiffs asserted that BellSouth's
practice of charging an amount above what it contributed to the federal universal service fund and not disclosing how it calculated
the surcharge violated state fair-trade laws. According to the court, plaintiffs were essentially seeking a refund of a portion
of the universal service surcharges BellSouth collected. The court stated that "because the amount of the [surcharge] is determinatively
set forth in BellSouth's tariff, which carries the force of federal law, an action seeking to alter that rate presents a federal
question… and because [plaintiffs' claim] would require the court to determine a reasonable rate for the [surcharge], that
claim must be dismissed pursuant to the filed-rate doctrine." Note that as of April 1, 2003, the FCC prohibited carriers from
recovering significantly more than their universal service contribution amount from customers.
The U.S. Court of Appeals for the Fifth Circuit upheld a lower court ruling that the Texas Public Utility Commission ("TX
PUC") cannot collect fees for the state universal service program based upon interstate or international calls that originate
in Texas. Addressing AT&T's challenge to the TX PUC's directive, the court concluded that the PUC was preempted by the Federal
Communications Act. According to the court, it is inequitable and discriminatory for intrastate carriers to contribute to
both the federal and state universal service mechanisms based upon interstate and international revenues, when non-Texas carriers
only contribute to the federal mechanism based upon the same revenue. "Regardless of the amount of intrastate revenues a carrier
earns, the double assessment of interstate revenue puts multi-jurisdictional carriers at a distinct competitive disadvantage
compared with the pure interstate carriers."
E-Rate Program
The E-Rate Program has been the subject of scrutiny and criticism as program audits have revealed the unlawful receipt of
universal service monies. In the latest effort to delve into the fraudulent activities within the program, the House Commerce
Committee held a hearing in July on the issue. Committee Chairman Barton (R-TX) pledged to introduce legislation next year
to improve the administration and oversight of the E-Rate Program.
The FCC has also recently taken steps to resolve a number of issues identified through the audit process and adopted new rules
to safeguard the E-Rate Program from further waste, fraud, and abuse. In one decision released July 30, 2004, the FCC concluded
that the Universal Service Administrative Company ("USAC") should change its policy of recovering universal service monies
disbursed in violation of the Act or rule from the service provider. Rather, the FCC directed USAC to recover monies from
the party or parties that committed the rule or statutory violation in question. In a separate decision released August 13,
2004, the FCC also made the following determinations:
- Funds dispersed in violation of the Act, a rule implementing the statute, or an E-Rate Program goal may be recovered. Monies
will be recovered in whole or in part: (1) for competitive bidding violations, (2) if an applicant lacks the necessary resources
to use the services supported through the E-Rate Program, (3) if a service substitution does not meet program criteria, (4)
if an applicant fails to pay its non-discounted share of services, (5) if an applicant receives duplicative services, (6)
if a service provider fails to complete delivery of service within the funding year, (7) if an applicant miscalculates its
discount rate, and (8) if service is not provided for a full year although the applicant was billed for the entire year. There
may be some instances, however, which may not warrant recovery (e.g., a violation of a procedural rule that was inadvertently
overlooked during the application process).
- All FCC and/or USAC inquiries into possible violations must be completed within five years after final delivery of service
for a specific funding year. The FCC will not recover de minimis amounts where the administrative costs of seeking recovery are greater than the amount to be recovered.
- The offset methods previously adopted by the FCC are eliminated.
- Under the "red light rule," the FCC and/or USAC will not act on any application or request for benefits made by an entity
that is delinquent in its non-tax debts owed to the FCC, including E-Rate Program participants. Applications will not be dismissed
under this rule if the applicant timely appealed the existence or amount of the debt owed.
- All E-Rate Program participants (including service providers, schools, and libraries) must obtain an FCC Registration Number.
- Participants found to have previously violated the Act or FCC rules will be subject to more rigorous scrutiny going forward.
- All E-Rate Program participants must retain all records related to the application for, and receipt and delivery of, services
for five years after the last day of service is delivered for a particular funding year. This requirement applies to funding
year 2004 and thereafter. Participants remain subject to audits initiated at the discretion of the FCC, USAC, or other authorized
governmental oversight body.
- Applicants must have approved technology plans in place prior to starting services. They must certify at the time they apply
for discounts through the E-Rate Program that the receipt of any universal service support is contingent on timely approval
of their technology plans. The FCC largely adopts the guidelines of the U.S. Department of Education for technology plan content.
- The certifications on Forms 470 and 471 are revised to be more consistent with "real-world experience." Three certifications
also are added to Form 473 for applicants to pledge not to subvert the E-Rate Program's competitive bidding process.
- USAC is directed to inform the FCC of any matters that are outside the scope of FCC rules or precedent. USAC also must submit
a proposed plan for resolving audit findings to the FCC within 45 days after the FCC's decision is published in the Federal
Register.
In addition to the measures described above, the FCC emphasized that it remains "committed to deterring inappropriate uses
of universal service monies and to rapidly detecting and addressing potential misconduct." It warned that it would continue
to strengthen its oversight of the E-Rate Program through the adoption of additional measures in the near future and take
enforcement action where appropriate.
In a related matter, the FCC is seeking comment on the list of services eligible for discounts under the E-Rate Program that
is updated annually. Comments are due August 23 and replies are due August 30, 2004.
High-Cost Program
The Joint Board is seeking comments regarding certain FCC rules relating to the universal service high-cost support mechanism
for rural carriers. Specifically, the FCC seeks comment on the mechanism that should replace the five-year plan that the FCC
adopted in its Rural Task Force Order in 2001. At the FCC's request, the Joint Board questions whether universal support for rural carriers should be based on
forward-looking economic costs or embedded costs. It also asks about the methodology for calculating universal service support
that is allocated to competitive carriers designated as "eligible telecommunications carriers" under Section 214(e) of the
Act. The Joint Board also is considering revising the definition of a "rural telephone company" and whether multiple study
areas within a state should be consolidated for purposes of receiving universal service support. The Joint Board also seeks
comment on Section 54.305 of the rules, which addresses the amount of support a carrier may receive for exchanges that are
acquired from a carrier that was previously eligible for support.
Comments and replies are due October 15, 2004 and December 14, 2004, respectively. The Joint Board also announced its intention
to hold an en banc hearing in November regarding issues and concerns raised by commenters.
[Top]
FCC Adopts New Network Outage Reporting Requirements
The FCC adopted new service outage reporting rules on August 4, 2004, which will be effective 30 days after Federal Register
publication. These rules require wireless, wireline, cable, and satellite telecommunications providers to electronically report
to the FCC information regarding significant service outages. Last summer's major blackout and mounting homeland security
concerns are the driving forces behind the new rules. The new rules will subject wireless and satellite providers to the service
outage reporting requirements for the first time.
Under the current rules, only wireline and cable telephony communications providers are required to file service outage reports
with the FCC. Due to the sensitive nature of the information that it will collect under the new rules, however, the FCC has
indicated that the information will not be publicly disclosed, even though such information had been publicly available in
the past. Communications providers will provide the information on an electronic template that the FCC based on its experience
with administering network outage reporting requirements for wireline carriers.
The FCC's decision to stop publicly disclosing carriers' outage reports, however, has antagonized some consumer advocates
and state regulators. These groups argue that the outage data is necessary to evaluate the reliability of telephone service.
They also claim that the FCC's concern that release of the information poses a national security risk is overstated.
Wireless carriers generally opposed the new mandate and claimed that the FCC should have maintained the current voluntary
outage reporting scheme. Steve Largent, President of the CTIA, said "it is discouraging that the FCC would adopt a mandatory
requirement to report network outages when a fully compliant voluntary effort is already under way and producing significant
results." Commissioner Abernathy acknowledged that the requirement is "a pain" but added that it is also "necessary."
Wireless carriers have planned a meeting to discuss the new rules and will likely file a petition for reconsideration. Wireless
carriers object to the two hour deadline for reporting an outage and the standard for a reportable outage, which is an outage
of at least thirty minutes that meets or exceeds 900,000 "user-minutes." One source stated that although the reportable outage
standard may be effective for wireline, it is unrealistic to apply a wireline-based metric to wireless outage reporting requirements.
In a Further Notice of Proposed Rulemaking, which has not yet been released, the FCC will seek comments on network outage
reporting requirements for telecommunications service to airports.
[Top]
Dialing for Dollars -- Some Carriers May Be Eligible for USF Refunds
All carriers should look at their first quarter 2003 ("1Q2003") revenues. If your actual collected revenues for 1Q2003 exceeded
your projected collected revenues for 1Q2003 by a sufficient amount, you may be able to request a waiver and resulting universal
service fund ("USF") credit from the FCC.
Last month, the FCC granted in part waiver requests filed by AT&T, SBC, and Verizon regarding the USF true-up process for
2003 revenues. The problem concerned 1Q2003 revenues, which were not used to calculate any initial USF contributions due to
the shift from historical revenues to projected revenues that occurred in 2003. The true-up process for 2003 (the year of
the shift) was modified as well, such that USAC subtracted the 1Q2003 projected revenues from the actual annual 2003 revenue
to estimate the actual revenue for second quarter 2003 through fourth quarter 2003 ("2-4Q2003"). This number (i.e., the estimated
actual revenue for 2-4Q2003) was then compared to projected 2-4Q2003 revenues to determine if a refund or additional payment
was necessary. In other words, the true-up for 2003 was only supposed to compare projected revenues to actual revenues for
2-4Q2003 in light of the shift in the payment model.
Each of the petitioners had actual collected revenues for 1Q2003 that exceeded its projected collected revenues for 1Q2003.
Even if the petitioners had projected accurately for the remaining quarters of 2003 (and made appropriate contributions),
they would have received a true-up bill for additional contribution amounts due to their under-projection for 1Q2003 and the
use of this projected quarter in the formula described above. Petitioners argued that this result was unfair because 1Q2003
revenues were not used to calculate USF contributions and, thus, they should not be penalized for mis-projecting 1Q2003. Accordingly,
the petitioners requested that the FCC direct USAC to use actual 1Q2003 revenues in the formula, rather than their projected
revenues for that quarter.
The FCC agreed (at least in principle) and granted a waiver directing USAC to use the petitioners' historical gross-billed
revenues for 1Q2003, adjusted to reflect their annual uncollectible rates for 2003, for true-up purposes. (The FCC reasoned
that these numbers were already available to USAC, and thus were simpler to use than the numbers requested by petitioners
and should result in a similar outcome.) Although the FCC declined to extend this waiver automatically to all similarly situated
parties, it noted that other carriers may seek similar waivers, which would be evaluated in light of the precedent established
in this order. Following this decision, CTIA filed a petition asking the FCC to reconsider its decision and extend the waiver
relief to all similarly situated parties. The CTIA petition remains pending.
If you believe that your revenues may entitle you to similar relief, please contact us to discuss the filing of a waiver request.
[Top]
Battle Intensifies Over DE Set-Asides for Auction 58
Parties recently filed comments in response to a CTIA petition urging the FCC to initiate a rulemaking on broadband PCS Auction
58 to determine whether to revise the rules that provide designated entities ("DEs") with a set-aside for some licenses. The
auction, scheduled for January, will provide carriers with a rare opportunity to acquire prime spectrum. As a result, DEs
and the larger wireless carriers are battling over the FCC's proposed rules for the auction.
Wireless carriers argued that the variety of comments filed in response to the CTIA petition demonstrates that a rulemaking
is required and that the DE set-aside rules should be eliminated. Most of the DEs responded that the set-asides are necessary
to ensure that small businesses have meaningful opportunities in major auctions. NTCH, Inc. indicated that the now defunct
installment program, not the set-aside policy, is responsible for the past problems associated with closed bidding.
Most of the DEs urged the FCC to maintain the DE set-asides. Council Tree Communications, Inc. ("Council Tree"), a prominent
DE, argued that past auctions demonstrate that set-asides are vital to DE auction success. Council Tree claimed that DEs are
more vulnerable than their larger counterparts to increased consumer demand and spectrum shortages. Arctic Slope Regional
Corp. said that market conditions and FCC precedent justify set-asides. Catalyst Investors, LP stated that, without the set-aside
rules, DEs would struggle to attract capital. Madison Dearborn Partners, LLC, and PC Management pointed to FCC precedent acknowledging
the "critical combination" of set-asides and bidding credits to provide DEs with meaningful auction opportunities.
Unlike the other parties representing DE interests, the Rural Cellular Association ("RCA") urged the FCC to consider alternatives
to the DE set-asides. RCA argued that bidding credits would be a more effective means than set-asides to promote DE auction
success. RCA suggested that the FCC open a rulemaking to consider different levels of bidding credits and smaller geographic
areas for licenses.
Wireless carriers claimed that the DE set-asides are outdated and that other means exist to protect DE interests. Motorola,
Inc. asserted that, given the competitive environment that exists in the commercial wireless industry, DE set-asides are "out-moded."
Motorola added that secondary markets provide DEs with additional opportunities to acquire spectrum. T-Mobile USA, Inc. argued
that the FCC can promote DE opportunities through means that are less restrictive than set-asides. In the alternative, T-Mobile
asked the FCC to waive the eligibility restrictions for the licenses that NextWave returned to the FCC. According to T-Mobile,
DEs often overbid in a closed auction because there is a smaller pool of informed bidders to indicate the true value of the
spectrum, and this overvaluing leads to a higher rate of business failure. Verizon Wireless supported the Motorola argument
that changes in the wireless marketplace dictate that the FCC reconsider its proposal to use set-asides in Auction 58. Verizon
cited the "dozens" of other auctions in which the FCC has implemented DE incentives other than closed bidding. All of the
wireless carriers argued that the FCC could hold a rulemaking without causing a significant delay to the start of Auction
58.
On August 9, 2004, CTIA, T-Mobile, Verizon Wireless, and the Progress and Freedom Foundation each filed reply comments requesting
that the FCC eliminate DE set-asides for Auction 58.
[Top]
Recent Developments in AT&T Wireless-Cingular Merger
Although only a few parties criticized the proposed AT&T Wireless-Cingular merger in comments filed with the FCC in May, the
FCC sent letters in July to both companies that inquired about the specifics of the proposed merger. Some industry sources
speculated that the letters signal that the FCC will give the transaction a "hard look." The FCC requested that other carriers
produce detailed customer information and has created a database to track that information. Commenting on the letters to AT&T
Wireless and Cingular, one regulatory attorney said, "They're [FCC] not going to just leave it to Department of Justice ('DoJ').
The FCC is going to do their own work on this." Another attorney predicted that the FCC and DoJ might order AT&T Wireless
and Cingular to divest some of their licenses.
On a related note, the FCC requested comments on a Cingular-T-Mobile proposal to terminate their joint venture in California,
Nevada, and New York if Cingular and AT&T complete their proposed merger. However, there were no petitions to deny filed by
the August 12 deadline.
Like the FCC, the DoJ was expected to subject the proposed merger to a very comprehensive review. The DoJ has requested detailed
information from other carriers on the customers that they serve. One antitrust attorney indicated that while the information
request is unprecedented, the DoJ's actions are not surprising because the agency has not reviewed the wireless industry in
several years, and he expects the DoJ to use the proposed merger as an opportunity to gauge the current state of the wireless
industry.
The Consumer Federation of America ("CFA") released a white paper in which it urged the DoJ to reject the merger or at least
require AT&T Wireless and Cingular to divest licenses in most of the markets involved. Claiming that the merger jeopardized
wireline competition, CFA characterized the merger as "another competitive blow to consumers." CFA argued that the merger
would decrease the incentives of SBC and BellSouth, Cingular's parent companies, to migrate customers from landline service
and increase the incentives for higher wireless prices. Shortly after releasing the white paper, CFA added another prong to
its attack on the merger when it requested attorneys general in ten states to closely scrutinize the merger.
Despite the efforts of CFA and other parties opposing the merger, the DoJ recently gave a major boost to the proposal. On
August 11, the DoJ indicated that it will seek to modify a consent decree that SBC and BellSouth signed in 2000, when the
parties formed Cingular. Under that consent decree, BellSouth and SBC sold spectrum in Indiana and California to AT&T Wireless
and were prohibited from reacquiring that spectrum. Under the modification that DoJ will request, the California spectrum
and a portion of the Indiana spectrum could be reacquired by BellSouth and SBC, thus removing the consent decree as an obstacle
to the merger. Although a federal judge must still approve the modification to the consent decree, one source suggested that
the move was a sign that the DoJ was working closely with Cingular to approve the proposed merger.
Wireless Telecommunications Bureau ("WTB") Chief John Muleta recently indicated that the WTB would make a recommendation on
the proposed merger to the full Commission within two months. Mr. Muleta indicated that the WTB still has a high volume of
data to review and that it was trying to get a "snapshot" of what is happening in the wireless industry.
[Top]
House Holds Hearing on A La Carte Cable Offerings
On July 14, 2004, the House Subcommittee on Telecommunications and the Internet explored the subject of "a la carte" cable
offerings in a hearing on "Competition and Consumer Choice in the MVPD Marketplace – Including an Examination of Proposals
to Expand Consumer Choice, Such as A La Carte and Theme-Tiered Offerings." The witnesses included representatives from Consumers
Union, TV One, MTV Networks, Buford Media Group, American Cable Association, Disney and ESPN Affiliate Sales and Marketing,
National Religious Broadcasters, Time Warner Cable, Crown Media Holding & Hallmark Channel, and Concerned Women for America.
The hearing had been scheduled at the behest of Rep. Deal (R-GA), who, in exchange for further exploration of the issue, agreed
to withdraw an amendment from the SHVIA bill that would have required cable companies to offer a la carte services. Deal attacked
large programming companies for forcing "homeowners to buy additional services whether they want them or not" under bundling
arrangements and for keeping their pricing mechanisms "shrouded in secrecy." A number of Deal's colleagues, such as Rep. Wynn
(D-MD) and ranking member Rep. Dingell (D-MI), disagreed, questioning whether an a la carte system would harm minority and
niche programming and would lead to higher prices and fewer choices in programming for consumers. Subcommittee Chairman Upton
(R-MI) said he was opposed to any attempt by the government to impose an a la carte system, noting that DBS, which has captured
22% of the MVPD market, competes with cable. Rep. Dingell said he would prefer to see additional video competition from phone
companies and true price competition. With committee and subcommittee leaders generally opposed to regulation of cable rates
and services, it is unlikely that a legislative initiative on a la carte cable pricing will succeed this session.
[Top]
Charter Settles Lawsuits and SEC Investigations, and SEC Questions Cable Companies' Subscriber Base Measurement
Charter Communications, Inc. will pay $144 million to settle a shareholders' lawsuit accusing the company of inflating its
revenues and subscriber numbers. The settlement, announced on August 5, 2004, is the result of 18 class action and derivative
lawsuits filed by a New York law firm on behalf of investors who purchased Charter stock from November, 1999 through August
2002. The settlement of the shareholder litigation, which still must receive approval by the U.S. District Court in St. Louis,
requires Charter to pay current and former shareholders $144 million in cash and equity, which is comprised of $64 million
in cash to be paid by Charter's insurance carriers, and approximately $40 million in Charter stock. As part of the settlement,
Charter agreed to adopt certain unspecified corporate governance measures.
In July, the Securities and Exchange Commission ("SEC") concluded a two year enforcement action and investigation into Charter's
accounting practices and procedures associated with the capitalization of certain expenses, its methods of computing the number
of subscribers, and its dealings with certain programmers and digital set-top terminal suppliers. Upon the conclusion of that
investigation, Charter agreed to the entry of an order prohibiting any future violation of U.S. securities laws. The SEC issued
no fine against Charter, and Charter neither admitted nor denied any wrongdoing.
Following the resolution of the Charter investigation, and in the wake of the Adelphia accounting scandals, the SEC sent letters
to Comcast, Cox, and Time Warner, asking them how subscriber numbers are measured. Cable analysts believe that issues associated
with the methods used by cable companies to account for subscribers have been addressed by the companies, and problems similar
to those of Adelphia and Charter are not likely to be an issue for the cable industry. However, the cable industry is focused
on establishing a standardized measurement of the number of subscribers, which is complicated by the cable companies' entry
into the telecom industry and by difficulties associated with the bundling of a variety of service offerings. By virtue of
the fact that Comcast, Cox, and Time Warner are each providing — or soon will be providing — voice, data, and video services,
a subscriber of all three services could be counted by a cable and telecom service provider as either a single subscriber
or as three subscribers.
Recently established with the support of the National Cable & Telecommunications Association ("NCTA"), guidelines to quantify
subscribers to be utilized by Comcast, Cox and Time Warner will focus on revenue generating units ("RGUs"). In particular,
these new guidelines will define customer relationships as the number of customers that receive at least one level of service,
without regard to the types of services purchased. Also, the guidelines establish a definition for RGUs, which includes the
sum of all customers of primary analog video, digital video, high-speed data, and telephony services. As a result, each company
will have a certain number of customers, and many more RGUs, depending upon how many services each customer purchases.
Cable companies have competing interests when it comes to reporting numbers of subscribers. From the perspective of growth
potential, investors place a higher value on cable companies with the largest number of subscribers. However, cable companies
have an incentive to report lower subscriber numbers when purchasing programming from suppliers on a pay per-subscriber basis.
In addition, the bundling of services adds additional complexity to the goal of standardization. Where large discounts are
given on one service in order to sell a second service, there are concerns as to whether companies will report one or two
services as having been sold.
Finally, what used to be separate markets have become complicated by the fact that today's cable companies are providing traditional
phone services and today's phone companies are providing video services. As a result of its inquiry, the SEC hopes that it
will receive some clarification as to how each industry quantifies its customer base, so that investors will more fully understand
how to evaluate the subscriber information and make rational comparisons among the providers.
[Top]
FCC Denies Most Petitions for Reconsideration of Slamming Rules
Last month, the FCC released an order addressing a variety of issues raised in petitions for reconsideration of its slamming
rules. The FCC denied most of the petitions but made a few minor modifications to its rules.
First, the FCC declined to modify its general rule requiring the acquiring carrier to pay the carrier change charges associated
with a carrier-to-carrier sale or customer transfer, but did make a minor modification to its rule for one particular circumstance.
Specifically, when a carrier acquires customers by default (other than bankruptcy), and state law requires the exiting carrier
to pay the carrier change charges, the FCC will require the exiting carrier to bear these costs. If state law does not assign
responsibility for these costs, however, the Commission's general rule applies.
The FCC declined to modify its rule requiring the acquiring carrier to provide advance customer notice, even if state law
also imposes such a responsibility on the exiting carrier. The FCC stated that the acquiring carrier is in the best position
to most efficiently provide information about the new carrier's rates, terms and conditions. The FCC also rejected arguments
that the acquiring carrier should be permitted to provide only a summary of this information. Rather, the FCC reiterated that
detailed information regarding rates, terms, and conditions is necessary in order for transferred subscribers to make an informed
decision.
The FCC also declined to modify its requirement of 30 days' advance customer notice in the event that an ILEC is required
by state law to serve an exiting carrier's customers as the default carrier. The FCC rejected the argument that the ILEC has
no control over the timing, stating that state commissions should take the FCC's requirements into account when ordering customer
transfers. If this does not occur, the default carrier can request a waiver on a case-by-case basis.
Regarding preferred carrier freezes, some parties had asked that the FCC allow carriers with mechanized processes to transfer
a customer base with freezes in place by bypassing the freeze rather than actually lifting it (and providing notice to customers
that it will be lifted). The FCC declined to change this rule, stating that the customer must maintain control over carrier
freezes.
Finally, the FCC adopted the recommendations of the North American Numbering Council ("NANC") regarding the use of carrier
identification codes ("CICs") by switchless resellers. Despite the "soft slamming" problems that can arise when a facilities-based
carrier and its reseller(s) share the same CIC, the NANC recommended against requiring separate CICs for each switchless reseller
due to concern that this would speed the depletion of numbering resources. The FCC agreed with this assessment and declined
to require that switchless resellers obtain CICs.
[Top]
The FCC Takes Enforcement Action Regarding LNP Compliance While Battles Continue at the State Level for Extensions
When adopting its rules requiring intra and intermodal local number portability ("LNP"), the FCC emphasized the public interest
benefits of customers being able to port their telephone numbers to different carriers. The FCC warned carriers that it would
monitor compliance with its LNP requirements and pursue enforcement action when necessary. The FCC has followed through with
this threat, recently entering into a consent decree with CenturyTel for alleged LNP violations.
According to the consent decree, the FCC's Enforcement Bureau investigated allegations that certain CenturyTel affiliates
did not appropriately route calls to ported numbers in Washington between November 23, 2004 and April 14, 2004. There was
no admission of guilt on the part of CenturyTel. The carrier, however, agreed to contribute $100,000 to the U.S. Treasury
and to implement a 12-month LNP compliance plan. Pursuant to the compliance plan, CenturyTel must create a team of technical
and managerial employees to supervise the carrier's deployment of LNP and must designate an LNP compliance officer to whom
all inquiries and concerns regarding LNP and call routing may be addressed. CenturyTel also must develop written rules and
policies regarding LNP and the LNP ordering process, and provide appropriate training for employees. CenturyTel also stipulated
that all of its host switches are now LNP-enabled and that it would not seek a waiver or extension of any LNP requirements
from state regulatory authorities.
Despite the FCC urging state agencies to consider the public interest benefits of intermodal porting before granting LECs'
requests for a waiver or extension of the porting deadline, the regulatory agencies in Nebraska and Ohio recently suspended
the requirement for rural local carriers located in their states to port numbers to wireless carriers until January 2006.
Approximately half of the states have entertained or are currently entertaining such requests. (There are more than 40 similar
waiver petitions still pending before the FCC as well.) Some states, including Michigan and New York, have denied the waiver
requests. Colorado, Utah, West Virginia, Indiana and other states have granted them.
Western Wireless, however, is fighting back. In the first action of its kind, Western Wireless filed a complaint in federal
court challenging the Nebraska Commission's decision that rural local carriers do not need to port numbers to wireless carriers.
Western Wireless argues in its complaint that it is technically feasible for wireline carriers located in Nebraska to port
numbers to wireless carriers, and that some wireline carriers are, in fact, doing so. If and when the court rules, its decision
could send a clear signal to other states considering waiver requests from LECs.
[Top]
International Undersea Cable Regulatory Fees Clarified and Teed Up for Possible Revision Next Year
There have been a few recent developments regarding the payment of regulatory fees by international carriers.
In its final order regarding payment of regulatory fees for 2004, the FCC noted that some parties had challenged the manner
in which the FCC calculates regulatory fees for international bearer circuits. Among other arguments, parties asserted that:
(1) capacity-based fees favor older (lower capacity) systems to the detriment of newer (higher capacity) systems; (2) the
current methodology does not reflect reduced regulation of private cable operators; and (3) the use of "active" circuits to
calculate fees does not comport with the way private operators sell cable capacity today. As a result, one party proposed
that regulatory fees for international submarine cables be separated into two separate subcategories, one for common carrier
cables and one for private cables, and that a flat per-cable-landing-license fee be applied to private submarine cable operators.
The Commission did not believe that it had a sufficient record upon which to rule on these proposals, but it noted that they
merit further consideration. The FCC also acknowledged that the proposal regarding private cable operators would be administratively
simpler than the current methodology. Accordingly, the FCC stated that it will raise these issues and seek comment in a subsequent
rulemaking regarding 2005 regulatory fees. Facilities-based international carriers may want to consider participating in this
proceeding because it could significantly affect the calculation and amount of regulatory fees that they are obligated to
pay.
The FCC also issued a Public Notice last month clarifying the payment of regulatory fees by non-common carrier cable landing
licensees. (This clarification did not address the payment of regulatory fees by facilities-based common carriers.) In the
Public Notice, the FCC reiterated that non-common carrier cable landing licensees are obligated to pay regulatory fees for
all circuits sold on a lease or indefeasible right of use ("IRU") basis to any customer, including themselves or their affiliates,
other than to an international common carrier that holds an international Section 214 authorization (because such a customer
would itself be deemed a facilities-based carrier that is obligated to pay regulatory fees on this circuit, and the FCC wants
to avoid double-charging for the same circuit). In addition, the FCC clarified that non-common carrier submarine cable operators
are obligated to pay regulatory fees: (1) regardless of the country of incorporation of the cable landing licensee; (2) regardless
of whether they sell capacity through the cable landing licensee or through another entity (even if that entity has no commercial
presence in the U.S.); (3) despite the fact that the system is regulated as a non-common carrier system; (4) regardless of
whether their sales of circuits are on a lease or IRU basis; and (5) regardless of the nature of the services its customers
provide on such circuits.
[Top]
FCC Broadens Availability of Spectrum Leasing
The FCC adopted an order extending the availability of spectrum leasing, which may provide licensees with additional business
and operational flexibility. Specifically, the FCC concluded that additional wireless services, including multichannel video
distribution and data services, and automated maritime telecommunications system services could enter into spectrum leasing
deals. It also allowed land mobile public safety licensees to enter into leasing arrangements with other public safety entities
or entities providing services in support of public safety operations, but declined to allow leasing arrangements with commercial
or other non-public safety operators. The FCC further declined to extend its leasing rules to wireless services operating
on shared spectrum or to non-"wireless radio services," such as satellite services and cable television relay services. Additionally,
the FCC provided for immediate, overnight electronic processing of leasing and transfer/assignment applications and notifications
if the parties involved certify to specified criteria demonstrating that the proposed transaction does not trigger potential
public interest concerns. It also adopted a "private commons" leasing option for licensees seeking to provide spectrum access
to users of advanced devices that do not necessarily require use of the licensee's network facilities. Furthermore, the FCC
clarified that licensees and lessees may agree to share use of the same leased spectrum over the same period of time and reiterated
the respective responsibilities of licensees and lessees. It also adopted a further notice of proposed rulemaking ("FNPRM")
seeking comments on additional policies that could promote deployment of advanced technologies through spectrum leasing and
other secondary market arrangements. The full text of the order and FNPRM has not yet been released.
[Top]
FCC Eliminates Regulatory Barriers and Adopts Rules to Encourage Deployment of Services to Rural Areas
The FCC has adopted various measures in an attempt to reduce the regulatory costs of providing service to rural areas and
to encourage deployment of new services to those areas, including: (1) defining "rural" as a county with a population density
of 100 persons or fewer per square mile; (2) eliminating the cellular cross-interest rule and transitioning to case-by-case
review of all applications involving cellular transactions; (3) allowing licensees to grant a security interest in certain
wireless licenses to the U.S. Department of Agriculture's Rural Utilities Service, subject to prior FCC approval; (4) increasing
permissible power levels for certain wireless service base stations in rural or unserved areas; and (5) allowing certain geographic
area licensees to meet build-out requirements by demonstrating "substantial service." The FCC also sought comment on whether
it should impose build-out requirements on licensees after their initial license terms have been renewed and on re-licensing
options for unused spectrum. The full text of the order and further notice of proposed rulemaking has not yet been released.
[Top]
FCC Implements Measures to Expedite Digital Television Transition
The FCC has adopted a number of measures to facilitate the transition to digital television ("DTV"), including: (1) commencing
an open channel election process that will require TV licensees to select the channel to be used for digital broadcasting
after the transition; (2) establishing deadlines by which DTV stations must replicate their analog service areas, increase
their DTV signal coverage within their markets, or lose interference protection to the unserved areas; (3) eliminating the
simulcasting requirement to allow broadcasting of additional programming on DTV channels; (4) clarifying interference protection
requirements for broadcasters operating on TV channels 51-69; (5) clarifying the digital closed-captioning rules; and (6)
establishing an 18-month transition period after which all digital TV receivers must contain v-chip functionality allowing
modification of the TV ratings system. The full text of the order has not yet been released.
[Top]
Carriers Should Be Current on FCC Payment Obligations as New Debt Collection Rules Take Effect
FCC regulatees should ensure that they are up-to-date on all FCC payment obligations (including regulatory fees that were
due on August 19). This is particularly important because the FCC's new rules implementing the Debt Collection Improvement
Act become effective on October 1, 2004. These rules include the "red-light" rules, under which the FCC will withhold action
on applications and other matters (petitions, requests for numbering resources, etc.) if the applicant is delinquent on any
payments due to the FCC. If the delinquency is not resolved, the FCC can dismiss the application or request.
[Top]
Technical Rules Modified to Facilitate Unlicensed Wireless Broadband in Rural America
The FCC unanimously adopted a Report and Order at its July 8 Open Meeting to promote the use of wireless broadband services
in rural areas using unlicensed technologies. The modified rules should encourage manufacturers and wireless Internet service
providers ("WISPs") to provide broadband services to rural and underserved areas, and to develop new wireless applications
while encouraging efficient spectrum usage. Although the rules may potentially open new business opportunities for new and
existing wireless service providers, the relaxed technical standards also may potentially raise additional interference issues
for existing licensees.
Specifically, the FCC modified its rules for unlicensed devices to permit the use of advanced antenna systems, including sectorized
and adaptive array systems or "smart antennas," in the 2.4 GHz band. These smart antennas will allow WISPs to direct their
wireless transmissions, thus enabling higher power limits without causing harmful interference to other wireless operations.
The FCC also modified its technical rules regarding the use of various system components (e.g., system antenna and radio transmitters) for wireless devices, which provides more flexibility in mixing and matching system
components. As a result, manufacturers and WISPs will be able to create customized wireless systems without having to seek
FCC approval for each combination of components.
In addition, under the new rules manufacturers will have more flexibility in testing and obtaining authorization to use their
products. The FCC also modified its rules to facilitate the development and use of next-generation Bluetooth devices by relaxing
its frequency hopping requirements for operations on certain spectrum frequencies allocated for unlicensed devices. The FCC
also clarified certain equipment authorization rules.
[Top]
FCC Launches Pay-Per-Call Proceeding
The FCC recently launched a new proceeding to examine its rules governing pay-per-call services, related audiotext information
services and toll-free numbers. In particular, the FCC is examining whether its 900-number regime is still effectively protecting
customers, whether the use of other non-900 dialing sequences is circumventing consumer protections, and whether changes in
technology now warrant a review of the old rules.
With regard to non-900 dialing sequences, the Commission is particularly concerned about the rerouting of calls that can occur
without the caller's knowledge, including "modem hijacking" (in which local calls are redirected by a software program that
can disconnect calls and dial international numbers). The FCC is also concerned about steps pay-per-call providers have taken
to move outside of the 900-number regime and avoid federal regulation. Among the many other issues raised, the FCC seeks comment
on whether data services fit within the pay-per-call definition and whether certain types of revenue-sharing agreements improperly
avoid pay-per-call regulation.
The pleading cycle has not yet been set for this proceeding.
[Top]
FCC Reduces Required Bond Amounts for Satellite Licensees and Clarifies the Bond Requirement
The FCC adopted an order re-affirming its requirement that satellite applicants post a bond, payable if the license is revoked
for failure to meet applicable construction milestones. The FCC, however, reduced the required bond amount from $7.5 million
to $5 million for non-geostationary satellite orbit ("NGSO") licenses, and from $5 million to $3 million for geostationary
satellite orbit ("GSO") licenses, including GSO mobile satellite service licenses. The FCC also clarified other aspects of
the bond requirement, ruling that: (1) applicants for hybrid GSO/NGSO licenses will be subject to a $5 million bond requirement
and may reduce the bond amount when the FCC determines that an NGSO milestone has been met; (2) the bond requirement will
not apply to replacement satellites, except those that add extended frequency bands; and (3) the bond requirement will not
apply to earth station operators seeking access to a foreign-licensed satellite that is in orbit and operating, but will apply
if the foreign-licensed satellite is not in orbit. Furthermore, the FCC declined to allow satellite licensees to establish
an escrow account as an alternative to the bond requirement.
[Top]
Settlement Requires Wireless Carriers to Provide Easy to Understand Information and Coverage Maps
On July 22, 2004, Cingular, Sprint and Verizon Wireless reached a settlement with the Michigan Attorney General and the attorneys
general from 31 other states ("AGs"), whereby the carriers agreed to provide customers with more accurate coverage-area maps.
The settlement is the result of an investigation launched by the AGs in 2001 to determine whether wireless carriers' practices
were misleading consumers. To reduce consumer confusion and increase consumers' ability to make more informed decisions about
available carriers and services, the wireless carriers agreed to pay a combined amount of $5 million toward consumer education.
The agreement requires the wireless carriers to take certain steps to give new wireless customers easy to understand information
about calling plans and to provide any new customer with a two-week period to cancel a service agreement without penalty or
charge if the customer is not satisfied with the service. Cingular, Sprint and Verizon Wireless indicated that the settlement
is in keeping with their current consumer practices
[Top]
Minnesota Federal Court Blocks a State Statute Regulating Wireless Rates
A federal district court temporarily blocked Minnesota officials from enforcing a new law that would regulate wireless rates
and practices. One source called the case a critical test of the "new state wave of attempts to regulate wireless carriers."
United States District Court Judge John Tunheim indicated that the public will benefit if the court has ample time to consider
the "close question" of whether the Minnesota law represents impermissible rate regulation or a legitimate effort to codify
certain consumer rights.
[Top]
FCC Issues NPRM Regarding Mandatory Electronic Filing for International Telecommunications Filings
Currently, international carriers are permitted to make certain types of filings either electronically or on paper (although
certain filings can be made only on paper). In a recent notice of proposed rulemaking ("NPRM"), the Commission has proposed
to eliminate paper filings and require all applications and other international telecommunications service filings to be made
electronically over the International Bureau Filing System ("IBFS"). These filings would include those related to Section
214 authorizations, submarine cable landing licenses, international signaling point codes, and others.
As noted above, certain types of filings (including transfers or assignments of Section 214 authorizations) cannot be filed
electronically at present. Thus, the FCC will need to develop several electronic filing forms if it adopts the proposals in
this proceeding. The Commission also asks if it should require carriers to file international reports (such as international
traffic and revenue reports and circuit status reports) electronically.
In addition, the NPRM seeks comment on how the IBFS system can accommodate filings for which confidentiality is requested.
It also proposes a 60-day transition period after the effective date of any new rules during which carrier must come into
compliance. (For filings for which an electronic form has not yet been created, the FCC would release a public notice announcing
any new form and giving carriers 60 days to transition to mandatory filing of such a form.) The FCC also seeks comment on
a waiver procedure for those for whom electronic filing may create significant hardship.
Comments in this proceeding are due on October 8 and replies are due November 8.
[Top]
Upcoming Deadlines for Your Calendar
Note: Although the dates listed below are accurate as of the day this edition goes to press, please be aware that these deadlines
are subject to frequent change. If there is a proceeding in which you are particularly interested, we suggest that you confirm
the applicable deadline.
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September 7, 2004
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Reply comments due re digital transition for over-the-air broadcast viewers.
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September 7, 2004
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Oppositions to petitions for reconsideration of all-or-nothing rule due.
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September 8, 2004
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Big LEO rules effective; comments on Big LEO NPRM due.
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September 13, 2004
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Reply comments due on a la carte cable and DBS offerings.
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September 16, 2004
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Radio license post-filing announcements due for Illinois and Wisconsin.
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September 16, 2004
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Radio license pre-filing announcements due for Iowa and Missouri.
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September 16, 2004
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TV license post-filing announcements due for North Carolina and South Carolina.
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September 16, 2004
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TV license pre-filing announcements due for Florida, Puerto Rico, and Virgin Islands.
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September 17, 2004
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Replies to oppositions to petitions for reconsideration of all-or-nothing rule due.
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September 17, 2004
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Reply comments due on NPRM re narrowbanding of private land mobile services.
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September 20, 2004
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Appeal/petition for review of all-or-nothing rule due.
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September 21, 2004
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Reply comments due on USF Joint Board recommended decision.
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September 23, 2004
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Reply comments on Big LEO NPRM due.
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September 27, 2004
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Reply comments due on NPRM re retention by broadcasters of program recordings.
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September 27, 2004
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Comments due on NPRM re Local Television Joint Sales Agreements.
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September 30, 2004
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Comments due on proposed IRS regulations related to communications services tax.
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October 1, 2004
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Radio license expiration date for Michigan and Ohio.
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October 1, 2004
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Radio license post-filing announcements due for Illinois, Iowa, Missouri, and Wisconsin.
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October 1, 2004
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Radio license renewal applications due for Iowa and Missouri.
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October 1, 2004
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Radio license pre-filing announcements due for Colorado, Minnesota, Montana, North Dakota, and South Dakota.
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October 1, 2004
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TV license expiration date for D.C., Maryland, Virginia, and West Virginia.
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October 1, 2004
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TV license post-filing announcements due for Florida, North Carolina, Puerto Rico, South Carolina, and Virgin Islands.
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October 1, 2004
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TV license renewal applications due for Florida, Puerto Rico, and Virgin Islands.
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October 1, 2004
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TV license pre-filing announcements due for Alabama and Georgia.
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October 8, 2004
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Comments due on International Bureau mandatory electronic filing NPRM.
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October 12, 2004
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Reply comments due on NPRM re Local Television Joint Sales Agreements.
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October 15, 2004
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Comments due on NOI re impact of violent TV programming on children.
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October 16, 2004
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Radio license post-filing announcements due for Illinois, Iowa, Missouri, and Wisconsin.
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October 16, 2004
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Radio license pre-filing announcements due for Colorado, Minnesota, Montana, North Dakota, and South Dakota.
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October 16, 2004
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TV license post-filing announcements due for Florida, North Carolina, Puerto Rico, South Carolina, and Virgin Islands.
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October 16, 2004
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TV license pre-filing announcements due for Alabama and Georgia.
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October 26, 2004
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Comments due on 37 and 39 GHz NPRM.
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October 29, 2004
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Pre-auction seminar for Auction No. 53 (MVDDS).
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[Top]
