Faced with declining CD sales, Musicland came up short in the race to find new revenue sources, filing for bankruptcy protection late last week. The Minneapolis- based chain, which operates more than 800 stores under the Sam Goody, Media Play and Suncoast Motion Picture Co. banners, listed assets of $371.5 million and debts of $485.6 million, according to a filing with the U.S. Bankruptcy Court, N.Y.C. Musicland received commitments for up to $75 million in financing from its existing bank group, which will allow it continue operating during the restructuring. Musicland’s largest creditor was Deluxe Media Services, $7.9 million owed, followed by: NBC Universal, $6.8 million; Navarre, $6.6 million; Ventura Distribution, $5.8 million; and ABC One Stop Group, $3.7 million. Further down on the list of the top 30 creditors are Electronic Arts, $2.8 million; Virgin Mobile, $2.27 million; Image Entertainment, $2.25 million; Activision, $2 million; Baker & Taylor, $1.2 million and Ubisoft, $1.18 million. Musicland’s plunge into bankruptcy comes 3 years after Sun Capital Partners purchased the chain from Best Buy with a goal of turning around operations. It spend $10 million revamping the 61-store Media Play chain in 2004, but decided in Dec. to close it (CED Dec 14 p5). It also tested a new prototype in N.M. for its 366 Suncoast stores earlier this year and in Nov., unveiled “Graze,” a new design for the mall-based Sam Goody outlets. Graze was designed for the Sam Goody chain to double as an interactive area within stores or a standalone kiosk in malls. The design featured a lounge- like setting with listening stations and gaming stations. Sun Capital also infused Musicland with additional $27 million in April to fund upgrades to the stores. In the end, however, the new strategies and funding weren’t enough to ward off sales lost to music download services and discount and national CE chains that frequently undercut Musicland’s prices. Best buy bought Musicland for $696 million in 2001, with a goal of bringing its CE format to malls. But it sold the chain to Sun Capital 2 years later for no cash. Musicland said it will emerge from bankruptcy protection with fewer stores, but didn’t disclose how many will close. It has 6,000 employees. Musicland will retain Sam Goody and Suncoast, but may seek to reject some leases, 85% of which apply to mall locations. Musicland has suffered declining sales for years. Revenue plunged 42% from $1.89 billion in 1999 to an estimated $1.1 billion in 2005.

The Colo. Office of Consumer Counsel (OCC) urged the PUC to modify a proposal for rate deregulation of all providers’ interexchange services. The OCC said the PUC needs to explicitly reaffirm that deregulated toll providers have a continuing obligation to contribute to the state’s universal service fund. The OCC also said the PUC needs to clarify consumer protection provisions to make clear that the PUC has oversight over all types of consumer complaints and disputes about interexchange services, not just those involving slamming or cramming. The PUC in June deregulated Qwest’s interexchange services, and opened a docket (Case 05R-528T) to set up an expedited process for other interexchange providers to seek rate deregulation.

Cal. lawmakers resurrected and amended unsuccessful broadband access and universal service legislation from 2005. SB-850 would declare that state universal service policy should address universal broadband service throughout Cal., and would authorize the state’s chief information officer to use Digital Divide Account money to develop a strategy for universal broadband. The new version was shorn of a provision that would have directed the PUC to determine which areas of the state lack sufficient broadband access and which lacked broadband competition. The universal service bill (AB-326) would prohibit any diversion, loan, appropriation or allocation of money in the state universal service fund for any purpose or program other than those authorized. The bill would require that any prior diversions for other purposes be repaid by March 2007. The reintroduced bill was stripped of a provision that would have restructured the universal service fund as a trust account.

Cal. lawmakers resurrected and amended unsuccessful broadband access and universal service legislation from 2005. SB-850 would declare that state universal service policy should address universal broadband service throughout Cal., and would authorize the state’s chief information officer to use Digital Divide Account money to develop a strategy for universal broadband. The new version was shorn of a provision that would have directed the PUC to determine which areas of the state lack sufficient broadband access and which lacked broadband competition. The universal service bill (AB-326) would prohibit any diversion, loan, appropriation or allocation of money in the state universal service fund for any purpose or program other than those authorized. The bill would require that any prior diversions for other purposes be repaid by March 2007. The reintroduced bill was stripped of a provision that would have restructured the universal service fund as a trust account.

An FCC waiver has let Adak Eagle Enterprises, a new rural LEC in Alaska, immediately get universal service funding and participate in National Exchange Carrier Assn. tariffs and pools. The waivers let Adak get support based on projected rather than historic costs. Adak is offering service on Adak Island, home until 2000 to a U.S. Navy complex. The Navy had communications services so there’s never been a commercial provider there or a “study area” for regulatory purposes, the FCC said. Adak, which has been using gear the military left, has installed a digital switch but much of its equipment is outdated, the FCC said. The firm told the FCC for residents to have adequate service it must replace most of the network. The number of access lines on the island, site of the Alaska Maritime National Wildlife Refuge, ranges from 75 for year-round residents to 160 in summer. “Adak Telephone explains that these efforts will require substantial construction… and [it] will incur significantly higher costs associated with obtaining a skilled workforce,” the FCC said.

The first session of the 109th Congress started on a fast track for telecom when the House quickly approved a broadcast decency bill in March, but its performance leaves much for the second session to complete. Chances for completing action on long-awaited DTV provisions ended when no deal was reached 2 days before Christmas. Congress approved a one-year exemption from Anti- Deficiency Act rules for the Universal Service Fund (USF) in Nov. In an effort led by Senate Commerce Committee Chmn. Stevens (R-Alaska), the measure was included in the Commerce-State-Justice appropriations bill.

Lobbying spending among telecom, cable and broadcast groups increased about 9% in the first half of 2005 compared with the same period in 2004, according to mid- year reports filed with the Secy. of the Senate. The reports examined for this article include only the internal spending reported by trade associations and companies. Most companies and trade associations supplement their internal resources with outside lobbying groups and law firms that have special expertise in topic areas for contracts ranging from $10,000 to $250,000 per filing period, which is 6 months.

Universal service subsidies totaled nearly $5.7 billion in 2004, the Federal-State Joint Board said in an annual report issued Thurs. About 61.5% of that went to rural telcos with high costs, 24.8% to schools and libraries, 13.4% for subsidies to low-income consumers and 0.3% to support communications services used by rural health care facilities. Other statistics in the report: (1) Telecom industry revenues were about $228 billion in 2004, down from $231 billion in 2003. (2) Local wireline providers saw $86 billion in revenue, reflecting little change from 2003, while wireless providers’ revenue rose to $96 billion from about $85 billion the year before. Revenue from long distance calling dropped to about $51 billion from $59 billion in 2003. The Joint Board report said interstate toll use declined from 444 billion min. in 2003 to 422 billion min. in 2004. Carriers contribute to the Universal Service Fund (USF) based on a percentage of their interstate long distance revenue -- a method the FCC has proposed changing.

A bill introduced by Sen. DeMint (R-S.C.) that would give the FCC authority to define what constitutes fair competition for consumers is based largely on ideas from the Progress & Freedom Foundation’s project on telecom reform. The bill, which has no co-sponsors, includes a substantial section on universal service fund (USF) reform -- the first major Senate telecom bill to address the matter. The provisions are based on research by experts PFF convened from universities, law firms and research groups (CD Dec 9 p3). DeMint’s bill would require the FCC to adopt within 6 months after enactment a new contribution mechanism based on phone numbers; place a $3.6 billion cap on distribution, in the form of performance-based block grants to states.

The universal service contribution factor for 1Q 2006 is expected to remain at 10.2%, the Wireline Bureau said. That figure, based on Universal Service Administrative Co. (USAC) projections, becomes final in 14 days unless the FCC delays it. The factor is applied to telecom carriers’ interstate revenue to set Universal Service Fund contributions.