Patton Boggs TechComm Industry Update - November 19, 2010

    19 November 2010

    Many Democrats Supporting Net Neutrality Were Unseated in Election

    Election results have diminished the likelihood that Congress will forge bipartisan legislation that would give the Federal Communications Commission (FCC) authority to enforce net neutrality principles. A slate of 95 Democratic candidates who signed a pledge to support net neutrality lost their bids for office. That pledge was organized by the Progressive Change Campaign Committee. In a separate letter, other Democratic Members opposed the FCC’s plan to reclassify broadband service as a Title II service. Of those signatories, one third was not re-elected. The FCC’s reclassification proposal would provide the FCC with an improved legal basis to adopt rules to regulate broadband service and enforce net neutrality.

    Most members of the next Congress appear to oppose reclassifying broadband as a Title II service. Accordingly, it is doubtful the FCC will move forward with that proposal. Republicans in Congress may attempt to remove the Commission’s authority to reclassify broadband, either through substantive legislation or an appropriations rider. Instead of reclassifying broadband, we believe the Commission may attempt to adopt net neutrality rules under its Title I authority, notwithstanding the D.C. Circuit’s 2009 decision casting doubt on its ability to do so. Individual states also may seek to exercise jurisdiction over net neutrality.

    Election Brings Key Changes to House Energy and Commerce Committee

    Congressman Rick Boucher (D-VA), longtime dean of technology issues in the House, was among the most respected veteran incumbents to be unseated by a new crop of Republicans that will take control of the House next year.

    Boucher, who chairs the Communications, Technology, and the Internet Subcommittee and who co-founded the Congressional Internet Caucus, has represented a conservative-leaning district for the past 28 years, where he promoted high-speed Internet and other digital innovations that fostered local technology jobs in a rural area known for coal mining and farming. Boucher was defeated by Republican state lawmaker Morgan Griffith.

    In addition to Rep. Boucher, the House Energy and Commerce Committee is losing many familiar faces: Congressmen Bart Gordon (D-TN), Bart Stupak (D-MI), Zack Space (D-OH), Baron Hill (D-IN), John Shadegg (R-AZ), Steve Buyer (R-IN), George Radanovich, all of whom are retiring, and Charlie Melancon (D-LA), who ran unsuccessfully for the Senate. Meanwhile, Rep. Roy Blunt (R-MO) will leave the House following his win for election to the Senate. Republicans will likely need to assign 12 to 17 new Committee members.

    House Energy and Commerce Committee Ranking Member Joe Barton (R-TX) is hoping to secure a waiver of Conference term limit rules from the Republican Steering Committee to become Committee chairman. This waiver will likely be denied, presumably leaving Rep. Fred Upton (R-MI) to hold the top seat, although he may face challenges from Reps. John Shimkus (R-IL) and Cliff Stearns (R-FL). Rep. Shimkus has thrown his support behind Rep. Barton to lead the Committee in the next Congress. But if term limits prevent Rep. Barton from serving, Rep. Shimkus said he is up for the post. Current Chairman Henry Waxman (D-CA) is expected to serve as the full Committee Ranking Member.

    There are many Republicans eager to lead the House Communications, Technology, and Internet (CTI) Subcommittee, which Boucher chaired. Rep. Stearns, the current CTI Subcommittee Ranking Member, will likely assume the Subcommittee chair although Congressman Greg Walden (R-OR) has expressed interest. Rep. Ed Markey (D-MA), currently chairman of the Energy and Environment Subcommittee, may want to return to the Communications Subcommittee as ranking member now that major climate legislation is unlikely. Rep. Bobby Rush (D-IL) has expressed interest in becoming ranking member on the Communications Subcommittee, as has Rep. Anna Eshoo (D-CA).

    With respect to the Senate Commerce Committee, no major changes are expected. Current chair, Sen. Rockefeller (D-WV), will retain his post, as will Ranking Member Kay Bailey Hutchison (R-TX). Chair CTI Subcommittee, John Kerry (D-MA), also will keep his position. The rest of the committee should remain largely unchanged, save for retiring members Sens. Sam Brownback (R-KS), George LeMieux (R-FL) and Byron Dorgan (D-ND). The party ratio will change slightly with Republicans likely to gain an additional seat.

    NTIA Releases Spectrum Reports

    The National Telecommunications and Information Administration (NTIA) released two much anticipated reports aimed at implementing President Obama’s call for the government to make an additional 500 MHz of spectrum available over the next 10 years for wireless broadband. The first report, a “Plan and Timetable” report, identifies over 2,200 MHz of federal and non-federal spectrum for potential reallocation.

    The second report is a “fast track evaluation” of certain spectrum bands to determine what spectrum, if any, can be made available within five years. Specifically, this report recommends that 115 MHz (1695-1710 MHz and 3550-3650 MHz) be made available, contingent upon money being set aside to fund the reallocation process. NTIA also identified an additional two 20 MHz bands within the 4200-4400 MHz band that might be freed up in the future and indicated that it needs more time to study the potential of allocating spectrum in the 1755-1780 MHz band. Currently, the 1675-1710 MHz band is used for meteorological aids service and meteorological-satellite service, the 3500-3650 MHz band is used for radar systems, the 4200-4400 MHz band is reserved for radio altimeters, and the 1755-1780 MHz band is used by the federal government for fixed and mobile services.

    NTIA will work with the FCC to consider existing spectrum bands for reallocation for commercial broadband use. In addition, the FCC will need to conduct rulemakings to implement NTIA’s recommendations.

    Communications Subcommittee to Tackle Online Privacy, Spectrum, Universal Service

    The House Communications, Technology, and Internet Subcommittee is poised to undertake a full agenda under new leadership, including online privacy, spectrum availability and universal service issues. While technology policy is generally bipartisan, the Subcommittee’s outgoing chairman, Rick Boucher (D-VA), was the Democrat perhaps most willing to work with colleagues across the aisle and his absence next year will be a significant game-changer.

    However, senior GOP and Democratic staff, who spoke at a recent Federal Communications Bar Association event, said that it appears that Rep. Boucher’s bipartisan work will continue on certain key issues.

    In the new Congress, we believe that policies that encourage bringing spectrum to market through auctions will likely secure bipartisan support. House Republican and Democratic staff agreed that spectrum issues such as the public safety D block, incentive auctions of broadcast spectrum and spectrum initiatives will garner interest next year.

    Online privacy also may garner attention in the next Congress. Rep. Boucher had floated a discussion draft addressing online privacy earlier this year that had been well received by consumers and industry. Congressman Rush introduced his own legislation and Rep. Waxman had encouraged both bills to unfold. Expect hearings on this issue early in the session. It will be interesting to see where Reps. Barton and Markey, co-chairmen of the House Bipartisan Privacy Caucus, land on consumer privacy issues. Rep. Boucher’s absence also will be felt on universal service. For the past few sessions, he worked with Rep. Lee Terry (R-NE) to propose an overhaul to the Universal Service Fund, including a cap on the fund and direct contributions for broadband deployment. That legislation has not moved out of committee.


    White House Reviews Draft Commerce Report Recommending Online Privacy Office

    The White House is reviewing a draft Commerce Department report that recommends creating a privacy policy office and legislation that would provide “a baseline privacy framework.” The report makes 10 recommendations and poses dozens of questions on many of the proposals. The department plans to seek formal comment in a separate Federal Register notice.

    The draft was prepared by the Commerce Department’s Internet Policy Task Force. The task force is a joint effort of the Office of Commerce Secretary Gary Locke, the National Telecommunications and Information Administration, the International Trade Administration, and the National Institute of Standards and Technology. The Obama administration recently created a federal interagency panel to work on privacy and Internet policy that is chaired by Commerce General Counsel Cameron Kerry and Assistant Attorney General Christopher Schroeder.

    The privacy policy office (PPO) could be housed within Commerce or in the Executive Office of the President. The office would not have enforcement authority, it said, but help guide industry-specific, multi-stakeholder efforts in developing data privacy policies. Voluntary principles developed through this process would be enforceable by the Federal Trade Commission (FTC) and would serve as a safe harbor for companies facing complaints about their privacy practices, TRDaily reported.

    The report, according to TRDaily, also called on the Obama administration to “review the Electronic Communications Privacy Act (ECPA), paying attention to assuring strong privacy protection in cloud computing and location-based services.”

    FCC Seeks Special Access Data

    In a recent public notice, the FCC expressed a need for data regarding the current state of competition in the special access market, if its pricing flexibility rules are working as intended, and if price cap rates for special access services continue to be just and reasonable. The FCC requested the data by no later than January 27, 2011. Confidential information may be submitted pursuant to the protective order adopted in the proceeding and data may be submitted on a rolling basis.

    Requested Data for each Listed Statistical Area in the Public Notice:

    1. For non-local exchange carriers (LECs), provide a list of connections that it owns or that it leases from another entity under an indefeasible right of use (IRU) agreement.
    2. For non-LECS, identify the terms of any IRUs, the name of the carrier that owns the connection, type of medium used to provide the connection, description of location, total capacity and maximum capacity of the connection.
    3. Provide fiber route maps for network, including fiber to end user location.
    4. For Commercial Mobile Radio Service (CMRS), provide name of carrier providing connectivity to cell site, location of cell site and name of wire center serving cell site.
    5. For non-LECs, identify the business rules and assumptions that are used to determine whether to build a channel termination at a particular location. Explain any reasons why company would not build to a location even if recommended by business rules (e.g., inability to access building, issues with rights of way, inability to obtain capital, issues of timing).
    6. For LECs, identify number of connections that you own or lease from another entity pursuant to an IRU.
    7. For LECs, by wire center, list the total number of IRUs, type of medium used to provide the connection and current maximum capacity for connection.
    8. For LECs, by wire center, list the total number of lit and unlit fibers for all owned or leased fiber connections.
    9. For LECs, by wire center, provide the number of locations to which you have connections that you own or that you lease from another entity under an IRU agreement by type of location.


    Verizon Enters Consent Decree with the FCC to Settle Mystery Fee Investigation

    The FCC announced a record settlement with Verizon Wireless (Verizon) over mystery charges Verizon charged its customers during the last couple of years. The settlement includes a $25 million payment to the U.S. Treasury and the immediate refund of a minimum of $52.8 million to approximately 15 million Verizon customers. Verizon also agreed to change certain business practices and revise training materials to ensure the charges are eliminated and refunded.

    The FCC started its investigation in January 2010 after receiving a large number of complaints for erroneous data charges from pay-as-you-go Verizon customers. The fees started in 2007 and are the result of unauthorized data transfers that were automatically initiated by certain applications, such as games, that were initiated by customers, and unwanted data transfers initiated by third parties and affecting customers who did not have content filters installed on their phones.

    As part of the settlement, Verizon agreed to adopt a number of customer protection measures, create a data charge task force to monitor and respond to data charge complaints, and submit regular reports to the FCC on the status of its refund, training and customer service initiatives.

    FCC Investigates Google’s Collection of Privacy Data

    Shortly after the FTC announced it was dropping its investigation of Google, the FCC confirmed that it is probing whether Google broke federal law when it collected private user data, including e-mails and passwords, from Wi-Fi networks. The agency likely wants to know if Google violated laws against electronic eavesdropping.

    “Last month, Google disclosed that its Street View cars collected passwords, e-mails and other personal information wirelessly from unsuspecting people across the country,” said Michele Ellison, the FCC Enforcement Bureau Chief, in a statement. “In light of their public disclosure, we can now confirm that the Enforcement Bureau is looking into whether these actions violate the Communications Act. As the agency charged with overseeing the public airwaves, we are committed to ensuring that the consumers affected by this breach of privacy receive a full and fair accounting.”

    HP Settles E-rate Investigation for $16.25 Million

    The Justice Department (DOJ) on November 10 announced a civil settlement with Hewlett-Packard Co. (HP) for alleged E-rate fraud, following a joint investigation by the FCC and DOJ.

    Based on tips from whistleblowers, the FCC and the DOJ investigated allegations that contractors working with HP and other companies provided Dallas Independent School District and Houston Independent School District personnel with gifts to secure contracts, including $17 million in HP equipment. Meals and entertainment -- including trips on a yacht and tickets to the Super Bowl -- were provided by contractors to win contracts that were supposed to be awarded through a competitive bidding process, according to the FCC statement.

    As part of the settlement, HP agreed to pay the government $16.25 million, most of which will be returned to the E-rate program. In September the FCC adopted an Order that clarifies the agency’s prohibition against E-rate applicants soliciting or receiving gifts, and against service providers offering or providing gifts. The FCC also codified additional rules to ensure a fair and competitive bidding process.

    FCC Announces Application Deadline for E-rate Pilot Program for Wireless Off-Campus Connectivity

    The FCC launched a Schools and Libraries Universal Service (E-rate) pilot program called EDU2011 to explore wireless off-premises connectivity for mobile learning devices. EDU2011 will help the FCC determine if such a program should be eligible for future E-rate support. The FCC authorized the use of $10 million for the pilot. The funding will be available to wireless projects that are already planned but may be waiting for funding or are currently underway. The funds are only to be used for connectivity, not for portable devices or equipment. Applications to participate in EDU2011 are due no later than December 17, 2010. Please contact us for a detailed explanation of the application requirements.

    FCC’s Technological Advisory Council Holds First Meeting

    On November 4, the FCC held a meeting of the Technological Advisory Council (TAC). TAC is intended to serve as a vehicle for generating ideas and identifying steps the FCC can take with regard to technology and innovation that will enable economic growth and job creation.

    The group began identifying potential areas of focus, which will be narrowed and prioritized through working groups. The issue discussed most at the meeting was how the FCC can help spur adoption of the IPv.6 protocol. Other topics included: helping small businesses to find and leverage resources, interagency cooperation, right of ways and easements, termination with legacy telecommunications infrastructure, spectrum efficiency, an FCC sponsored contest or award to spur innovation, security, privacy, and smart grid.

    Comment Dates Announced in E911 Location Accuracy Proceeding

    The FCC is seeking comment in the E911 location accuracy proceeding by January 3, 2011. Reply comments are due by February 2. As we discussed in the last Industry Update, the FCC released a Further Notice of Proposed Rulemaking (FNPRM) and Notice of Inquiry (NOI) at the same time as it adopted new wireless location accuracy rules for carriers, which required carriers to share caller location accuracy and reliability data with 911 centers in order to identify any problems associated with E911 service.

    Comment is sought on a number of proposals meant to improve wireless location accuracy and on the impact of Next Generation 911 (NG911) network developments on location accuracy. The FCC asks whether providers of interconnected VoIP service should be required to automatically identify a caller’s location, whether E911 obligations should apply to a VoIP service that is not fully interconnected to the public switched telephone network, and whether 911 and E911 requirements should apply to additional wireless services, devices and applications.

    FCC Rules that States Can Impose USF Fees on Nomadic VoIP Providers

    In a Declaratory Ruling released in response to petitions filed by the Nebraska and Kansas state public utility commissions, the FCC recently ruled that states may impose universal service contribution requirements on future intrastate revenue of nomadic interconnected VoIP service providers. A state’s contribution rules must be consistent with the FCC’s contribution rules, and the state must not apply its contribution rules to revenue that is attributable to VoIP services provided in another state. The FCC concluded that there is no basis at this time to preempt state universal service assessments on VoIP providers that have entered the market because “it is possible to separate interstate and intrastate revenues of interconnected VoIP providers for purposes of calculating universal service contributions.” 

    The FCC did not directly address a related request concerning methods of allocating nomadic interconnected VoIP revenues among states. However, the FCC did suggest that states may use a method of allocating revenues modeled on the Mobile Telecommunications Sourcing Act in order to avoid a “double assessment.”

    Selected Issues to Consider While Negotiating Merger and Acquisition Agreements

    Transaction flow in the TechComm space is increasing. TechComm mergers and acquisitions may or may not require federal or state approval depending on the structure of, and assets included in, the transaction. The following is a list of important issues to consider during the negotiation and execution of any merger agreement.

    State and Federal Filing Obligations
     Companies may need to seek federal and/or state pre-approval for their proposed transaction. The approval process can take a few weeks or many months depending on the type of approvals needed and if a hearing is required. Bear this in mind while drafting agreements to ensure adequate time to obtain any necessary regulatory approvals. (Contracting parties also could enter into interim lease agreements while waiting for approvals.).

    Transactions Involving FCC Licenses
    Generally, prior FCC approval is required before a company can transfer control of an entity that holds an FCC license, and before a company can assign an FCC license. The length and complexity of the FCC approval process varies depending on the type of FCC licenses involved in the transaction. If the transaction involves many licenses or a merger between two large companies, the FCC may issue data requests to the parties and/or seek additional public comment on the merger before issuing a decision. The Department of Justice and the Securities Exchange Commission may also have review processes. These approvals can delay a transaction for months.

    Limitations on Foreign Ownership of an FCC License
    The Communications Act of 1934, as amended, and FCC regulations limit foreign ownership in certain FCC licenses. As a result, depending on the type of licenses and, in the event a party to a transaction is owned by a foreign entity, then it may be necessary to structure the transaction to limit the foreign entity’s attributable interest in the entity that holds the FCC license. This ownership analysis also is especially important if a transaction involves the conversion of unattributable debt into an equity interest, which may result in a foreign entity holding an attributable interest in the entity that holds the FCC license. In some instances, a waiver of the FCC’s foreign ownership rules may be obtained.

    Intellectual Property Valuation
    If a transaction involves intellectual property that has not been utilized on a widespread basis, then it may be necessary to value such intellectual property. It is important to properly quantify any intellectual property, and parties to a transaction should consider engaging an independent valuation expert to appraise such technology.

    Patton Boggs LLP frequently provides counsel to entities engaged in mergers and acquisitions. If you have any questions regarding these considerations, please do not hesitate to contact Akash Sethi at 214-758-3543, Jennifer Richter at 202-457-5666, James Muchmore at 303-894-6154 or Carly Didden at 202-457-6323.


    FCC Seeks Comments on Proposed Mandatory LPTV/Class A DTV Transition Deadline

    With the completion of the DTV transition and the adoption of the National Broadband Plan, the FCC is now refocused on the LPTV/Class A transition to digital only operations in order to make 700 MHz of additional spectrum available for wireless broadband. The FCC released a further notice of proposed rulemaking seeking comments on a proposed deadline for the completion of the LPTV/Class A digital transition and other technical matters. Comment on the following is due December 17, 2010: 

    1. whether to adopt a hard deadline during 2012 for the termination of analog low power television (LPTV) facilities;
    2. whether to require existing analog and digital LPTV stations in the 700 MHz band (channels 52-69) to cease operations by a date certain and to submit displacement applications or discontinue operations altogether;
    3. whether to delegate to the Media Bureau the authority to establish timeframes and procedures for stations “flash cutting” to digital on their existing analog channels and for those operating digital companion channels to return one of their channels;
    4. whether to widen the class of LPTV broadcasters subject to the Commission’s ancillary and supplementary fee rules;
    5. whether to modify the Commission’s minor change rule so that it covers a proposed change in a LTPV station’s transmitter site of up to 30 miles (48 kilometers) from the reference coordinates of the station’s transmitting antenna;
    6. whether to revise the vertical antenna patterns used in the prediction methodology for the LPTV services; and
    7. whether to allow LPTV stations to use the emission mask used by full power television stations.


    Mobility Fund Notice of Proposed Rulemaking Comment Deadlines

    As we previously reported, the FCC proposed the creation of a Mobility Fund in the National Broadband Plan in order to make mobile wireless services more widely available. Carriers will be able to apply for Mobility Fund monies in order to bring third and fourth generation coverage to unserved areas. The notice of proposed rulemaking seeks comment on how to structure the Fund, who should be able to obtain support from the Fund, how to determine unserved areas and what minimum performance and coverage requirements to adopt. Comments are due December 16, 2010. Reply comments are due January 18, 2011.

    Tribune Unsecured Creditors Sue Current and Former Executives; Executive Departures Continue

    After receiving permission from the bankruptcy court, Tribune Company’s unsecured creditors filed lawsuits against Chairman Sam Zell, former CEO Dennis Fitzsimmons, Tribune’s board members and other key Tribune executives that were involved in Tribune’s 2007 $8.2 billion buyout. One of the complaints alleges that the buyout left Tribune with crippling debt and that irregularities in the decision-making process occurred leading up to the buyout.

    • Executives hired by former CEO Randy Michaels, who was replaced with a four-member executive committee, continue to leave. The most recent departures include a number of former Clear Channel executives hired by Michaels: Tribune Interactive President Marc Chase; COO Jeff Kapugi; and Senior Vice President/Sales Carolyn Gilbert.

    Incentive Auctions, Spectrum Licensing and Experimental Licensing on FCC November Agenda

    The demand for spectrum over the next five years will create an estimated $120 billion dollars for the mobile industry, according to a whitepaper released by the FCC as part of its October 21 spectrum summit.

    The whitepaper forecasts a spectrum shortage, with mobile data demand likely to exceed capacity of wireless networks in the near-term. Driving the spectrum demand is growth of mobile technologies such as smart phones, tablet computers and e-books. The whitepaper estimates that mobile broadband traffic will increase by 35 times the amount of recent levels.

    The FCC's plan to free up spectrum relies on incentive auctions, which would provide carrots to broadcasters to relinquish their spectrum allotments. Genachowski plans to launch a rulemaking to quickly implement incentive auctions at the FCC’s November meeting. The rulemaking proceeding would lift technical restrictions so broadcast spectrum can be used for broadband, Genachowski said. It will also consider licensing policies that would allow broadcasters to channel-share, which would also free up spectrum. The process is contingent on legislation; there are bills in both chambers supporting incentive auctions. S. 2756, a bill introduced by Sen. Jay Rockefeller (D-WV) in August, would give the FCC the authority to conduct incentive auctions aimed at letting spectrum licensees relinquish spectrum voluntarily in exchange for some of the funds collected by the auction of their spectrum. Broadcasters support the Rockefeller proposal, which makes incentive auctions truly voluntary. However, an aide to bill co-sponsor Sen. John Kerry (D-MA) said last week that unless the FCC, computer and wireless companies, and broadcasters come to an agreement, incentive auctions legislation isn't going to happen. In July, Reps. Rick Boucher (D-VA) and Cliff Stearns (R-FL), introduced the Voluntary Incentive Auctions Act of 2010 (H.R. 5947) in the House.

    At the same meeting, Genachowski hopes to launch a rulemaking process to expand the agency's experimental licensing program. The NPRM seeks comments on how the FCC can improve its experimental licensing rules to increase flexibility, including by easing testing restrictions on universities, research organizations, and other institutions that are developing new wireless services and devices. One of the FCC’s goals is to increase the number of available testbeds that will encourage innovation and help speed the time to market for new technologies. The third item on the November agenda is a NOI aimed at finding ways to improve the efficiency of how spectrum is used. The FCC is interested in ways that technological innovation can foster secondary market use of underdeveloped spectrum in licensed and unlicensed services.


    If you have any questions about the foregoing or if you require additional information, please contact:

    Carly T. Didden
    Jennifer A. Cetta
    Ryan W. King