Communications Law Bulletin -- September 2004
The Month In Brief
Although the run-up to a national election rarely brings bold legislative or regulatory initiatives, there is much to report
in this September issue of our Bulletin. Notably, the Federal Communications Commission ("FCC" or "Commission") is stepping
up its indecency actions as a number of television license renewals come due, and fallout continues from the judicial rejection
of the Commission’s Triennial Review Order on the unbundling of incumbent telephone company network elements. These and other developments are discussed here. As always,
we also supply a list of deadlines for your calendar.
[Top]
FCC, Cable Companies and Telephone Companies Urge Supreme Court to Review Brand X Decision
In October, 2003, the U.S. Court of Appeals for the Ninth Circuit rejected the FCC’s classification of high-speed Internet
access over cable television systems — often called "cable modem service" — as an information service. Brand X Internet Services v. Federal Communications Commission, 345 F.3d 1120 (9th Cir. 2003). The Ninth Circuit decision, by finding that high-speed Internet access includes a telecommunications
component, appeared to pave the way for the Commission to require cable television operators to open their networks to competing
providers of cable modem service.
Neither the FCC nor the cable industry welcomes the prospect of a complex, costly, equal-access regime for cable television
systems. Accordingly, the FCC and all of the major cable television system owners, as well as the National Cable and Telecommunications
Association, have asked the U.S. Supreme Court to review the Brand X decision. The Bell operating companies also have requested Supreme Court review, pointing out that the FCC has tried to formulate
"a coherent regulatory framework that applies equally to all providers of broadband" and should be allowed to continue that
process.
In the meantime, cable modem providers generally have not offered "open access" to their cable platforms for competing Internet
access providers. The exception is Time Warner Cable, which was required by the Federal Trade Commission to accommodate competing
Internet access providers as a condition of its merger with America Online Inc.
[Top]
Broadcast Developments
FCC to Clear Backlog of Indecency Complaints. The FCC received 5,005 broadcast complaints in July. Of the 43 complaints submitted to the Enforcement Bureau, 28 dealt
with indecency. FCC Chairman Powell has said that the Commission will be very active with indecency complaints in the coming
weeks, when many broadcast licenses come up for renewal.
On September 1, the Parents Television Council ("PTC") asked the FCC to deny the license renewal applications of the Washington,
DC area NBC and Fox affiliates (WRC-TV and WTTG(TV), respectively) because of pending indecency complaints filed by the PTC.
In the past two years, the PTC has filed 16 indecency complaints against WRC-TV and 21 complaints against WTTG. The FCC has
ruled on only two of those complaints.
David Smith, president of Citizens for Community Values, filed a petition for reconsideration of the Commission’s $300,000
consent decree with Emmis Communications Corporation, which was entered on August 12 to resolve all indecency matters against
Emmis. Smith said that the FCC lacked authority to enter into such an agreement during a license renewal.
FCC Proposes Maximum Indecency Fine for Jackson/Timberlake Incident. FCC Commissioners voted unanimously to slap Viacom’s 20 CBS stations with a $550,000 indecency fine, the largest ever levied
against TV stations, for airing Justin Timberlake’s exposure of Janet Jackson’s breast during the Super Bowl halftime show.
In the Notice of Apparent Liability released September 22, the FCC reviewed the full context of the material and found that
the nudity contained in the show "was designed to pander to, titillate and shock the viewing audience." The Commission noted
that officials at CBS and MTV (which produced the show and is also owned by Viacom) "were intricately involved in the planning
process for, and tacitly approved, the sexually provocative nature of the Jackson/Timberlake segment," and promoted the show
as "shocking." The fine represents the statutory maximum of $27,500 for each Viacom station that broadcast the material. The
Commission did not fine the 200-plus CBS affiliates that aired the show, on the grounds that the affiliates have no role in
deciding program content.
Groups Challenge License Renewals Due to Children’s Programming Violations. Three public advocacy groups urged the FCC to deny the license renewal applications of Paxson station WPXW(TV), Manassas,
Virginia and UPN station WDCA(TV), Washington DC, for failure to meet children’s programming requirements. FCC rules require
TV broadcast stations to air at least three hours of children’s programming per week. The Office of Communication of the United
Church of Christ Inc., the Center for Digital Democracy and the Institute for Public Representation allege that WPXW’s "Miracle
Pets" and WDCA’s "Ace Lightning" and "Stargate Infinity" programs are neither designed for children nor educational as required
by the rules. Gloria Tristani, a former FCC Commissioner and now managing director of the Office of Communication, said that
the FCC "needs to send an unequivocal message that it will deny a TV station’s license if that station has failed their child
audience."
FCC Adopts Children’s Programming Requirements for DTV. At its September 9 meeting, the FCC voted to adopt a report and order that applies educational programming requirements
and children’s commercial limitations to digital TV broadcasters. The order revises the current three-hour children’s core
educational programming guideline to give broadcasters the flexibility to multicast. It permits DTV broadcasters the choice
whether to air core programming on a single or multiple channels, provided that at least three hours per week are shown on
the main channel. Only programming aired on non-subscription channels qualifies as core programming. The order also amends
the current rules regarding on-air identification of core programming to require both analog and digital broadcasters, including
noncommercial educational stations, to identify such programming by displaying the symbol E/I throughout the program.
With respect to commercial limits, the order concludes that such limits apply to all digital programming directed to children
ages 12 and under, regardless of whether that programming is aired on a free or pay stream. In addition, for programs directed
to children 12 and under, all broadcasters are permitted to display Internet website addresses during programming, for example,
in a crawl at the bottom of the screen, only if the website offers a substantial amount of bona fide program-related or other
noncommercial content. The order also warns broadcasters not to use interactivity or other technological developments in children’s
programming to circumvent the commercial limits and policies. The Commission seeks further comment on the use of interactivity
and its treatment under FCC rules.
The new guidelines will become effective after a one-year phase-in period. The report and order has not yet been released.
House Holds Hearing on TV Violence. On September 15, the House Telecom Subcommittee held a hearing in Chicago on the effects of TV violence on children. Witnesses,
including academic and medical professionals, offered statistics on the contribution of portrayals of violence on TV to a
rise in violence among adolescents. The witnesses also critiqued the current TV ratings system, urged the entertainment industry
to reduce the amount of violence on TV, and discussed the different effects of different portrayals of violence.
Parts of New Radio Ownership Rule Approved. The Court of Appeals for the Third Circuit approved a partial lifting of the stay imposed on the FCC’s new radio ownership
limits. The ruling permits the FCC to use Arbitron metro markets to define local radio markets, count noncommercial stations
when determining the number of stations in a market, and attribute stations whose advertising is brokered under a joint sales
agreement to a brokering station’s ownership totals. The FCC had argued to the court that the stay forced the Commission to
continue using a flawed contour-overlap methodology in applying the radio rule. All other aspects of the FCC’s petition to
reconsider the stay were denied. As a result, the new numerical limits on local radio ownership and the AM "subcap" of the
new radio ownership rule are still on hold.
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Commission Acts to Promote Advanced Wireless Services
During the September 9 open meeting, the Commission took two actions to promote advanced wireless services ("AWS") including
third-generation, or "3G," services. First, the Commission allocated an additional 20 megahertz of spectrum for AWS in four
blocks: 1915-1920 MHz, which will be paired with 1995-2000 MHz; and 2020-2025 MHz, which will be paired with 2175-2180 MHz.
This allocation, from the Unlicensed Personal Communications Services ("unlicensed PCS") and the Mobile Satellite Services,
is in addition to the 90 megahertz of spectrum the Commission previously allocated for AWS. The Commission concluded that
the new, paired allocations will promote efficient use of the spectrum, and that all spectrum allocated for AWS will foster
development of new wireless services for American consumers, including wireless broadband services. The Commission also adopted
a reimbursement plan to compensate UTAM, Inc. for expenses associated with relocating incumbents in the 1915-1920 MHz band,
and it addressed the relocation and reimbursement obligations of new AWS entrants with respect to Broadcast Auxiliary Service
incumbents and Fixed Service incumbents. In addition, the Commission modified Part 15 of the rules to provide additional flexibility
for voice and data services on unlicensed PCS in the 1920-1930 MHz band.
In a companion action, the Commission is seeking public comment on the licensing, technical and operational rules that will
govern AWS. Such comment is particularly important in view of anticipated, harmful interference with broadband PCS operations
in adjacent bands. The Commission’s goal is to provide AWS licensees with flexibility to provide any kind of fixed or mobile
service, and the Commission proposes to license AWS under Part 27 of the rules, which provides a flexible, market-based regulatory
framework. The Commission believes geographic area licensing will be appropriate for AWS and asked for public comment on the
size of the geographic areas that should be used. Ten-year license terms are proposed for AWS licenses, which will be awarded
through auctions / competitive bidding. The Commission proposes to permit post-auction disaggregation and partitioning of
AWS licenses. Public comment is also sought on construction and build-out requirements and how to control in-band and out-of-band
interference. Please let us know if you are interested in commenting on this proceeding.
[Top]
Commission Poised to Streamline Tower Review Process; Order May Be Appealed
In a 3/2 split decision, the Commission voted on September 9 to adopt provisions of a Nationwide Programmatic Agreement intended
to streamline the review process for the erection and use of communications towers under the National Historic Preservation
Act ("NHPA"). Tower constructions have significantly increased since the late 1990s. The streamlined process will seek to
protect historic, religious and cultural properties, while at the same time reducing the paperwork, delays and uncertainty
associated with the tower review process. The Agreement must be approved by the Advisory Council on Historic Preservation
(the "Council") and the National Conference of State Historic Preservation Officers (the "Conference"), and signed by the
FCC, the Council and the Conference.
The new streamlined process will include the following key elements: (1) standards for identifying historic properties and
eligible properties that are not listed on the National Registers; (2) review procedures with enforceable deadlines for review
by the FCC and State Historic Preservation Officers ("SHPO"); (3) forms to standardize filings with SHPOs; (4) procedures
for communicating with Indian Tribes and Native Hawaiian Organizations in order to ensure protection of historic properties
in which such groups have an interest; and (5) establishing categories of tower improvements or "undertakings" that are excluded
from review, including enhancements to existing towers, replacement and temporary towers, construction of towers on industrial
and commercial properties or in utility corridor rights-of-way, and construction in areas designated by a SHPO.
In voting against the item, Commissioner Abernathy raised a concern that the Commission may not have the legal authority under
NHPA to adopt the agreement with respect to all antenna facilities. In her view, the NHPA authorizes the Commission only to
regulate the construction of facilities pursuant to site-based licenses, such as broadcast licenses. In a dissenting statement,
Commissioner Abernathy stated: "I believe the Commission is exceeding its statutory authority in regulating antenna facilities
where the FCC does not issue a construction permit. To the extent there is no license grant for the construction of an antenna
facility it does not appear to me that there is any federal undertaking." Under the NHPA, a federal undertaking exists when
there is federal funding, federal ownership or a federal grant or license. Communications Daily reported that CTIA President
Steve Largent agrees with Commissioner Abernathy that the FCC exceeded "its statutory authority in regulating CMRS towers
where the FCC does not issue a construction permit . . . . This is an issue the courts will have to decide."
[Top]
Paxson Files Mandamus Petition with DC Circuit to Expedite FCC’s Digital Broadcast Carriage Proceedings
In an effort to expedite the FCC’s proceedings regarding the carriage of broadcast digital television signals over cable,
Paxson Communications filed a mandamus petition with the United States Court of Appeals for the District of Columbia. The
August 27, 2004 petition asked the court to give the FCC 30 days to resolve its rules governing the obligations of cable operators
to carry broadcasters’ full digital signals. Although the FCC initiated this proceeding more than six years ago, the DC Circuit
Court is not likely to hear this matter unless there is a showing of undue delay. Nevertheless, Paxson’s petition may prompt
the Court to ask the FCC to respond to it directly.
[Top]
FCC Establishes Rules to Guide Digital Transition of Low-Power TV and TV Translator Stations
On September 9, 2004, the FCC established rules to guide the conversion of low-power TV ("LPTV") and TV translator stations
from analog to digital. These stations deliver free over-the-air TV service to millions of viewers in rural and discrete urban
communities. The order allows existing LPTV and translator stations to convert to digital operations ("flash-cut") on their
current channel, and applications for this purpose will be accepted on a first-come, first-served basis. The Commission also
plans to provide VHF channels 2-13 and UHF channels 14-51 (except channel 37) for the digital operation of these television
services. All digital LPTV and translator stations will operate on a secondary, non-interfering basis with respect to primary
services, including the commercial wireless and public safety services. Finally, while the transition of these stations is
a priority, the Commission intends to resolve various issues surrounding the transition of full-service stations prior to
setting a deadline for the transition of low-power and translator stations.
[Top]
McCain-Ensign Bill to Expedite Digital Television Transition and Provide $1 Billion to Aid Low-Income Viewers Comes Before
the Commerce Committee
Arizona Senator John McCain, Chairman of the Senate Commerce Committee, and Senator John Ensign of Nevada recently introduced
legislation to expedite the transition to digital television, along with a measure to ensure that underprivileged consumers
who rely on over-the-air television will not be left in the dark once this transition takes place. Current law requires broadcasters
to give up their present airwaves by 2007, or when 85 percent of the nation can receive the new digital signals, whichever
comes later. Many predict that under these laws the transition could take a decade or more. The McCain-Ensign bill, which
was slated for hearing in the Commerce Committee on September 22, would set a firm 2009 deadline for broadcasters.
The Satellite Home Viewer Extension and Rural Consumer Access to Digital Television Act requires broadcasters to air only
digital television signals by 2009, and could provide up to $1 billion to help low-income consumers buy a device that would
convert digital broadcast signals back to analog signals. Consumers without digital television sets could also use the subsidies
to receive pay television service that would offer them either the new signals or a converted signal that they could see.
There are two main objectives behind the push for a full DTV transition. First, the spectrum that will be free of television
broadcast signals will likely be auctioned to commercial wireless services, creating the $1 billion for subsidies envisioned
by the McCain/Ensign bill. Second, the freed airwaves will benefit public safety groups seeking better means of communication
for use in potential national crises or terrorist attacks.
Critics of the bill include some television broadcasters who are reluctant to switch their signals back to analog after having
spent millions of dollars upgrading to digital. Broadcasters are also opposed to the provision that could create more business
for their rival pay-television service providers.
[Top]
Commission Lifts ISP on Additional Routes and Seeks Further Comment on US-India Route
Earlier this year, the Commission reformed its rules to remove its international settlements policy ("ISP") from routes that
comply with Commission-mandated benchmark settlement rates. The Commission listed 96 routes already exempt from the ISP, and
listed 77 additional routes that were believed to be benchmark-compliant and thus potentially exempt from the ISP under its
new rules. The Commission took comment on these 77 additional routes believed to be benchmark-compliant, and parties filed
comments raising concerns about two of the routes – the US-Philippine route and the US-Papua New Guinea route. Another party
filed comments arguing that the US-India route, which was not on the list of 77 routes, is benchmark-compliant and should
also be exempt from the ISP.
On August 31, 2004, the International Bureau ("IB") lifted the ISP for 26 of the 77 additional routes for which no parties
raised concerns and for which current rates are on file with the Commission. The US-China and US-Russia routes are among the
26 new routes now exempt from the ISP. The remaining 51 routes either had concerns raised or have expired rates on file. (The
Commission’s rules do not require new rates to be filed if they are identical to the existing filed rate.) The IB indicated
that it will continue lifting the ISP from some of the additional routes as it receives certification that the current rates
on those routes are benchmark-compliant. With the 26 new routes, there are now 122 routes that are exempt from the ISP.
In addition, the IB sought comment on the US-India route, which should have been included on the original list. This route
has an expired, but benchmark-compliant, rate on file, and thus the IB requests confirmation that the current rates comply
with the benchmarks. Comments on the US-India route are due on September 30, and reply comments are due October 15.
[Top]
FCC Releases Text of Second Report and Order on Spectrum Leasing
On September 2, the FCC released a Second Report and Order ("Order"), Order on Reconsideration ("Recon Order"), and Second
Further Notice of Proposed Rulemaking ("FNPRM"), which it previously adopted in July in the secondary markets proceeding.
Under the Order, certain categories of de facto transfer spectrum leases and spectrum manager leases, which do not raise public interest concerns relating to eligibility
and use, foreign ownership, designated entity/entrepreneur matters, or competition, will be subject to immediate approval
procedures. Approval will be reflected in the Universal Licensing System on the next business day after the parties file the
application. Short-term de facto transfer leases will be subject to the same immediate approval procedures as for long-term de facto transfer leases, and will no longer be processed under the special temporary authorization procedures. The FCC also eliminated
the requirement that parties file their spectrum lease notifications within 14 days of execution of their contractual arrangement.
Additionally, the FCC extended its spectrum leasing policies to additional Wireless Radio Services, including Public Safety
Services (if the lessee is another public safety entity or an entity providing communications in support of public safety
operations), Automated Maritime Telecommunications Systems Services, and Multichannel Video Distribution and Data Services.
The FCC also confirmed and clarified its rules regarding leasing of designated entity licenses, as well as its policies regarding
"smart" or "opportunistic" use technologies.
In the Recon Order, the FCC confirmed that licensees in spectrum manager leasing arrangements are directly responsible for
rule violations by their spectrum lessees, but added a reasonableness element requiring that the licensee "use all reasonable
legal means necessary to enforce compliance." The FCC also clarified that: (1) the licensee must retain the ability to terminate
a spectrum lessee for non-compliance with FCC rules, but the lessee could be afforded protections against arbitrary termination
by the licensee; (2) the licensee relies upon the spectrum lessee to satisfy construction requirements at the risk of the
licensee; (3) the spectrum lessees are the "PCS entities" responsible for cost-sharing obligations triggered by spectrum lessees
under both spectrum manager and de facto transfer leases; and (4) no spectrum manager lease notification of a de facto transfer lease application can propose a term longer than the current license term, though spectrum leasing arrangements
can be renewable in the event of renewal of the underlying license.
Furthermore, the FNPRM seeks comment on additional steps that the FCC could take to facilitate the development of secondary
markets in spectrum usage rights, particularly those that would enhance the development of advanced technologies. Comments
are due November 17, 2004, and replies are due December 17, 2004.
[Top]
Justice Department and FBI Complain of CALEA Compliance Problems with VOIP Providers at House Telecom Subcommittee Hearing
At a House Telecommunications Subcommittee Hearing, Department of Justice ("DOJ") and FBI officials complained of difficulties
in obtaining wiretaps from Voice over Internet Protocol ("VOIP") service providers. DOJ and FBI officials indicated that many
VOIP providers introduced new products and services without giving much thought to Communications Assistance for Law Enforcement
Act ("CALEA") requirements, but the officials declined to offer details of these problems out of concern for the sensitivity
of the information. Some industry representatives and subcommittee members raised concerns that the FCC’s proposed CALEA rules
could thwart technological innovation and force U.S. companies to test new technologies overseas.
[Top]
Local Number Portability Developments
At a recent open meeting, the Commissioners approved a Further Notice of Proposed Rulemaking ("FNPRM") that requests comment
on the North American Numbering Council’s ("NANC’s") proposal to reduce the time in which carriers must complete local number
portability ("LNP") between wireless and wireline carriers (also known as intermodal porting). NANC proposes to reduce the
time by about 45 percent, from 96 to 53 hours. The FNPRM also seeks comment on alternative ways to reduce the porting interval
and on whether smaller and rural carriers should be exempt from the shorter porting interval.
Reaction to the NANC proposal has generally been positive. CTIA President Steve Largent indicated that the proposal makes
the intermodal porting process "more consumer friendly." Commissioner Copps said that while he is "greatly encouraged" by
the proposal, he wanted to carefully examine the potential impact on small and rural carriers. Commissioner Martin added that
he was "pleased" that the FCC and NANC recognized that the shorter porting period may not be appropriate for certain classes
of carriers.
Comments are due 30 days after publication in the Federal Register, and reply comments are due 60 days after publication.
On a related note, the South Dakota Public Utility Commission ("PUC") recently granted 23 incumbent carriers a 16-month extension
to comply with FCC requirements for intermodal LNP. According to the carriers that received the extension, it would be very
expensive to install the function that would allow intermodal LNP and there is little consumer demand for the feature.
In response, wireless carriers pointed to surveys indicating that consumers would pay higher rates and be more likely to switch
from wireline to wireless service if they could port their landline numbers. Cellular One announced that it may challenge
the PUC’s decision.
[Top]
Chairman Powell Asks Congress to Codify Nextel Spectrum Swap; Nextel Balks at Terms of FCC Order
Chairman Powell recently testified before a Senate committee and urged Congress to codify the FCC’s 800 MHz order, which offers
a solution to Nextel’s interference with public-safety operations in the 800 MHz band. The order requires Nextel to contribute
$4.8 billion in cash and spectrum to pay for rebanding 800 MHz spectrum. In return, Nextel would receive the contiguous spectrum
that it wants at 800 MHz and 1.9 GHz to offer advanced wireless services.
In late September, Nextel asked the FCC to modify the order. Specifically, Nextel requested that the FCC place a higher value
on the spectrum that Nextel would return under the terms of the order. If the FCC grants this request, it would decrease the
amount of cash Nextel would pay under the current version of the order by as much as $700 million. Nextel has also asked the
FCC for additional concessions, including the right to use some of its current spectrum until the transition is complete.
While the FCC declined comment on the Nextel proposal, a Nextel spokeswoman indicated that the company seeks quick resolution
of this issue.
In a September 21 filing with the FCC, Nextel provided additional details regarding its position, and attempted to defuse
accusations that it was attempting to illegally renegotiate the order. A Nextel spokesman claimed that the company was not
"fundamentally looking to change the report and order." In its filing, Nextel explained that the report and order undervalues
the spectrum it would return because the FCC miscalculated Nextel’s POPs (that is, the number of persons within Nextel’s wireless
footprint). The company indicated that because the order values Nextel’s spectrum based on 234 million POPs instead of Nextel’s
actual national coverage of 286 million POPs, it undervalues the spectrum by $740 million. Nextel also wants the FCC to give
it credit for the base stations it will need to add to compensate for capacity it will lose as a result of the band reconfiguration.
The company hopes to reach compromises with the FCC on these issues before the order is published in the Federal Register.
Even if the FCC and Nextel reach a compromise, the final agreement will likely face challenges from third parties. The General
Accountabing Office may investigate whether the FCC plan would disburse money from the sale of spectrum, a power reserved
only for Congress. Verizon Wireless indicated that it would appeal the FCC’s decision to award the 1.9 GHz spectrum without
holding an auction. Upon receiving word of Nextel’s latest proposal, Verizon’s general counsel accused Nextel of "trying to
shave off hundreds of millions of dollars from its responsibility to the public safety community."
Chairman Powell urged Congress to codify the order and render these potential legal challenges moot. He claimed that the order
would survive legal challenges, but explained that if Congress does not act quickly and the 800 MHz spectrum is tied up in
litigation, public safety will be jeopardized.
[Top]
FTC Fines Carriers for Improperly Using Credit Reports to Deny Service
The FTC concluded that Sprint and AT&T were reviewing credit reports to determine which customers posed a credit risk, and
were requiring advance payments from those customers or denying them service. As a result, the FTC fined Sprint $1.125 million
and AT&T $365,000, and ordered the carriers to comply with the Fair Credit Reporting Act. The FTC ruled that the carriers
violated a federal law requiring businesses to notify consumers when their credit report serves as the basis of an "adverse
action." Both companies provided customers with incomplete notices, and in some instances, Sprint failed to provide any notice.
Sprint and AT&T officials refused to concede that they had violated any laws and explained that paying the fines was preferable
to lengthy litigation.
[Top]
FCC Reaches Do-Not-Call Settlement with Primus
A division of Primus Telecommunications Group, Inc. reached a $400,000 settlement with the FCC for making telemarketing calls
in violation of the national do-not-call list. Gerry Simone, spokeswoman for Primus, indicated that "human error" was the
source of the violations. The FCC began its investigation of Primus last December, after receiving more than 90 complaints
from consumers who indicated that they received the telemarketing calls even though their names were on the do-not-call registry.
Primus is among the first companies to be investigated under the do-not-call rules, which became effective last October. Although
the FCC has investigated only a few companies under these rules, the agency has received thousands of complaints. A spokeswoman
for the FCC indicated that to date, the agency has received between 10,000 and 12,000 consumer complaints alleging do-not-call
registry violations.
[Top]
VOIP Uncertainties Continue
VOIP-related issues continue to engage regulators on both sides of the Atlantic. Although little progress has been made in
the US since our last report – it now appears unlikely that Congress will act on the pending VOIP-related legislation during
the current session, and the new chief of the FCC’s Wireline Bureau, Jeffrey Carlisle, has stated that he doubts that the
agency can get a comprehensive order out before the end of the year because of the size of the record and the number of issues
– European regulatory bodies are considering whether and how IP-enabled services should be regulated. The UK’s Office of Communications
"Ofcom" recently opened a "public consultation" by stating that it intends to lightly regulate new voice services, including
VOIP. Ofcom is seeking public comment on a number of issues, including whether new voice services should offer the same standard
features and levels of consumer protection as publicly available telephone service and how to handle access to emergency services.
The European Commission also is considering how to regulate VOIP services that use numbering resources and access the public
switched networks. Comments filed by competitive carriers in that proceeding urged the EC to recommend uniform authorization
processes in the member states to promote a single European market and not harm the growth of IP-based communications services.
In the US, Pulver.com is "seriously considering" filing a petition with the FCC asking that VOIP providers be allowed access
to numbering resources for IP-based communications technical trials. Pulver.com is expected to ask that VOIP companies be
allowed to have separate, non-geographic area-codes for experimental purposes. SBC’s IP subsidiary already has filed a petition
asking for authority to run technical trials using North American Numbering Plan "NANP" or Pooling Administration numbering
resources. In addition, the SBC IP unit has asked for a waiver of the state certification prerequisite for obtaining numbers.
[Top]
Telecommunications Industry Continues to Battle over Network Unbundling Rules
The FCC’s release of interim network unbundling rules on August 20, in the wake of the D.C. Circuit decision overturning much
of the FCC’s Triennial Review Order ("TRO"), has not brought much stability or clarity for incumbent local exchange carrier ("ILEC") unbundling obligations.
On August 27, the Association for Local Telecommunications Services ("ALTS") and eight competitive local exchange carriers
("CLECs") filed a petition for emergency clarification and/or errata requesting the FCC to clarify that the six-month standstill
in the interim rules applies to change-of-law provisions in interconnection agreements. ALTS and the CLECs argue that, contrary
to the obvious intent of the interim rules, the text inadvertently authorizes ILECs to implement new rates, terms or conditions
for the provision of unbundled network elements ("UNEs") resulting from change-of-law proceedings once the interim rules are
published in the Federal Register, rather than specifying that such changes may be implemented only after the end of the six-month
standstill. They also argue that the provision in the interim rules authorizing state commission orders raising UNE rates
to supersede the June 15 rates frozen in place by the interim rules inadvertently omitted state commission orders reducing
UNE rates, which also should supersede the June 15 rates.
On September 1, the FCC and the U.S. Department of Justice ("DOJ") filed an opposition to the petitions filed by the National
Association of Regulatory Utility Commissioners ("NARUC"), state commissions and CLECs seeking Supreme Court review of the
D.C. Circuit decision. The FCC/DOJ brief argues that, although the D.C. Circuit’s analysis of those aspects of the TRO that
it overturned is "inconsistent in some respects with the applicable principles of deferential judicial review," Supreme Court
review is unwarranted because the FCC intends to adopt new rules conforming to the D.C. Circuit opinion expeditiously, thereby
avoiding the prolonged uncertainty that would result from Supreme Court review and further remand proceedings. The four Bell
companies ("Bells") and the U.S. Telecom Association ("USTA") also filed in opposition to the state/CLEC petitions, pointing
out that the Supreme Court has never granted review of a decision invalidating an agency order where the government did not
seek review. The Bells and USTA also assert that there is no support for petitioners’ argument that the FCC’s delegation of
competition "impairment" issues to the state commissions was proper. Most industry observers agree that Supreme Court review
is unlikely, given the government’s opposition.
On September 16, the FCC responded to the mandamus petition filed in August by Qwest, Verizon and USTA seeking invalidation
of the FCC’s interim rules. The Bells and USTA had argued in their petition that, in issuing the interim rules, the FCC essentially
granted itself the stay of the D.C. Circuit’s decision that the court previously denied. The FCC asserts that the interim
rules do not reinstate the rules vacated by the D.C. Circuit, but, rather, constitute "precisely the sort of short-term transitional
rule that this court has upheld in the past" and that, given the FCC’s intent to adopt final rules shortly, there is no need
for the extraordinary remedy of mandamus. The court authorized the Bells and USTA to file a reply by September 27. On September
23, as an alternative to mandamus relief, USTA, Qwest and Verizon also appealed the interim rules to the D.C. Circuit. One
commentator, a former FCC general counsel, has stated that the FCC could protect the interim rules from invalidation by reconsidering
the rules on its own motion to add a finding that nothing in the record contradicts the need for continued unbundling rules
for six months.
With regard to the FCC’s preparation of permanent unbundling rules on remand from the D.C. Circuit decision, ALTS filed a
request on September 8 for access to confidential line count information filed in the FCC’s non-rural universal service support
proceeding. ALTS explained that it sought a "limited modification" of the confidentiality rules so that it can use that line
count data to conduct competition impairment analyses with regard to dedicated transport facilities in the unbundling remand
rulemaking. CompTel/ASCENT supported ALTS’ request, noting that access to such data would "place CLECs on a more equal footing
with ILECs." AT&T and other CLECs also supported the request. BellSouth, SBC and Verizon responded on September 17, in their
own emergency petition, that the CLECs have unique access to information that is at least as relevant to the impairment inquiry
as the ILECs’ line density information and requested the FCC to grant ALTS’ request only if the FCC also grants the ILEC request
for CLEC information. Qwest separately argued that the ALTS request should be denied because of the CLECs’ access to relevant
information.
On September 13, a summary of the FCC’s August 20 order promulgating the interim rules and requesting comments on permanent
unbundling rules was published in the Federal Register. The publication starts the six-month standstill phase of the interim
rules freezing UNE rates, terms and conditions in effect in interconnection agreements as of June 15. Comments on permanent
rules are due on October 4, and reply comments on October 19. The FCC also notified interested parties that the Wireline Competition
Bureau’s Competition Policy Division staff will be available for ex parte meetings regarding comments on the permanent unbundling
rules only during the period October 11 14.
In related developments, the FCC, on September 7, denied the emergency petition for stay pending appeal filed by CompTel/ASCENT
and four CLECs of the FCC’s "all-or-nothing" order, which interpreted Section 252(i) of the Communications Act to require
that a CLEC opt into an existing interconnection agreement in its entirety or not at all, rather than selecting the most favorable
provisions. The FCC noted that the Ninth Circuit had previously denied the petitioners’ motion for stay pending appeal. On
September 8, AT&T petitioned for reconsideration of the FCC’s order extending the partial exemption from ILEC unbundling obligations
for residential broadband services to multiple dwelling units ("MDUs") that are "predominantly residential." AT&T argued that
the order threatens to eliminate competition for customers in the vaguely-defined category of predominantly residential MDUs
and arbitrarily distinguishes between those customers and others in similar buildings. On September 9, a group of 37 CLECs
filed a petition for declaratory ruling asking the FCC to clarify that, notwithstanding recent changes in UNE rules, SBC and
Verizon are still subject to the unbundling obligations to which they committed in seeking FCC approval for their respective
mergers with Ameritech and GTE several years ago. Comments on the petition are due October 4 and reply comments on October
19.
In the wake of the uncertain regulatory environment created by the D.C. Circuit’s decision and the interim rules, a few state
commissions are moving ahead with their proceedings addressing batch "hot-cut" processes, under which an ILEC simultaneously
migrates two or more subscriber lines, or "loops," from one carrier’s local switch to another carrier’s switch. In late August,
SBC urged the California PUC to refrain from taking action on batch hot-cut processes, arguing that the PUC’s proposed hot-cut
pricing rules constitute an attempt to implement FCC regulations that were vacated by the D.C. Circuit and would be premature
before the FCC issues permanent unbundling rules to replace the vacated rules. CLECs argued that the PUC should adopt its
batch hot-cut pricing proposal to ensure that reliable, seamless, cost-effective batch hot-cut services are available to them.
A PUC administrative law judge subsequently requested comments addressing the impact of the FCC’s interim unbundling rules
on the PUC’s proposed batch hot-cut rules. It was reported on August 27 that the New York PSC ("NYPSC") adopted new permanent
rates for Verizon hot cuts and opened a second phase in the same docket to establish performance standards for Verizon hot
cuts. The NYPSC based the rates on the assumption that the hot-cut process will remain inherently manual for the foreseeable
future, rejecting CLEC claims that currently available technologies would allow Verizon to migrate loops electronically. Other
Verizon states in the Northeast and mid-Atlantic region have been watching the New York case, and many had halted their own
hot-cut cases to see what the NYPSC decided.
It was reported on August 31 that the North Carolina Utility Commission ("NCUC") denied AT&T’s petition for an emergency declaratory
ruling prohibiting Verizon from unilaterally terminating its UNE offerings. The NCUC found no indication that Verizon intended
to terminate its UNE offerings in violation of its contract obligations. On September 23, however, the California PUC granted
AT&T’s request for an emergency order maintaining the status quo and enjoined Verizon from eliminating local switching and
transport UNEs it now offers, citing Verizon’s stated intent to eliminate UNEs.
In several states, Verizon is attempting to eliminate the "enterprise" local switching UNE (i.e., local switching provided to business customers with more than four lines) from its offerings to most CLECs pursuant to
change-of-law provisions in many of its interconnection agreements. Verizon argues that the TRO established the presumption
that CLECs are not "impaired" in the enterprise local service market in the absence of access to unbundled switching and that
the D.C. Circuit did not reverse that presumption. Verizon concludes that it should be allowed to withdraw enterprise local
switching UNEs, which are not covered by its commitment to continue most UNE offerings through mid-November, from its offerings
under the change-of-law provisions in the great majority of its 3,500 interconnection agreements. Accordingly, it has requested
commissions in several states to remove the CLECs covered by those agreements from the mass arbitrations opened by Verizon
at those commissions because no change in the agreements is necessary for Verizon to withdraw enterprise switching. On August
27, a Vermont Public Service Board hearing officer agreed to remove most CLECs from the Verizon arbitration case on the condition
that any CLEC asserting that Verizon has misinterpreted the change-of-law provision in its interconnection agreement may file
a request for arbitration of a contract interpretation dispute. On September 24, it was reported that SBC filed a complaint
against over 100 CLECs before the Ohio PUC requesting that the PUC approve changes to its unbundling obligations to conform
them to current federal law, reflecting the D.C. Circuit decision and the FCC’s interim unbundling rules.
On September 7, it was reported that an NYPSC administrative law judge indefinitely suspended a docket on the pricing of UNE-P
offerings (i.e., combinations of the local loop, local switching, and shared transport UNEs), stating that it would not be
prudent to proceed until there is final resolution of the FCC’s rulemaking on permanent unbundling rules. The following week,
an NYPSC administrative law judge refused CLEC requests to dismiss Verizon proposals for revising certain cost inputs to its
UNE rates and to open a broad UNE rate case, stating that a full UNE rate case would not be appropriate until the FCC’s UNE
rulemaking is resolved. Similarly, the New Jersey Board of Public Utilities ("BPU") denied requests from Verizon and AT&T
for reconsideration of the UNE rates the BPU set in April, explaining that it would not make sense to tinker with the rates
while the FCC is scheduled to establish permanent unbundling obligations this year. On September 21, however, the Michigan
PSC approved rate increases for SBC’s UNE loops and UNE-P packages ranging from 5 to 15 percent, and the California PUC voted
on September 23 to approve a 20 percent rate increase for SBC’s UNE offerings, rejecting alternative proposals for much greater
increases and for significant reductions. The Michigan and California commission UNE rate increases were harshly criticized
by CLECs. More than 11 state commissions have changed UNE rates since the beginning of 2004.
On September 9, the Maine PUC ordered Verizon to continue including UNEs in its intrastate tariffs because of its obligations
to competitors under Section 271 of the Communications Act, which governs Bell requests for authorization to provide long
distance services. In applying for long distance authority under Section 271, a Bell company must demonstrate satisfaction
of a checklist that includes compliance with unbundling obligations. The Maine PUC rejected a hearing examiner’s conclusion
that it should hold off on setting UNE rates until the FCC resolves its rulemaking establishing permanent unbundling rules,
citing its "significant authority" to enforce Section 271 obligations. Similarly, it was reported on September 15 that the
NCUC staff recommended that BellSouth be required to continue offering CLECs line sharing (i.e., permitting a CLEC to use
the higher-capacity portion of an ILEC loop to provide broadband service to the ILEC’s local service subscriber) for new customers
under its Section 271 obligations.
In early September, the Missouri PSC refused to reconsider its July decision rejecting an amendment to SBC’s interconnection
agreement with Sage Telecom. The PSC had rejected the amendment because SBC and Sage had not filed a network access agreement
that the PSC found was "indivisible" with the amendment and thus should have been filed with their request for approval of
the amendment. On September 16, it was reported that AT&T had agreed to settle a complaint brought by the Washington Utilities
& Transportation Commission ("WUTC") alleging that 13 CLECs, including AT&T, and Qwest had failed to file their interconnection
agreements so that they would be available to other requesting carriers, as required by federal and state law. AT&T agreed
to pay a fine of $1,000 and to file any remaining unfiled agreements by the end of October and any new agreements within 30
days. MCI, Covad and XO Communications had settled the WUTC complaint previously.
It was reported on September 10 that Covad announced that it had signed an agreement with SBC continuing SBC’s provision of
line sharing to new small and medium-sized business and residential customers in 11 states until September of 2005 at existing
contract rates. On September 16, it was reported that Verizon has signed multi-year agreements to continue providing the underlying
network for DSCI’s enterprise customers, replacing the UNE-P arrangements previously provided. Verizon announced on September
21 that it had concluded an interim line sharing agreement with Covad through January 31, 2005 while the parties negotiate
a longer-term agreement. Pursuant to the phasing out of line sharing obligations in the TRO, Verizon had planned to stop accepting
new orders for line sharing after October 2, 2004. Covad stated that the line sharing agreements with SBC and Verizon, as
well as another with Qwest, will allow Covad to secure continued access to line sharing for the "vast majority" of its line
sharing base.
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