Wednesday, March 17, 2004 7:07:20 PM
Merger and Acquisition News
Cingular Wins Bid for AT&T Wireless; Regulatory Approvals to Follow
On February 17, 2004, Cingular Wireless ("Cingular") won its bid to acquire AT&T Wireless ("AT&T") for $41 billion. The $41 billion deal for AT&T, the equivalent of $15 a share, values the company at nearly 10 times its projected earnings for 2005. Cingular's competition for AT&T included UK-based Vodafone, against whom Cingular endured a bidding war, and earlier bids from DoCoMo and Nextel Communications. Vodafone holds a 45% stake in Verizon Wireless ("Verizon").
Cingular, a joint venture between SBC Communications and BellSouth, is the second- largest wireless carrier in the nation today; AT&T ranks number three. Together, Cingular and AT&T will surpass Verizon and become the nation's largest wireless carrier with approximately 46 million subscribers. The consolidation will reduce the number of national wireless competitors from 6 to 5, which may lead to less ongoing pressure to cut consumer prices.
The perception in the press is that Cingular, as opposed to other bidders, had the most to gain by acquiring AT&T because of projected cost savings from the consolidation of networks, marketing, advertising and other functions. The combined entity, which will be operated under the Cingular name, will have twice the spectrum and customer base as Cingular had before the acquisition. Layoffs are expected for AT&T employees due to "duplicate functions" in the two organizations. Before the merger was announced, AT&T already planned to eliminate 1,900 jobs from its work force by the end of 2005.
The merger is anticipated to close late in 2004 after receiving the necessary shareholder and regulatory approvals. Approval will be required from both the Department of Justice and the Federal Communications Commission. While Cingular's chief operating officer, Ralph de la Vega, stated that he does not believe any divestitures will be required as a condition of regulatory approvals, some industry-watchers have a different view. According to Legg Mason's Equity Research service there may be local markets in which market penetration of the combined companies is so high that divestiture will be required. For example, in Dallas, Miami, San Antonio, Oklahoma City, Orlando and Jacksonville, AT&T and Cingular hold the original A-block and B-block cellular licenses. These holdings may garner heightened scrutiny from regulators, who could condition approval of the merger on divestiture in these markets.
The U.S. Senate also expressed early concern over the merger. Senators Kohl (D-WI) and DeWine (R-OH), both of whom sit on the Antitrust Subcommittee of the Senate Judiciary Committee, stated that they will "closely monitor" the proposed acquisition. "t appears that the much anticipated consolidation in the wireless telephone industry is now underway," said a joint statement from the Senators. "For several years, consumers have benefited from vibrant competition in this industry with several national providers. . . . We will closely monitor this deal, and any subsequent transactions in this industry, to insure that millions of consumers who rely on cell phones continue to realize the benefits of a competitive marketplace."
XO Outbids Qwest for Purchase of Allegiance Telecom
In an historic step toward consolidation among the CLECs, Herndon, Virginia-based XO Communications emerged as the winning bidder for Allegiance Telecom, a Texas-based CLEC that filed for bankruptcy protection in May of 2003. Allegiance has agreed, subject to bankruptcy court approval, to sell the bulk of its assets for about $311 million in cash and approximately 45.38 million shares of XO common stock. The deal, which is also subject to state and federal regulatory approval, will combine the two largest CLECs in the U.S., creating more competition for traditional local telephone companies.
Allegiance Telecom is a facilities-based integrated communications provider that is currently operational in 36 U.S. markets. Allegiance offers small to medium-sized business customers a variety of communications services, including local, long distance and a full suite of Internet services. XO outbid a Bell operating company, Qwest Communications Corporation, which had earlier agreed to purchase the assets of Allegiance for $300 million in cash and the assumption of $90 million in debt.
Comcast Bids $66 Billion for Disney
In a hostile takeover offer, Comcast Corporation has bid $66 billion for the Walt Disney Company. On February 16, the Board of Directors of Disney rejected the offer as too low. Disney did, however, leave itself open to a better offer. Comcast is the nation's largest cable company. Disney's holdings include the ABC television network, ESPN and other cable networks, the Disney and Miramax movie studios, and Walt Disney theme parks around the world.
Such a deal has already raised concerns. The Federal Communications Commission and Department of Justice or Federal Trade Commission would have to approve any deal between Comcast and Disney. FCC Chairman Powell and Commissioner Copps have already indicated that the FCC would look very carefully at the deal. Congress has also indicated that it is quite concerned. Both John McCain, chairman of the Senate Commerce Committee and Mike DeWine, the Republican chairman of the Senate Antitrust Committee, have stated that Congress would scrutinize the deal if it went ahead. Consumer groups are already raising concerns.
FCC Launches Electioneering Database
The FCC's Media Bureau launched an Electioneering Communications Database to help determine whether a communication sent by broadcast, cable or satellite could reach 50,000 or more people in a particular congressional district or state. If the communication reaches that number, it may be considered an "electioneering communication," as defined in Section 304 of the Federal Election Campaign Act of 1971, as amended. In addition, Section 316 of the Federal Election Campaign Act prohibits certain entities from paying for electioneering communications.
A person who spends more than $10,000 on an electioneering communication in any calendar year must file a statement with the Federal Election Commission that includes certain information on the communication. The database is available at http://svartifoss2.fcc.gov/ecd. The database will remain unchanged through the end of the 2004 election cycle. The Bipartisan Campaign Reform Act of 2002 directed the FCC to create the database.
Commission and Intergovernmental Tribal Group Reach Agreement on Tower Siting
The United South and Eastern Tribes ("USET") and the Commission signed a Memorandum of Understanding ("MOU") at a recent USET legislative conference. Characterizing the MOU as "historic," Chairman Powell explained that it was the first agreement of its kind that the Commission has entered into with American Indian tribes. The goal of the MOU is to protect sacred and historic tribal resources, while facilitating the deployment of wireless services to all Americans.
The MOU will attempt to further these goals by establishing best practices, which are voluntary methods that will allow the wireless industry and tribes to preserve culturally significant tribal lands. This type of preservation is also critical to the National Historic Preservation Act, which requires federal agencies to consider how their actions will affect property included in, or eligible for, the National Register of Historic Places. USET and the Commission have indicated that they will soon complete a final draft of the voluntary best practices.
The best practices regime provides for the establishment of an Internet-based Tower Construction Notification System. Under that system, anyone proposing tower construction can file an electronic notification about the proposal. Upon receiving notice, tribes and historic preservation officers can submit electronic responses that will be sent to the tower project planner. The Commission will begin sending these electronic notifications during the first week of March.
In the meantime, the wireless industry has expressed concerns regarding the best practices requirements. Wireless groups have urged the Commission to clarify that the best practices will not supplant or change any existing relationships between a tower applicant and a tribe. The wireless industry has also lobbied the Commission to ensure that the best practices remain voluntary.
FCC Proposes Extending Service Outage Reporting Requirements to Wireless Providers
Citing the need for more reliable telecommunications and improved homeland security, the Commission adopted an NPRM on February 12 that would subject wireless providers to the service outage reporting requirements. The Commission also proposed a common metric for all services subject to the service outage reporting requirements. In the NPRM, the Commission proposed a service outage reporting requirement threshold of any outage that lasts at least thirty minutes and potentially affects at least 900,000 "user minutes." The Commission proposed to calculate "user minutes" by multiplying the minutes of the duration by the number of end users who could be affected by the outage.
Announcing that it needed more timely information on service outages than it currently receives, the Commission proposed a system in which wireless, wireline, cable, and satellite providers would electronically notify the Commission of service outages. In order to facilitate this reporting, the Commission has proposed an electronic template that service providers would submit via the Internet.
The Commission based the template, a copy of which is attached to the NPRM, on its experience in managing service outage reporting requirements for wireline providers. The proposal would subject wireless and satellite providers to mandatory service outage reporting for the first time. Under the current scheme, only wireline and cable providers are required to submit service outage reports. Chairman Powell explained the importance of including emerging technologies in the service outage reporting requirements and indicated that the expanded reporting requirements would give communications providers more opportunities to identify possible vulnerabilities in their systems.
Despite that potential benefit, wireless providers remain adamant that a voluntary reporting system would be more efficient than a mandatory system. CTIA President Steve Largent recently stated that a voluntary regime is the best way to facilitate cooperation among carriers and to monitor network reliability. In response to the wireless industry's call for a voluntary system, Edmond Thomas, Chief of the Office of Engineering and Technology, responded that the voluntary reporting system that currently exists for wireless providers has been ineffective.
Tenth Circuit Court of Appeals Upholds Do-Not-Call Registry
The Tenth Circuit Court of Appeals issued a ruling on four consolidated cases that challenged the national do-not-call registry. Those suits claimed that the First Amendment prohibits the government from establishing an opt-in regulation that allows consumers to restrict commercial calls if there is not a similar mechanism to restrict charitable and political calls. The court concluded that the do-not-call registry is a valid commercial speech regulation under the First Amendment. The court explained that the do-not-call registry: (1) limits only commercial speech; (2) targets speech that constitutes an invasion of privacy; (3) allows the consumer to choose whether to restrict the speech; and (4) furthers the important government interests of preventing abusive telemarketing and invasions of privacy. Chairman Powell characterized the decision as "a triumph for American consumers."
In a related development, the Federal Trade Commission is seeking comments on two issues related to a proposed amendment to the Do-Not-Call rules of the Telemarketing Sales Rule. The proposed amendment would require telemarketers to update their Do-Not-Call lists each month, rather than quarterly as the current requirements provide. The FTC seeks comment on whether the amendment should use the phrase "once a month" rather than every "thirty (30) days." It also seeks comment on a proper effective date for the proposed amendment.
Local Number Portability Developments
Telemarketers Seek Safe Harbor from TCPA Rules
The Direct Marketing Association and the Newspaper Association of America (collectively, the "Petitioners") are seeking a declaratory ruling from the Commission that telemarketers will not be liable for certain automated calls made to numbers that have been ported to wireless telephones. Specifically, the Petitioners request that the Commission adopt a "safe harbor" from the provisions of the Telephone Consumer Protection Act ("TCPA") that prohibit autodialed telemarketing calls to wireless telephones.
Although wireline-wireless porting began November 24, 2003 in the top 100 markets in the United States, a comprehensive technique for telemarketers to identify numbers that have been ported to wireless phones has yet to be implemented. The Petitioners have been working with NeuStar, which administers the Local Number Portability Administration Center, to create a data file that telemarketers can use to determine whether a wireline number has changed to a wireless number. The Petitioners claim, however, that even with the number information obtained from NeuStar marketers will be unable to update their call lists instantly. "It is inevitable that somewhere between the time a number is ported and the time a marketer can update its calling lists a marketer will place an autodialed telemarketing call to the now-wireless number."
Accordingly, the Petitioners request that the Commission protect telemarketers from enforcement action by adopting provisions modeled after the Do Not Call safe harbor provisions of the TCPA. Under this proposal, a telemarketer would not be liable for autodialed calls to wireless ported numbers if the telemarketer adhered to certain operating procedures, such as subscribing to a wireless suppression service and updating its call lists every thirty days.
Standard MSA List Being Created by NANC; Request that FCC Delay May 24 Deadline
Although wireless local number portability ("LNP") took effect in the top 100 Metropolitan Statistical Areas ("MSA") on November 24, 2003, it is scheduled to take effect in the remaining MSAs on May 24, 2004. The North American Numbering Council ("NANC") has been formulating a list of the counties and rate centers associated with the largest MSAs so that the porting obligations of carriers will be clear. There is some concern, however, that NANC may not release the list until shortly before the May 24 deadline.
Cingular Wireless recently urged the Commission to postpone the LNP compliance date for the locations on NANC's list. According to Cingular, carriers still must focus the majority of their efforts on "other issues that are bigger contributors to the confusion and delay that often occurs" with regard to porting. As an example, Cingular identified technological issues and delays still present in wireline-to-wireless porting requests. Cingular claims that compliance with NANC's MSA list would divert carriers' time and resources, creating additional delays in the porting process.
Transfer of Licenses to "New" MCI Is Appealed
In our last edition, we reported that the FCC had approved the license transfers from WorldCom to the "new" MCI emerging from bankruptcy. The United Church of Christ ("UCC") now has appealed this decision to the D.C. Circuit Court of Appeals. UCC asks the court to direct the FCC to hold a hearing to assess whether WorldCom's conduct disqualifies it from remaining an FCC licensee. The FCC ruled in December that the Securities and Exchange Commission, the bankruptcy court and others had assessed WorldCom's conduct and imposed remedies, and that other proceedings remain pending. Given that those who committed the improprieties were not part of the new MCI, the FCC found the license transfers to be in the public interest. UCC now alleges that the FCC violated its own rules by abdicating its role in making independent determinations regarding MCI's fitness as a licensee.
Federal Judges Question FCC Diversity Index, UHF Discount
A three-judge panel of the 3rd Circuit Court of Appeals heard oral arguments on February 11, 2004, in a case challenging some of the FCC's media ownership rules, and called the FCC's diversity index for local cross-ownership "inconsistent."
"They're obviously inconsistent treatments here," Chief Judge Anthony Sirica said after hearing arguments against the FCC methodology behind the index. Consumers Union, which challenged the FCC ownership rules adopted in 2003, contended that the diversity index caused irrational results in the local newspaper-broadcast cross-ownership rules. The court allowed Consumers Union's attorney additional time to argue that the FCC "tool" was flawed. Judge Thomas Ambro said the FCC should have been clearer when drafting the index. The judges, who have not heard many FCC cases, granted all parties additional time during arguments.
As expected, the court took a pass on challenges to the 39-percent national media ownership cap. In late January, Congress approved legislation to limit a new FCC rule that would have allowed a single company to own local television stations capable of reaching 45 percent of the national TV audience. The bill, which President George Bush signed into law on January 22, set the ceiling at 39 percent instead of the FCC's intended 45 percent.
The court, however, allowed arguments on the UHF discount, which counts the audience reach of UHF stations as half that of VHF stations. The three-judge panel questioned whether the issue was moot. The FCC said it would revisit the discount in light of the transition to digital television.
As a result, the FCC on February 19 issued a public notice announcing that it would initiate a limited comment period to address whether Congress' enactment of the 39-percent national television ownership limit has any bearing on the FCC's authority to modify or eliminate the UHF discount. The FCC asks for comments that address, for example, whether passage of the 39-percent cap signifies congressional approval, adoption or ratification of the 50-percent UHF discount. Comments will be due 21 days from the date of the public notice's publication in the Federal Register. Reply comments will be due 31 days from the date of publication in the Federal Register.
Consumer Groups Challenge Broadcast Flag Rule in Court, File FCC Comments
A coalition of consumer groups filed a lawsuit earlier this month challenging the FCC decision to institute a "broadcast flag" to protect programming content from redistribution over the Internet. The suit was filed in the U.S. Court of Appeals for the D.C. Circuit by Consumer Federation of America, Consumers Union, Electronic Frontier Foundation, and Public Knowledge, among others. The coalition contends that the FCC violated the rights of television viewers and computer users by unlawfully and arbitrarily requiring that all devices with demodulators comply with the broadcast flag. Library groups, which are part of the coalition, say they use content for scholarly and other purposes and should be exempt from compliance.
The broadcast flag is intended to protect broadcast content from being redistributed over the Internet. Under the FCC ruling, consumer electronics devices and personal computers will be required, by 2005, to develop a broadcast flag that prevents a broadcasted digital television signal from redistribution on the Internet. The Motion Picture Association of American and broadcasters have sought this protection for years, but consumer groups fear the flag will prevent fair use of broadcast content by consumers.
In other action, Consumers Union and Public Knowledge are seeking reconsideration of the order before the FCC and have filed comments challenging the broadcast flag. The groups warned the FCC to keep broadcast flag rules as narrow as possible. Public Knowledge and Consumers Union said the FCC should refrain from extending the flag's copy protection regime to new technologies, such as software-defined radio. "Because the software and hardware components of software-defined radio are inexpensive, modifiable, widely duplicable and universally available, applying the broadcast flag scheme to software defined radio would leave the Commission in a position of regulating every programmer, personal computer, and antenna because the combination of these elements might result in a non-compliant device," the groups said.
In addition, the National Music Publishers Association ("NMPA") requested that the broadcast flag rule apply to digital audio broadcasts as well as digital video broadcasts. The NMPA expressed concern about a Samsung home audio/visual center that allows consumers to copy music videos from television broadcasts, strip the video, and release the audio over the Internet in MP3 format. The Motion Picture Association of America and the National Cable Television Association also requested that the rule be made more stringent.
Hopeful Commerce Committee Chairman Calls for Telecom Overhaul in 2005
Congress may rewrite portions of current telecommunications law as early as 2005, Senate Appropriations Chairman Ted Stevens, R-Alaska, told a USTA Leadership Conference recently. Stevens, who is vying for leadership of the Senate Commerce Committee in 2005, plotted a road map of reform that includes expanding Universal Service Fund contributions and an agenda of "regulatory parity."
Stevens, a seven-term senator, said he intends to seek chairmanship of the Commerce Committee in 2005. Republican senators are bound by self-imposed term limits for committee chairmanships. Stevens and current Commerce Committee Chairman John McCain, R-Ariz., will see their leadership terms expire at the end of this session. In both parties, chairman seats are set by party leaders. Stevens' seniority and current chairmanship of a prestigious committee are factors in his favor, but more is involved, including personal, political and geographical considerations. Observers say Stevens is virtually assured of the position.
Although Stevens predicts significant efforts to reform telecommunications law in 2005, he acknowledged that comprehensive legislative reform could take years. Stevens offered few specifics, but said legislative efforts would seek "regulatory parity." He said USF reform would be a key initiative, and advocated a revised formula that would require more parties, including broadband service providers, to pay into the system.
Hill and industry sources also predicted that Rep. Joe Barton, R-Tex., who is believed to be the front runner for a possible opening for House Commerce Committee chairman, would advocate a major overhaul of telecom policy. Current House Energy and Commerce Committee Chairman Billy Tauzin, R-La., has been in talks with industry associations and has announced his plans to retire before the end of the 109th Congress.
It is highly unlikely that any significant legislation would move this year, given election year politics. Although Stevens said he would like to see Enhanced 911 ("E911") funding legislation pass this year, its spending requirements make it controversial. The bill, S. 1250, would request $500 million a year for E911 deployment, compared with the $100 million-a-year price tag on E911 legislation that already has passed the House, H.R. 2989, Stevens said carriers were having trouble building out E911 technology because of other regulatory requirements, including local number portability.
Sources said Stevens worked very closely with Sen. Ernest Hollings, former Commerce Committee chairman, during the drafting of the Telecommunications Act of 1996. Another source said Stevens has close ties to AT&T, especially since the company bought a regional Alaskan long distance provider in the late 1980s. "He's not a Bell-head, he's supportive of the Telecommunications Act," an industry source said. Meanwhile, Barton is said to be likely to support Bell positions on telecommunications reform.
Ongoing Controversy Regarding Philippine Phone Rates Prompts U.S. Anti-Trust Investigation
Eleven months ago the Commission ordered U.S. long distance carriers AT&T and MCI to suspend payments to six Philippine carriers because they had increased termination rates by almost 50 percent and disrupted service to the U.S. carriers when they refused to pay such high rates. Although the Commission has since lifted the suspension against five of the Philippine carriers, the Department of Justice recently subpoenaed executives of the Philippine telecommunications companies while they were attending a conference in Honolulu, Hawaii. The subpoenas directed the executives to appear before a Honolulu grand jury investigating possible collusion between the Philippine carriers in setting rates for terminating calls from the United States.
Reaction to the DOJ's anti-trust investigation has been strong. The Philippine government and carriers have expressed confusion and anger because they feel that the matter was sufficiently resolved when the Philippine carriers reached agreement with the U.S. carriers regarding termination rates and the Commission lifted its payment suspension. The Philippine National Telecommunications Commission ("NTC") also sent a letter to the Commission seeking information regarding the investigation. Although the DOJ and the Commission are separate agencies, the NTC stated that the Commission had the duty to question whether the DOJ's inquiry was appropriate. Other members of the Philippine government have criticized the DOJ for the way in which it has handled its investigation, stating that the subpoenas needlessly embarrassed the executives and the Philippine government over a private dispute between carriers.
Cingular Wins Bid for AT&T Wireless; Regulatory Approvals to Follow
On February 17, 2004, Cingular Wireless ("Cingular") won its bid to acquire AT&T Wireless ("AT&T") for $41 billion. The $41 billion deal for AT&T, the equivalent of $15 a share, values the company at nearly 10 times its projected earnings for 2005. Cingular's competition for AT&T included UK-based Vodafone, against whom Cingular endured a bidding war, and earlier bids from DoCoMo and Nextel Communications. Vodafone holds a 45% stake in Verizon Wireless ("Verizon").
Cingular, a joint venture between SBC Communications and BellSouth, is the second- largest wireless carrier in the nation today; AT&T ranks number three. Together, Cingular and AT&T will surpass Verizon and become the nation's largest wireless carrier with approximately 46 million subscribers. The consolidation will reduce the number of national wireless competitors from 6 to 5, which may lead to less ongoing pressure to cut consumer prices.
The perception in the press is that Cingular, as opposed to other bidders, had the most to gain by acquiring AT&T because of projected cost savings from the consolidation of networks, marketing, advertising and other functions. The combined entity, which will be operated under the Cingular name, will have twice the spectrum and customer base as Cingular had before the acquisition. Layoffs are expected for AT&T employees due to "duplicate functions" in the two organizations. Before the merger was announced, AT&T already planned to eliminate 1,900 jobs from its work force by the end of 2005.
The merger is anticipated to close late in 2004 after receiving the necessary shareholder and regulatory approvals. Approval will be required from both the Department of Justice and the Federal Communications Commission. While Cingular's chief operating officer, Ralph de la Vega, stated that he does not believe any divestitures will be required as a condition of regulatory approvals, some industry-watchers have a different view. According to Legg Mason's Equity Research service there may be local markets in which market penetration of the combined companies is so high that divestiture will be required. For example, in Dallas, Miami, San Antonio, Oklahoma City, Orlando and Jacksonville, AT&T and Cingular hold the original A-block and B-block cellular licenses. These holdings may garner heightened scrutiny from regulators, who could condition approval of the merger on divestiture in these markets.
The U.S. Senate also expressed early concern over the merger. Senators Kohl (D-WI) and DeWine (R-OH), both of whom sit on the Antitrust Subcommittee of the Senate Judiciary Committee, stated that they will "closely monitor" the proposed acquisition. "t appears that the much anticipated consolidation in the wireless telephone industry is now underway," said a joint statement from the Senators. "For several years, consumers have benefited from vibrant competition in this industry with several national providers. . . . We will closely monitor this deal, and any subsequent transactions in this industry, to insure that millions of consumers who rely on cell phones continue to realize the benefits of a competitive marketplace."
XO Outbids Qwest for Purchase of Allegiance Telecom
In an historic step toward consolidation among the CLECs, Herndon, Virginia-based XO Communications emerged as the winning bidder for Allegiance Telecom, a Texas-based CLEC that filed for bankruptcy protection in May of 2003. Allegiance has agreed, subject to bankruptcy court approval, to sell the bulk of its assets for about $311 million in cash and approximately 45.38 million shares of XO common stock. The deal, which is also subject to state and federal regulatory approval, will combine the two largest CLECs in the U.S., creating more competition for traditional local telephone companies.
Allegiance Telecom is a facilities-based integrated communications provider that is currently operational in 36 U.S. markets. Allegiance offers small to medium-sized business customers a variety of communications services, including local, long distance and a full suite of Internet services. XO outbid a Bell operating company, Qwest Communications Corporation, which had earlier agreed to purchase the assets of Allegiance for $300 million in cash and the assumption of $90 million in debt.
Comcast Bids $66 Billion for Disney
In a hostile takeover offer, Comcast Corporation has bid $66 billion for the Walt Disney Company. On February 16, the Board of Directors of Disney rejected the offer as too low. Disney did, however, leave itself open to a better offer. Comcast is the nation's largest cable company. Disney's holdings include the ABC television network, ESPN and other cable networks, the Disney and Miramax movie studios, and Walt Disney theme parks around the world.
Such a deal has already raised concerns. The Federal Communications Commission and Department of Justice or Federal Trade Commission would have to approve any deal between Comcast and Disney. FCC Chairman Powell and Commissioner Copps have already indicated that the FCC would look very carefully at the deal. Congress has also indicated that it is quite concerned. Both John McCain, chairman of the Senate Commerce Committee and Mike DeWine, the Republican chairman of the Senate Antitrust Committee, have stated that Congress would scrutinize the deal if it went ahead. Consumer groups are already raising concerns.
FCC Launches Electioneering Database
The FCC's Media Bureau launched an Electioneering Communications Database to help determine whether a communication sent by broadcast, cable or satellite could reach 50,000 or more people in a particular congressional district or state. If the communication reaches that number, it may be considered an "electioneering communication," as defined in Section 304 of the Federal Election Campaign Act of 1971, as amended. In addition, Section 316 of the Federal Election Campaign Act prohibits certain entities from paying for electioneering communications.
A person who spends more than $10,000 on an electioneering communication in any calendar year must file a statement with the Federal Election Commission that includes certain information on the communication. The database is available at http://svartifoss2.fcc.gov/ecd. The database will remain unchanged through the end of the 2004 election cycle. The Bipartisan Campaign Reform Act of 2002 directed the FCC to create the database.
Commission and Intergovernmental Tribal Group Reach Agreement on Tower Siting
The United South and Eastern Tribes ("USET") and the Commission signed a Memorandum of Understanding ("MOU") at a recent USET legislative conference. Characterizing the MOU as "historic," Chairman Powell explained that it was the first agreement of its kind that the Commission has entered into with American Indian tribes. The goal of the MOU is to protect sacred and historic tribal resources, while facilitating the deployment of wireless services to all Americans.
The MOU will attempt to further these goals by establishing best practices, which are voluntary methods that will allow the wireless industry and tribes to preserve culturally significant tribal lands. This type of preservation is also critical to the National Historic Preservation Act, which requires federal agencies to consider how their actions will affect property included in, or eligible for, the National Register of Historic Places. USET and the Commission have indicated that they will soon complete a final draft of the voluntary best practices.
The best practices regime provides for the establishment of an Internet-based Tower Construction Notification System. Under that system, anyone proposing tower construction can file an electronic notification about the proposal. Upon receiving notice, tribes and historic preservation officers can submit electronic responses that will be sent to the tower project planner. The Commission will begin sending these electronic notifications during the first week of March.
In the meantime, the wireless industry has expressed concerns regarding the best practices requirements. Wireless groups have urged the Commission to clarify that the best practices will not supplant or change any existing relationships between a tower applicant and a tribe. The wireless industry has also lobbied the Commission to ensure that the best practices remain voluntary.
FCC Proposes Extending Service Outage Reporting Requirements to Wireless Providers
Citing the need for more reliable telecommunications and improved homeland security, the Commission adopted an NPRM on February 12 that would subject wireless providers to the service outage reporting requirements. The Commission also proposed a common metric for all services subject to the service outage reporting requirements. In the NPRM, the Commission proposed a service outage reporting requirement threshold of any outage that lasts at least thirty minutes and potentially affects at least 900,000 "user minutes." The Commission proposed to calculate "user minutes" by multiplying the minutes of the duration by the number of end users who could be affected by the outage.
Announcing that it needed more timely information on service outages than it currently receives, the Commission proposed a system in which wireless, wireline, cable, and satellite providers would electronically notify the Commission of service outages. In order to facilitate this reporting, the Commission has proposed an electronic template that service providers would submit via the Internet.
The Commission based the template, a copy of which is attached to the NPRM, on its experience in managing service outage reporting requirements for wireline providers. The proposal would subject wireless and satellite providers to mandatory service outage reporting for the first time. Under the current scheme, only wireline and cable providers are required to submit service outage reports. Chairman Powell explained the importance of including emerging technologies in the service outage reporting requirements and indicated that the expanded reporting requirements would give communications providers more opportunities to identify possible vulnerabilities in their systems.
Despite that potential benefit, wireless providers remain adamant that a voluntary reporting system would be more efficient than a mandatory system. CTIA President Steve Largent recently stated that a voluntary regime is the best way to facilitate cooperation among carriers and to monitor network reliability. In response to the wireless industry's call for a voluntary system, Edmond Thomas, Chief of the Office of Engineering and Technology, responded that the voluntary reporting system that currently exists for wireless providers has been ineffective.
Tenth Circuit Court of Appeals Upholds Do-Not-Call Registry
The Tenth Circuit Court of Appeals issued a ruling on four consolidated cases that challenged the national do-not-call registry. Those suits claimed that the First Amendment prohibits the government from establishing an opt-in regulation that allows consumers to restrict commercial calls if there is not a similar mechanism to restrict charitable and political calls. The court concluded that the do-not-call registry is a valid commercial speech regulation under the First Amendment. The court explained that the do-not-call registry: (1) limits only commercial speech; (2) targets speech that constitutes an invasion of privacy; (3) allows the consumer to choose whether to restrict the speech; and (4) furthers the important government interests of preventing abusive telemarketing and invasions of privacy. Chairman Powell characterized the decision as "a triumph for American consumers."
In a related development, the Federal Trade Commission is seeking comments on two issues related to a proposed amendment to the Do-Not-Call rules of the Telemarketing Sales Rule. The proposed amendment would require telemarketers to update their Do-Not-Call lists each month, rather than quarterly as the current requirements provide. The FTC seeks comment on whether the amendment should use the phrase "once a month" rather than every "thirty (30) days." It also seeks comment on a proper effective date for the proposed amendment.
Local Number Portability Developments
Telemarketers Seek Safe Harbor from TCPA Rules
The Direct Marketing Association and the Newspaper Association of America (collectively, the "Petitioners") are seeking a declaratory ruling from the Commission that telemarketers will not be liable for certain automated calls made to numbers that have been ported to wireless telephones. Specifically, the Petitioners request that the Commission adopt a "safe harbor" from the provisions of the Telephone Consumer Protection Act ("TCPA") that prohibit autodialed telemarketing calls to wireless telephones.
Although wireline-wireless porting began November 24, 2003 in the top 100 markets in the United States, a comprehensive technique for telemarketers to identify numbers that have been ported to wireless phones has yet to be implemented. The Petitioners have been working with NeuStar, which administers the Local Number Portability Administration Center, to create a data file that telemarketers can use to determine whether a wireline number has changed to a wireless number. The Petitioners claim, however, that even with the number information obtained from NeuStar marketers will be unable to update their call lists instantly. "It is inevitable that somewhere between the time a number is ported and the time a marketer can update its calling lists a marketer will place an autodialed telemarketing call to the now-wireless number."
Accordingly, the Petitioners request that the Commission protect telemarketers from enforcement action by adopting provisions modeled after the Do Not Call safe harbor provisions of the TCPA. Under this proposal, a telemarketer would not be liable for autodialed calls to wireless ported numbers if the telemarketer adhered to certain operating procedures, such as subscribing to a wireless suppression service and updating its call lists every thirty days.
Standard MSA List Being Created by NANC; Request that FCC Delay May 24 Deadline
Although wireless local number portability ("LNP") took effect in the top 100 Metropolitan Statistical Areas ("MSA") on November 24, 2003, it is scheduled to take effect in the remaining MSAs on May 24, 2004. The North American Numbering Council ("NANC") has been formulating a list of the counties and rate centers associated with the largest MSAs so that the porting obligations of carriers will be clear. There is some concern, however, that NANC may not release the list until shortly before the May 24 deadline.
Cingular Wireless recently urged the Commission to postpone the LNP compliance date for the locations on NANC's list. According to Cingular, carriers still must focus the majority of their efforts on "other issues that are bigger contributors to the confusion and delay that often occurs" with regard to porting. As an example, Cingular identified technological issues and delays still present in wireline-to-wireless porting requests. Cingular claims that compliance with NANC's MSA list would divert carriers' time and resources, creating additional delays in the porting process.
Transfer of Licenses to "New" MCI Is Appealed
In our last edition, we reported that the FCC had approved the license transfers from WorldCom to the "new" MCI emerging from bankruptcy. The United Church of Christ ("UCC") now has appealed this decision to the D.C. Circuit Court of Appeals. UCC asks the court to direct the FCC to hold a hearing to assess whether WorldCom's conduct disqualifies it from remaining an FCC licensee. The FCC ruled in December that the Securities and Exchange Commission, the bankruptcy court and others had assessed WorldCom's conduct and imposed remedies, and that other proceedings remain pending. Given that those who committed the improprieties were not part of the new MCI, the FCC found the license transfers to be in the public interest. UCC now alleges that the FCC violated its own rules by abdicating its role in making independent determinations regarding MCI's fitness as a licensee.
Federal Judges Question FCC Diversity Index, UHF Discount
A three-judge panel of the 3rd Circuit Court of Appeals heard oral arguments on February 11, 2004, in a case challenging some of the FCC's media ownership rules, and called the FCC's diversity index for local cross-ownership "inconsistent."
"They're obviously inconsistent treatments here," Chief Judge Anthony Sirica said after hearing arguments against the FCC methodology behind the index. Consumers Union, which challenged the FCC ownership rules adopted in 2003, contended that the diversity index caused irrational results in the local newspaper-broadcast cross-ownership rules. The court allowed Consumers Union's attorney additional time to argue that the FCC "tool" was flawed. Judge Thomas Ambro said the FCC should have been clearer when drafting the index. The judges, who have not heard many FCC cases, granted all parties additional time during arguments.
As expected, the court took a pass on challenges to the 39-percent national media ownership cap. In late January, Congress approved legislation to limit a new FCC rule that would have allowed a single company to own local television stations capable of reaching 45 percent of the national TV audience. The bill, which President George Bush signed into law on January 22, set the ceiling at 39 percent instead of the FCC's intended 45 percent.
The court, however, allowed arguments on the UHF discount, which counts the audience reach of UHF stations as half that of VHF stations. The three-judge panel questioned whether the issue was moot. The FCC said it would revisit the discount in light of the transition to digital television.
As a result, the FCC on February 19 issued a public notice announcing that it would initiate a limited comment period to address whether Congress' enactment of the 39-percent national television ownership limit has any bearing on the FCC's authority to modify or eliminate the UHF discount. The FCC asks for comments that address, for example, whether passage of the 39-percent cap signifies congressional approval, adoption or ratification of the 50-percent UHF discount. Comments will be due 21 days from the date of the public notice's publication in the Federal Register. Reply comments will be due 31 days from the date of publication in the Federal Register.
Consumer Groups Challenge Broadcast Flag Rule in Court, File FCC Comments
A coalition of consumer groups filed a lawsuit earlier this month challenging the FCC decision to institute a "broadcast flag" to protect programming content from redistribution over the Internet. The suit was filed in the U.S. Court of Appeals for the D.C. Circuit by Consumer Federation of America, Consumers Union, Electronic Frontier Foundation, and Public Knowledge, among others. The coalition contends that the FCC violated the rights of television viewers and computer users by unlawfully and arbitrarily requiring that all devices with demodulators comply with the broadcast flag. Library groups, which are part of the coalition, say they use content for scholarly and other purposes and should be exempt from compliance.
The broadcast flag is intended to protect broadcast content from being redistributed over the Internet. Under the FCC ruling, consumer electronics devices and personal computers will be required, by 2005, to develop a broadcast flag that prevents a broadcasted digital television signal from redistribution on the Internet. The Motion Picture Association of American and broadcasters have sought this protection for years, but consumer groups fear the flag will prevent fair use of broadcast content by consumers.
In other action, Consumers Union and Public Knowledge are seeking reconsideration of the order before the FCC and have filed comments challenging the broadcast flag. The groups warned the FCC to keep broadcast flag rules as narrow as possible. Public Knowledge and Consumers Union said the FCC should refrain from extending the flag's copy protection regime to new technologies, such as software-defined radio. "Because the software and hardware components of software-defined radio are inexpensive, modifiable, widely duplicable and universally available, applying the broadcast flag scheme to software defined radio would leave the Commission in a position of regulating every programmer, personal computer, and antenna because the combination of these elements might result in a non-compliant device," the groups said.
In addition, the National Music Publishers Association ("NMPA") requested that the broadcast flag rule apply to digital audio broadcasts as well as digital video broadcasts. The NMPA expressed concern about a Samsung home audio/visual center that allows consumers to copy music videos from television broadcasts, strip the video, and release the audio over the Internet in MP3 format. The Motion Picture Association of America and the National Cable Television Association also requested that the rule be made more stringent.
Hopeful Commerce Committee Chairman Calls for Telecom Overhaul in 2005
Congress may rewrite portions of current telecommunications law as early as 2005, Senate Appropriations Chairman Ted Stevens, R-Alaska, told a USTA Leadership Conference recently. Stevens, who is vying for leadership of the Senate Commerce Committee in 2005, plotted a road map of reform that includes expanding Universal Service Fund contributions and an agenda of "regulatory parity."
Stevens, a seven-term senator, said he intends to seek chairmanship of the Commerce Committee in 2005. Republican senators are bound by self-imposed term limits for committee chairmanships. Stevens and current Commerce Committee Chairman John McCain, R-Ariz., will see their leadership terms expire at the end of this session. In both parties, chairman seats are set by party leaders. Stevens' seniority and current chairmanship of a prestigious committee are factors in his favor, but more is involved, including personal, political and geographical considerations. Observers say Stevens is virtually assured of the position.
Although Stevens predicts significant efforts to reform telecommunications law in 2005, he acknowledged that comprehensive legislative reform could take years. Stevens offered few specifics, but said legislative efforts would seek "regulatory parity." He said USF reform would be a key initiative, and advocated a revised formula that would require more parties, including broadband service providers, to pay into the system.
Hill and industry sources also predicted that Rep. Joe Barton, R-Tex., who is believed to be the front runner for a possible opening for House Commerce Committee chairman, would advocate a major overhaul of telecom policy. Current House Energy and Commerce Committee Chairman Billy Tauzin, R-La., has been in talks with industry associations and has announced his plans to retire before the end of the 109th Congress.
It is highly unlikely that any significant legislation would move this year, given election year politics. Although Stevens said he would like to see Enhanced 911 ("E911") funding legislation pass this year, its spending requirements make it controversial. The bill, S. 1250, would request $500 million a year for E911 deployment, compared with the $100 million-a-year price tag on E911 legislation that already has passed the House, H.R. 2989, Stevens said carriers were having trouble building out E911 technology because of other regulatory requirements, including local number portability.
Sources said Stevens worked very closely with Sen. Ernest Hollings, former Commerce Committee chairman, during the drafting of the Telecommunications Act of 1996. Another source said Stevens has close ties to AT&T, especially since the company bought a regional Alaskan long distance provider in the late 1980s. "He's not a Bell-head, he's supportive of the Telecommunications Act," an industry source said. Meanwhile, Barton is said to be likely to support Bell positions on telecommunications reform.
Ongoing Controversy Regarding Philippine Phone Rates Prompts U.S. Anti-Trust Investigation
Eleven months ago the Commission ordered U.S. long distance carriers AT&T and MCI to suspend payments to six Philippine carriers because they had increased termination rates by almost 50 percent and disrupted service to the U.S. carriers when they refused to pay such high rates. Although the Commission has since lifted the suspension against five of the Philippine carriers, the Department of Justice recently subpoenaed executives of the Philippine telecommunications companies while they were attending a conference in Honolulu, Hawaii. The subpoenas directed the executives to appear before a Honolulu grand jury investigating possible collusion between the Philippine carriers in setting rates for terminating calls from the United States.
Reaction to the DOJ's anti-trust investigation has been strong. The Philippine government and carriers have expressed confusion and anger because they feel that the matter was sufficiently resolved when the Philippine carriers reached agreement with the U.S. carriers regarding termination rates and the Commission lifted its payment suspension. The Philippine National Telecommunications Commission ("NTC") also sent a letter to the Commission seeking information regarding the investigation. Although the DOJ and the Commission are separate agencies, the NTC stated that the Commission had the duty to question whether the DOJ's inquiry was appropriate. Other members of the Philippine government have criticized the DOJ for the way in which it has handled its investigation, stating that the subpoenas needlessly embarrassed the executives and the Philippine government over a private dispute between carriers.
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