Patton Boggs TechComm Industry Update – April 16, 2010

Telecom Consolidation Expected Around the World

As large companies seek to acquire new IP technology companies and the ISP market consolidates, telecommunications mergers and acquisitions are expected to dramatically increase in the coming years. Consolidation is expected on a global scale. In a recent New York Times article, Naguib Sawiris, the chief executive of Orascom, the Egyptian group that runs wireless phone networks around the world, predicted that the global industry of mobile operators will undergo major consolidation over the next few years, which could completely reshape the industry.

This increase in merger and acquisition activity is reportedly a result of rebounding global markets and the promise of nationwide mobile broadband services. Consolidation in the industry peaked in 2005 with $284.7 billion in merger and acquisition transactions. In more recent years, the financial crisis slowed the pace of mergers and acquisitions. However, in 2010 merger and acquisition transactions have increased and, according to Mergermarket, an economic analysis firm, the market is on track to grow by 50 percent.

Through March 18, 2010, there have been $31.2 billion in M&A telecom transactions. Of that $31.2 billion, $23.8 billion is tied to the Mexican billionaire Carlos Slim Helú’s consolidation of his holdings in three Latin American carriers, América Móvil, Carso Global and Telmex Internacional. Other large transactions include a $10.7 billion bid from Bharti Airtel of India for African businesses owned by Zain, a Kuwaiti operator with networks in the Middle East and two expected deals in Europe involving France Télécom, which since November has merged its Orange mobile operations in Britain and Switzerland with T-Mobile of Germany and TDC of Denmark, respectively. Some analysts are predicting that struggling, midsize competitors like Sprint Nextel in the United States, Telecom Italia, KPN of the Netherlands and TDC of Denmark are potential takeover candidates.

The federal government’s review of the proposed merger of Comcast Corporation (Comcast) and the NBC Universal (NBCU) unit currently owned by General Electric Company (GE) is in full swing with regulators weighing the impact of allowing the two media giants to wed. Congress began the examination in February and March with hearings in the House and Senate, and now the investigation shifts to the Department of Justice (DOJ) and the Federal Communications Commission (FCC), where is due May 3, 2010 on the applications to assign and transfer control of FCC licenses from GE to Comcast. (Responses to comments and oppositions to petitions to deny are due June 2, 2010, and the deadline for filing replies to responses or oppositions is June 17, 2010.) In its recently released Second Report & Order, the FCC again addressed questions regarding relationships between multichannel video programming distributors (MVPD) and owners of multiple dwelling unit (MDU) buildings. Building on its most recent decision in 2008, the FCC examined the question of whether two other types of agreements are permissible: bulk billing arrangements and exclusive marketing arrangements. Under bulk billing agreements, an MVPD charges a significantly lower rate if the MDU pays for service on each unit, regardless of actual take rates. The FCC concluded that the benefit to consumers in such arrangements outweighed any anti-competitive impact and ruled such agreements permissible. In the case of exclusive marketing arrangements – such as one where a single MVPD is permitted to distribute fliers in the MDU – the FCC determined that such arrangements did not prevent a competitive MDU from serving the MDU and therefore allowed such arrangements. The FCC recently released and presented to Congress its . There are interesting proposals and potential business opportunities throughout. The Plan sets the agenda for the Commission for the next 10 years on an array of issues, some of which Congress will need to address. Notably, the Plan adopts Congressman Rick Boucher's recommendation that the FCC set a 2015 milestone for 100 million households to have affordable broadband access to 50 Mbps downstream and 20 Mbps upstream.

• USF: A Notice of Proposed Rulemaking that proposes reforms to the existing High-Cost support program to identify funds that can be repurposed for broadband, and a Notice of Inquiry that seeks comment on adopting a model to determine efficient and targeted support levels for broadband deployment in high-cost areas.
• Set-Top Box/CableCard Reform: A Notice of Inquiry seeking comment on best approaches to assure the commercial availability of smart video devices and other equipment used to access the services of multichannel video programming distributors (MVPD). This item seeks to standardized interfaces that allow traditional TV and Internet video services to work across MVPD platforms. A Notice of Proposed Rulemaking that proposes changes to the CableCard rules for set-top boxes used with cable services, to improve the operation of that framework pending the development of a successor framework. The Plan recommended new CableCard rules by fall of this year.
• Roaming: An Order implementing rules to ensure the availability of reasonable automatic roaming arrangements for voice service, which could eliminate in-market exclusions, and a Further Notice of Proposed Rulemaking seeking comment on roaming arrangements for mobile broadband services.
• Survivability: A Notice of Inquiry seeking comment on the present state of survivability in broadband networks and potential measures to reduce vulnerability to network failures.
• Cybersecurity: A Notice of Inquiry seeking comment on whether the Commission should establish a voluntary program under which participating communications service providers would be certified by the FCC or a third party for adherence to cybersecurity objectives and/or practices.

In addition to these items, and to implement its recommendations from the National Broadband Plan, the FCC has released a 2010 agenda of key broadband action items. The agenda announces the purpose and timing of 61 rulemakings and proceedings as recommended in the Plan, encompassed in four key goals outlined below.

• Promote World-Leading Mobile Broadband by making an additional 500 megahertz of spectrum available for mobile broadband within the next 10 years, increase opportunities for unlicensed devices, expand incentives to repurpose spectrum to higher-valued uses, and improving the transparency of spectrum allocation and utilization.
          o Q2 Action Agenda Items include:
      §         Mobile Roaming Order and FNPRM
      §         Strategic Spectrum Plan and Triennial Assessment
      §         2.3 GHz WCS/SDARS Order
      §         D Block Order and NPRM
          o Q3 Action Agenda Items include:
      §         AWS Band Analysis
      §         Spectrum Sharing/Wireless Backhaul NPRM/NOI
      §         Opportunity Use of Spectrum NPRM
      §         TV White Spaces Opinion & Order
      §         MSS NPRM
      §         Broadcast TV Spectrum Innovation NPRM
      o Q4 Action Agenda Items include:
      §         AWS Potential Order
      §         Secondary Markets Internal Review
      §         Spectrum Dashboard 2.0
      §         Reccomendation regarding Contiguous Unlicensed Spectrum Proceeding
      §         Experimental Licensing NPRM

• Accelerate Universal Broadband Access and Adoption by transforming the Universal Service Fund over the next ten years to support broadband service, upgrading the E-rate program to make broadband more accessible, reform and upgrade the Rural Health Care Program to connect more public health facilities to high-speed Internet facilities and to foster telemedicine applications and services, create a Connect America Fund to extend broadband service to unserved areas, and create a Mobility Fund to bring all states to a baseline level of “3G” wireless coverage. 
         o Q2 Action Agenda Items include:
      §         USF Reform NPRM and NOI
      §         Lifeline and Low-Income Joint Board Referral Order
      §         E-Rate FY2011 NPRM
      §         USF Merger Commitments
      §         Lifeline Pilot Roundtable
      §         FCC/FDA Workshop and Public Notice on Converged Devices
      §         Launch of FCC Office of Native American Affairs
      §         FCC-Native Nations Broadband Task Force
      o Q3 Action Agenda Items include:
      §         Mobility Fund NPRM
      §         HAC Second Report and Order/FNPRM
      §         Rural Health Care Reform NPRM
      §         Lifeline Flexibility NPRM
      §         Establish Accessibility and Innovation Forum
      §         Real-Time Text NOI
      §         E-Rate FY2011 Order
      o Q4 Action Agenda Items include:
      §         Spectrum on Tribal Lands NPRM
      §         USF Transformation NPRM
      §         Intercarrier Compensation NPRM
      §         USF Contributions NPRM
      §         Real-Time Text NPRM
      §         Internet Video and Device Accessibility NOI

• Foster Competition and Maximize Consumer Benefits by enhancing broadband and marketplace choices for small businesses and mobile providers, improving consumer disclosures and FCC data collection, and fulfill a Congressional mandate to ensure that video navigation devices, such as smart video devices, are available to consumers in the marketplace.
      o Q2 Action Agenda Items include:
      §         Mobile Wireless Competition Report
      §         Pole Attachments Order and FNPRM
      §         Small Business Broadband & Wholesale Competition Public Notice     
      §         CableCARD NPRM
      §         Smart Video Devices NOI
      §         Launch of Technical Advisory Group on Speed and Performance
      §         Launch of Speed and Performance Measurement Program
      §         Special Access Workshop
      o Q3 Action Agenda Items include:
      §         Interconnection Clarification Order
      §         Rights-of-Way Task Force
      §         Special Access NPRM
      §         Transparency & Disclosure NPRM
      o Q4 Action Agenda Items include:
      §         Small Business Broadband & Wholesale Competition NOI
      §         Smart Video Devices NPRM
      §         Broadband Data NPRM
• Advance Robust and Secure Public Safety Communications Networks by facilitating the creation of a nationwide interoperable public safety wireless broadband network and assisting a transition to next-generation 911 and alerting systems.
      o Q2 Action Agenda Items include:
      §         Public Safety Roaming and Priority Access NPRM
      §         D Block Order and NPRM (same proceeding as above)
      §         700 MHz Waiver Petitions
      §         ERIC Public Safety Interoperability Order
      §         Cybersecurity Certification NOI
      §         Survivability NOI
      §         Service Outage and Homeland Security Workshop
      o Q3 Action Agenda Items include:
      §         700 MHz Public Safety Order/FNPRM
      §         Location Accuracy FNPRM
      o Q4 Action Agenda Items include:
      §         NG 911 NOI
      §         Back-Up Power NOI
      §         Service Outage and Homeland Security NPRM

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Net Neutrality Eclipses Senate Hearing on National Broadband Plan

An April 14 Senate Commerce Committee hearing to examine the National Broadband Plan turned into a debate on net neutrality.

Senate Commerce Committee Chairman Jay Rockefeller, D-WV, told FCC Chairman Julius Genachowski to do whatever it takes to enact net neutrality rules. Rockefeller said he would revamp the communications laws if necessary. “If there is a need to rewrite the law to provide consumers, the FCC and industry with a new framework, I will take that task on," Rockefeller said during the hearing.

Senator Byron Dorgan, D-ND, also called on Genachowski to classify Internet access under Title II common carrier regulations, while Senators Mike Johanns, R-NE, and Kay Bailey Hutchison, R-TX, the committee’s ranking member, said that the FCC does not have the authority from Congress to regulate the Internet.

Throughout the questioning, Genachowski did not reveal whether he plans to apply Title II to the Internet, but said that reviews are underway at the FCC, and that Title II regulation is being considered, although nothing has been decided.

Genachowski also told committee members that the FCC still has the authority to implement most of the National Broadband Plan. Genachowski said that the agency is moving as fast as it can, recently releasing a timeline for more than 60 rulemaking procedures and comment periods.

Rockefeller responded that collecting comments is not enough. “When are we going to see things happening?" he asked. The plan's recommendations include the phrase "Congress should..." more than 139 times, Rockefeller points out. "That begs the question, what are the priorities for the FCC coming out of this plan?""

Genachowski repeated the themes he has discussed in recent months. "I believe that the Communications Act—as amended in 1996—enables the Commission to, for example, reform universal service to connect everyone to broadband communications, including in rural areas and Native American communities; help connect schools and rural health clinics to broadband; take steps to ensure that we lead the world in mobile; promote competition; support robust use of broadband by small businesses to drive productivity, growth, job creation and ongoing innovation; protect and empower all consumers of broadband communications, including thorough transparency and disclosure to help make the market work; safeguard consumer privacy; work to increase broadband adoption in all communities and ensure fair access for people with disabilities; help protect broadband communications networks against cyber attack and other disasters; and ensure that all broadband users can reach 911 in an emergency."

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Spectrum Inventory, Caller ID Bills Clear House

The House cleared a bill on April 14 that would require federal regulators to inventory the nation’s radio spectrum.

H.R. 3125, sponsored by Rep. Henry Waxman, D-CA, passed the House by a 394-18 vote. A similar measure proposed by Sens. Olympia Snowe, R-ME, and John Kerry, D-MA, is pending in the Senate.

The House bill, which unanimously passed the House Energy and Commerce Committee that Waxman chairs last month, would require the FCC and NTIA to inventory spectrum use between 225 MHz and 3.7 GHz at a minimum, and to extend the inventory to 10 GHz unless doing so becomes too burdensome.

“With the benefit of this inventory, we can make informed, rational and deliberate decisions about how our spectrum is used in future decades to benefit the American people, American businesses and American innovation,” Waxman said on the House floor.

The House bill requires the FCC and NTIA to report to Congress on which spectrum, if any, should be reallocated or otherwise made available for shared access and why.

In addition to the spectrum inventory bill, House lawmakers also passed the Truth in Caller ID Act. H.R. 1258, sponsored by Eliot Engel, D-NY, blocks caller-ID spoofing that transmits misleading or inaccurate caller ID information with the intent to defraud or deceive. The bill would not prohibit caller ID blocking.

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Court Vacates FCC’s Net Neutrality Decision

Last week, the U.S. Court of Appeals for the District of Columbia vacated the FCC’s Comcast Corporation/BitTorrent decision. The Court concluded that the FCC did not have “any express statutory delegation of authority” to stop Comcast’s network management practices. One possible result of the decision may be that the FCC will reclassify Internet access services as Title II, Common Carrier services, over which the FCC has jurisdiction, providing them with grounds to more actively regulate Internet-based business activities.

Chairman Genachowski noted in the FCC’s Broadband Plan Agenda that the Comcast/BitTorrent decision does not change the FCC’s broadband policy goals, or the ultimate authority of the FCC to act to achieve those goals. FCC Spokesperson Jen Howard noted the following in the wake of the decision: “The FCC is firmly committed to promoting an open Internet and to policies that will bring the enormous benefits of broadband to all Americans. It will rest these policies – all of which will be designed to foster innovation and investment while protecting and empowering consumers – on a solid legal foundation. Today’s court decision invalidated the prior Commission’s approach to preserving an open Internet. But the Court in no way disagreed with the importance of preserving a free and open Internet; nor did it close the door to other methods for achieving this important end.”

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FCC Seeks Comment on Its Proposed New WCS Build-out Requirements and Technical Rules

The FCC seeks comment on whether it should revise its build-out requirements for Wireless Communications Service (WCS) licensees in the 2.3 GHz band amid technical rule changes the agency is expected to adopt soon. Comments are due April 21, 2010 and reply comments are due May 3, 2010. The FCC’s current buildout deadline for WCS spectrum, using long-established safe harbors for the band, is July 21, 2010.

In a separate public notice released on April 2, the FCC sought comment on the draft interference rules for WCS and Satellite Digital Audio Radio Service (SDARS) licensees that both use the 2.3 GHz spectrum. Comments are due by April 23. The Commission has been trying to reach resolution on these rules for 13 years. The draft rules include provisions to minimize the risk of harmful interference between SDARS and WCS operations. The draft rules would, among other proposals:

• Create a guard band of 2.5 megahertz on each side of the SDARS spectrum in which mobile operations would not be permitted to buffer the two services;
• Reduce WCS out-of-band emissions in steps to a level less than that of nearly any other mobile devices;
• Place caps on the peak-to-average power ratio and duty cycle of the WCS transmitters;
• Require WCS licensees to correct harmful interference to SDARS if it occurs;
• Codify technical and licensing provisions for SDARS terrestrial repeaters now operating under grants of special temporary authority. Blanket licensing is allowed for SDARS terrestrial repeaters that comply with the draft rules under a single earth station license similar to the licensing regime in place for Very Small Aperture Terminal (VSAT) satellite earth station networks. Terrestrial repeaters that do not comply with the draft rules would be subject to site-by-site licensing; and
• Require coordination in areas near to aeronautical telemetry receiver sites.

FCC Seeks Comment on the E-Rate Program’s Lowest Corresponding Price Rule

The United States Telecom Association and CTIA – The Wireless Association (Petitioners) filed a petition for declaratory ruling with the FCC seeking clarification on the E-rate Program’s lowest corresponding price rule, which requires service providers to not charge schools, school districts, libraries, library consortia or consortia containing any of these entities a price greater than the lowest price the service provider charges other customers without a finding from the FCC that the lowest corresponding price is not compensatory. The Petitioners request the following clarifications:

1. the lowest corresponding price rule only applies to competitive bids submitted by a provider in response to a Form 470;
2. the lowest corresponding price obligation is not a continuing obligation during the term of the contract;
3. there are no FCC rules detailing how a service provider is to comply with the lowest corresponding price rule;
4. individual services within a bundle do not need to be individually compared and priced; and
5. in a price challenge, the challenger (i.e., the school or library) is required to demonstrate a prima facie case that the bid is not the lowest corresponding price.

The FCC is seeking comment on the Petitioners’ request. Comments are due May 14, 2010 and reply comments are due June 1, 2010.

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Exploring Privacy FTC Roundtable Discussion

On March 17, the Federal Trade Commission (FTC) held a public roundtable on the impact of information and technological innovation on consumer privacy. The discussion brought multiple stakeholders – industry, academics, government and consumers – to the table to assess frameworks and methods for safeguarding consumer privacy in the digital age. This third roundtable focused on protecting sensitive consumer data, particularly health information. Separate sessions were held on Internet architecture and privacy; safeguarding health and other sensitive data; and reconciling the benefits and risks posed by new technologies.

Transparency and accountability were the key themes of the roundtable. Participants addressed the need for clearer policies, and rules governing data collection so that consumers can better understand the nature of information that is gathered about them and how it is used. Some commentators called for baseline standards for protecting consumer data, rather than allowing corporate privacy policies to dictate how information is used and disseminated. Panelists repeatedly stated that individuals are in the best place to judge the risks and benefits of sharing personal information – consumers simply need robust tools to make educated decisions about their choices.

Many third-party companies that manage or obtain consumer health data are not subject to HIPPA regulations. Some panelists expressed concern about extending HIPPA to apply to these companies. However, nearly all agreed that there is a need for more regulations governing how these entities handle personal health information. The FTC currently regulates non-HIPAA privacy practices under its general authority over unfair and deceptive acts and practices, which panelists argued are insufficient. Deborah Peel from Patient Privacy Rights, the only health care professional on any of the panels, observed that some people decline medical treatment because they do not want their health information “out there.” Panelists indicated dissatisfaction with the notice and choice mechanisms for privacy protection.

The FTC will release a summary of issues based on the comments filed in this proceeding.

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Rural Health Care Pilot Program Proposals Released

To date, 50 of the 68 participants who were approved to participate in the Rural Health Care Pilot Program have published requests for proposals (RFPs) on USAC’s Web site, seeking vendors and service providers to assist them in building broadband networks to support rural health care. Of the RFPs, the ones below were most recently posted to USAC’s Web site. Participants must wait at least 28 days before entering a contract date with a vendor. Please contact us for more information about these opportunities.

Many Stimulus Applications Filed; Not Many Applicants Receiving Awards

NTIA announced last week that it received 867 applications requesting $11 billion in funding for proposed broadband projects nationwide from the second round of broadband stimulus funding. After the first round of funding, NTIA and RUS reportedly received nearly 2,200 applications requesting $28 billion in funding for all 50 states, territories and the District of Columbia from BIP and BTOP. The Recovery Act only provided $7.2 billion in funding for BIP and BTOP. RUS has not yet announced the number of applications it received in the second funding round. But, based on NTIA’s applications, it appears there was less interest in the second round of broadband stimulus funding than the first round. Nevertheless, the chart below reveals there is a significant amount of uncommitted funds from Round 1.

From the first round of broadband stimulus funding, NTIA still has $276 million remaining for infrastructure projects and almost $69 million remaining for sustainable broadband projects, but awarded more than its allocated $50 million for public computer center awards. NTIA said some Round 1 applications still remain in consideration for funding. RUS still has $900 million remaining for last mile infrastructure projects and $720 million for middle mile infrastructure projects. RUS made its last Round 1 award at the end of March. Any uncommitted funds from Round 1 will be added to the funds allocated for Round 2.

NTIA allocated $2.6 billion for Round 2 projects including $2.35 million for infrastructure projects, $150 million for public computer center projects, and $100 million for sustainable broadband projects. RUS allocated $2.2 billion for Round 2 projects including $1.7 billion for last mile projects, $300 million for middle mile projects, and $100 million for satellite, rural library broadband and technical assistance projects. The Recovery Act requires that all broadband stimulus funds be committed by September 30, 2010.

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Lawmakers to Tackle Satellite Bill

Congress is expected to soon address the latest concerns about renewing the nation’s satellite television law governing retransmission of broadcast signals. The key debate now before Congress is how long to extend the law and what impact the extension will have on the budget deficit.

The law, which was set to expire on December 31, 2009, governs the retransmission of broadcast signals by DirecTV and Dish networks. The bill reauthorizes the license that allows satellite subscribers who cannot get a viewable signal from their in-market broadcast affiliate to get an out-of-market version. Congress has extended the law three times in recent months with the latest extension granted through April 30.

In early March, the Senate passed a measure attached to a jobs bill that renews the law for another five years, but the Congressional Budget Office (CBO) indicated that a five-year renewal would pose a problem by increasing the deficit, thereby triggering pay-as-you-go (pay/go) rules that require legislation to be deficit neutral. To deal with the budgetary problem, the Senate passed nearly identical legislation that extends the law by 10 years in order to make the legislation deficit neutral.

Under the five-year proposal, CBO said there would be a budgetary problem due to the way copyright fees required under the law are collected and held in escrow by the government for two to three years before being dispersed to license holders with interest. Apparently, due to an accounting issue, the bill at five years has the government paying out more than it would be taking in, which would need to be offset somewhere else in the budget under the pay/go rule. A separate scoring by CBO of the 10-year extension finds that there would be no budgetary impact because the copyright disbursements over five years would wash out over a decade.

Some key members of the satellite reauthorization process, including Senate Judiciary Committee Chairman Patrick Leahy, D-VT, have indicated that the 10-year reauthorization is not their preferred choice. “Since the inception of the distant signal license, the license has been reauthorized for five-year periods, giving all stakeholders an opportunity to revisit it and Congress the opportunity to improve it,” Leahy said recently. Leahy urged the House to enact a five-year extension, despite CBO’s analysis.

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202-457-5312
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