XM Satellite Radio “secretly acquired” patent that would allow it to provide local radio programming through its terrestrial repeater network, NAB Pres. Edward Fritts charged in statement about NAB’s ex parte filing to FCC. Fritts said patent acquisition suggested FCC either “dropped the ball” on handling of terrestrial repeater licensing or “XM believes it does not have to play by the rules.” He also cited what he called XM’s “lack of candor.” XM has promised FCC it wouldn’t relay local programming through its repeater network, NAB said, and local broadcasters have said repeatedly that it was critical that XM not be able to offer local programming, which would make it more competitive with local radio stations. Ex parte filing said XM received patent Feb. 12 “for a process specifically designed to use terrestrial repeaters to ‘provide geographically targeted broadcast data, such as weather, sports scores, advertisements and the like.'” NAB said: “To put it bluntly, while XM was telling the Commission that it had no plans to use repeaters other than to fill gaps, it was actively developing technology specifically intended to use repeaters to provide locally differentiated material.” Ex parte filing suggested that XM might try to avoid problems by including geographically targeted material in main satellite signal, with geographic triggers that would cause local repeaters to rebroadcast only local signals. “The Commission must assume that XM did not invest substantial resources to develop this technology without intending to use it,” NAB said. Group said patent made it even more important that FCC rules make it clear that same programming must be related by repeaters nationwide. XM officials didn’t immediately comment.
FCC Wireless Bureau dismissed petition by TPS Utilicom that challenged designated entity status of AT&T Wireless- backed Alaska Native Wireless (ANW). ANW, in which AT&T Wireless has noncontrolling equity stake of 39.9%, bid $2.9 billion in FCC’s Jan. 2001 re-auction of NextWave’s licenses, with results later overturned by U.S. Appeals Court, D.C. TPS had petitioned FCC to deny ANW’s license applications in re-auction, saying carrier hadn’t complied with rules for entrepreneur status and very small bidder status and its application lacked “requisite candor.” TPS contended AT&T Wireless exerted control over ANW, meaning larger carrier’s gross revenue and assets should have been included in ANW’s calculations to receive designated entity status. Wireless Bureau said it dismissed TPS’s petition for lack of standing. Even if petition were addressed on merits, “TPS Utilicom fails to raise any issues that would warrant denying the applications,” order said. Separately, Wireless Bureau Mon. granted ANW 15 PCS licenses that had been part of Jan. 2001 re-auction but hadn’t been involved in pending NextWave litigation. On standing issue, bureau’s order said TPS Utilicom hadn’t bid competitively for any of markets in which ANW was high bidder. It said company failed to show that awarding licenses to ANW would “somehow deprive it of a valid auction process with respect to the market for which it did bid.” Bureau concluded that TPS Utilicom had failed to demonstrate that AT&T Wireless had controlling interest in ANW “that would warrant the attribution of AT&T Wireless’s gross revenues and assets to Alaska Native Wireless.” It said TPS had failed to show ANW had acted with lack of candor. TPS Utilicom had argued that if AT&T Wireless’s interests in ANW were considered on fully diluted basis, which would include ownership of stocks, warrants and other instruments, then carrier would have 79.4% membership interest in ANW. But bureau said: “TPS Utilicom has misunderstood what constitutes de jure control under the Commission’s rules.” It said de jure control must be established by ownership of more than 50% of company’s voting interests. ANW investor Council Tree has 100% of voting rights in carrier, meaning it can make decisions without seeking vote of other member in limited partnership -- AT&T Wireless. Bureau also rejected arguments that AT&T Wireless had de facto control by dint of its nearly 80% fully diluted equity stake in ANW. “The Commission has made clear that there is no minimum equity requirement for controlling interest holders because that might hinder the ability of small businesses to acquire passive financing successfully and compete in the competitive communications marketplace,” order said. Washington attorney Raymond Quianzon, who represents TPS Utilicom, said carrier was mulling seeking review of FCC decision.
Every remaining Verizon state will be in queue for Sec. 271 action by early 2nd quarter, with applications filed either at FCC or before state regulators, Verizon Pres. Ivan Seidenberg said Mon. at Credit Suisse First Boston conference in Orlando. “We are running this like a train,” he told institutional investors at conference. Within next 2 weeks, more filings will be made with state regulators in mid- Atlantic states such as Md. and Va., he said. Seidenberg said long distance entry was important part of company’s strategy to expand into new areas to offset revenue losses in some older businesses such as voice. Once company gets through Sec. 271 process, it will focus on providing domestic and international service to wide range of business and govt. customers, he said. Verizon has “good business model” but has been unable to produce good bottom line, with net income around 3%, leading to flat stock prices, he said. He attributed low return to factors such as spending in growth areas, which he said he “feels good about” and regulatory cost drains, which he said have hurt. In last 3 years, Verizon has “given back to regulators” $3 billion, mainly in rate reductions, Seidenberg said. Efforts to improve bottom line will lead to more “head count reductions,” he said. He said Verizon’s growing data and international business would offset revenue drain caused by reduction in number of access lines served by company and effect of consumers’ dropping their 2nd phone lines as they moved to other technologies. Asked in question period whether Verizon was interested in buying long distance company such as AT&T or WorldCom or engaging in horizontal merger with smaller ILEC such as Qwest, Seidenberg basically said no. He said Verizon had “little need to undertake any transaction like that” because “the hidden costs would be enormous” when taking into consideration “execution risk, market uncertainty and regulatory risk.” On idea of horizontal merger, Seidenberg said such strategy was good for company 3 years ago when scale was needed, but now benefits weren’t enough to outweigh risks. Asked what he would do if SBC bought another property such as AT&T Wireless or BellSouth, Seidenberg said: “I don’t feel we need to be baited to do something that may sound good but not have underlying merit.” Maybe in future, he'll change his mind, he said, “but right now I don’t see anything worth all the risks required.”
EarthLink urged FCC late Fri. to maintain regulatory restraints on ILEC broadband services because unaffiliated ISPs were dependent upon those services and ILECs had enough market power to make it hard for ISPs to obtain them. Commenting on FCC proposed rulemaking (CC 01-337) that could ease ILECs’ classification as “dominant” for some services, EarthLink said “the regulations under consideration here… will determine whether the incumbent LECs can stop thousands of other ISPs from also investing in and delivering… broadband applications that consumers may demand.” Company said it didn’t believe Sec. 10 of Telecom Act permitted FCC to forbear from regulating ILEC advanced services, especially those sold on wholesale basis to ISPs. “The Commission should carefully analyze the wholesale DSL market that exists today where the incumbent ILECs maintain significant market control,” EarthLink said: “Faced with a dominant carrier, the appropriate regulatory response should be to require tariffing and tariff review, to demand cost justification of rates and to scrutinize for anticompetitive activities. Without this, incumbent LECs have every incentive and ability to stall and foreclose intramodal competition among ISPs, leaving consumers without Internet service choices.” Expressing similar concerns about ILEC dominance, ALTS said FCC “should not declare the ILECs nondominant in the retail broadband market while they continue to possess market power in the wholesale market.” ALTS said ILECs “have the incentive and the means to use their market power in the wholesale market to negatively affect the retail market, and this should be a prime concern for the Commission.” SBC, which had filed petition seeking nondominant treatment along lines proposed by FCC, said Commission “should take decisive action to remove dominant carrier regulation… that is both unnecessary and harmful to competition and broadband deployment.” SBC said ILECs should be declared nondominant when they provide broadband services to mass market customers, for example high-speed Internet access, as well as services “that enable larger business customers to transmit and route packetized data.” SBC said those markets were “intensively competitive” and ILECs posed “no threat to exercise or acquire market power” in them. In providing high-speed Internet access, ILECs compete against facilities- based cable modem, satellite and wireless providers. Situation is similar for provision of broadband services to larger business customers, SBC said: “Ever since packet- switched services were introduced in the early 1990s, the Commission has recognized that the market in highly competitive and that the incumbent LECs were new entrants in the market.”
U.S. Supreme Court agreed Mon. to hear oral argument in FCC’s appeal of D.C. Circuit’s NextWave ruling, creating another layer of uncertainty for spectrum on which carriers and govt. had failed to reach settlement late last year. Some industry observers said high court’s grant of certiorari in NextWave case could heighten incentives to reopen settlement talks over licenses that fetched $15.8 billion in Jan. 2001 re-auction. But several analysts and industry sources pointed out that FCC had strong legal interest in having Supreme Court uphold what it viewed as integrity of auction process under Communications Act compared with limitations of U.S. Bankruptcy Code. Valuations of licenses also are widely seen as lower than they were even several months ago as carriers’ stocks have been battered on Wall St. Grant of certiorari marks victory for FCC, which sought review of June decision by U.S. Appeals Court, D.C. D.C. Circuit had reversed agency’s decision to cancel NextWave’s licenses for missed payment, throwing results of $17 billion re-auction of those licenses into disarray. With high court’s decision to review that ruling, “the mess just got messier,” said Legg Mason analyst David Kaut: “There’s a new round of legal uncertainty.”
Promise of broadband is yet to be realized, representatives of competing telecom sectors agreed in panel discussion sponsored by The Progress & Freedom Foundation in Dirksen Senate Office Building Fri., but each was hoping for different govt. policy objectives to help their respective industries. National Strategies Vp Christopher McLean, representing General Motors and Hughes, extolled virtues of EchoStar acquisition of DirecTV, promising that, if regulators approved deal, consumers -- especially those in rural areas -- would have more choices and see broadband deployment faster because of economies of scale that could be achieved with larger company. NCTA Vp-Congressional Relations Steven Vest said FCC should do away with current attribution rules that he said had made some cable companies appear to have more subscribers than they actually did. Under current rules, entity with 5% stake in another company has 2nd company’s subscribers attributed to it. Vest also called for deregulation in general. Verizon Asst. Vp- Internet & Technology Issues Lincoln Hoewing said he believed Tauzin-Dingell bill that House passed Feb. 27, if it became law, would give incentives to ILECs such as his company to deploy broadband to far-off places. David Gardy, CEO of TVWorldwide.com, which creates Internet streaming video and multimedia, sought simply that broadband be deployed to widest audience possible. Panelists agreed digital rights management issues would have to be resolved before more and better content would drive higher take rates for broadband. All denied they had responsibility in that area, saying it was incumbent upon content providers such as artists and their programming producers, in consultation with consumer electronics industry, to find solution to piracy problem.
FCC spokeswoman confirmed Fri. that AT&T Broadband and Comcast had filed their formal merger application with agency. She said she couldn’t release application without initial public notice. Proposed $72 billion deal would combine first and 3rd largest cable companies in country with more than 22 million subscribers. Both FCC and Dept. of Justice must give their approvals to merger.
Local competition will increase following EchoStar purchase of DirecTV, EchoStar spokesman said Fri. He also said FCC would complete review of deal by June and Justice Dept. would finish its investigation in summer (CD March 1 p6). Spokesman said EchoStar-DirecTV combination would use 28 of 96 total frequencies available, with 28 representing 30% of spectrum needed to offer local channels. Other frequencies will continue to be used to offer core services, including broadband.
Citing legal and marketplace changes, FCC has opened inquiry to revisit equal access rules that date back to AT&T divestiture in 1984. Equal access assured that subscribers wouldn’t have to dial extra numbers to reach their presubscribed long distance carrier, particularly if carrier was one other than AT&T. At time there was concern that Bells would favor AT&T, their former parent. In Notice of Inquiry (NOI) issued Thurs., FCC said it wanted to “establish a modern equal access and nondiscrimination regulatory regime” and said rules reflected concerns that existed when Bells were only local providers and couldn’t offer long distance services. Inquiry will focus on Sec. 251(g) of Telecom Act, which preserved equal access and other obligations stemming from AT&T divestiture. FCC said it wanted comment on “how it should go about changing or eliminating any existing equal access and nondiscrimination requirements, should it decide to do so.” Agency said Sec. 251(g) states that pre-Telecom Act requirements must remain until they were superseded by new rules. In light of that, agency asked whether it should adopt new rules to replace those requirements or whether it was enough for FCC to state that requirements weren’t necessary anymore. Among other things, agency asked whether rules were relevant, which carriers now were covered by those rules, and whether equal access could be achieved “through any other means.” Comments also should “discuss the differences between the obligations of BOCs [Bell operating companies] that have not yet obtained Sec. 271 authority and those that have.” Comments will be due 60 days after NOI is published in Federal Register -- CC Doc. 02-39.
National Telecom Co-op Assn. (NTCA) cautioned FCC against making “sweeping changes” in regulation of ILEC broadband services without considering their impact on rural areas. Commenting Fri. on FCC’s review of “dominant” ILEC regulation, NTCA said. “The Commission must be careful not to sacrifice rural broadband deployment as it pursues broadband competition. The rural broadband market is nascent” and FCC shouldn’t “assume that the analysis it applies to urban markets has any relevance to rural markets.” FCC is considering ILEC requests for “nondominant” regulation of some of their broadband services (CD Dec 13 p1). Such treatment would lessen tariff filing and pricing support requirements for certain services and markets where ILECs say they're not dominant provider anymore and don’t have market power. Also filing comments Fri. on issue, AT&T said ILEC requests for lessened regulation were unwarranted: “The ILECs unquestionably have market power over the bottleneck inputs necessary to provide broadband services to large and small businesses” as well as residential customers. FCC “dominant carrier” regulations should continue and “are necessary to ensure effective enforcement of wholesale access requirements and detection of anticompetitive price squeezes and other unjust, unreasonable and discriminatory practices,” AT&T said. CompTel urged FCC to reject proposal to reclassify ILEC provision of retail broadband services as nondominant, saying proposal was “empirically unsupported and unjustified.” ILECs have “repeatedly demonstrated anticompetitive behavior, including the extraction of monopoly rents from end-user customers and exclusionary tying arrangements,” CompTel told Commission: “It is not possible for an ILEC to provide nondominant services over bottleneck local exchange facilities and networks.”