FCC Law Blog

Sheppard Mullin Washington, D.C. Adds Three Partner Communications Practice From Hogan Lovells

Sheppard Mullin — Wed, 08 May 2013 18:02:34 -0500

WASHINGTON, DC - Sheppard, Mullin, Richter & Hampton LLP has added three partners to the firm's Business Trial practice group and Communications team: Gardner Gillespie, Dave Thomas, and Paul Werner. Gillespie, Thomas and Werner join Sheppard Mullin's Washington, D.C. office from Hogan Lovells’ Washington office. To read the full press release click here.

FCC Considers Proposal To Lift 25% Cap On Indirect Foreign Investment In Broadcast Licensees

Sheppard Mullin — Mon, 22 Apr 2013 13:01:13 -0500

By Brian Weimer and Douglas Svor

In August 2012, the Coalition for Broadcast Investment (“CBI”), a group comprising national broadcast networks, radio and television station licensees, and community and consumer organizations, filed a letter with the FCC requesting clarification of the foreign ownership rules contained in Section 310(b)(4) of the Communications Act. Specifically, CBI requested clarification that “the FCC will conduct a substantive, facts, and circumstances evaluation of proposals for foreign investment in excess of 25 percent in the parent company of a broadcast licensee.…” If adopted, this approach would represent a marked change of course for the FCC, which has in the past “categorically refused” to consider transactions involving investment in broadcasters above the 25% benchmark, according to CBI.

Citing the numerous other contexts where foreign investment above 25% is permitted (including, among others, sectors such as cable, direct-to-home satellite, and wireless), CBI highlighted the “structural disadvantage” broadcasters face because of the FCC’s “effective presumption” against foreign investment above 25% in the broadcast sector. In addition, CBI pointed out that ending the presumption would place broadcasters “on the same footing” as other industry participants, facilitating crucial access to capital in a market where they face increasing competition for consumers.

In February 2013, the FCC responded with a Public Notice (MB Docket No. 13-50) soliciting comments on CBI’s request. The first round of comments were due April 15, and a review of those submissions reveals a uniform desire for the FCC to relax the de facto 25% indirect cap applied to foreign ownership in broadcasters. Although all commenters supported CBI’s request, different groups highlighted particular points of emphasis.

Adelante Media Group, the National Association of Broadcasters, and Nexstar Broadcasting all noted that the Over-the-Top providers competing with traditional broadcasters face no restriction on foreign ownership. The Minority Media and Telecommunications Council emphasized that encouraging foreign investment in broadcasters would help “reverse the decline in minority broadcast ownership.” The National Association of Media Brokers referenced the fact that many entities that provided working capital to prospective new broadcasters were no longer in the market.

The question remains whether the FCC will hear the pleas of the broadcasters for regulatory parity. On the one hand, broadcasters may have reason for optimism if the FCC’s recent Public Notice (IB Docket No. 11-133) stating that it has streamlined its policies and procedures for reviewing foreign ownership of common carrier wireless licenses and certain aeronautical radio licenses is any indication. On the other hand, the broadcast industry has a long history of special concern in Congress due to its potential to influence the outcome of elections, and the FCC has not yet heard from Congress on these issues.

Reply comments on the proposal to lift the 25% cap on indirect foreign ownership of broadcast licensees are due at the FCC on April 30.

Regulatory Reminder: CVAA Compliance Certifications due April 1

Sheppard Mullin — Tue, 26 Mar 2013 12:24:19 -0500

By Brian Weimer and Douglas Svor

Following up on an important FCC Law Blog item, entities subject to the Twenty-First Century Communications and Video Accessibility Act (“CVAA”) should be aware that the April 1, 2013 deadline to electronically file the first annual recordkeeping certification is less than a week away.

A detailed description of the required contents of the certification is included in the February 12th post available here.

If you have any questions about CVAA compliance, or require advice regarding the new certification requirement, please feel free to contact us.

Lunch With Your Government Contracts Lawyer Series

Sheppard Mullin — Fri, 01 Mar 2013 19:18:17 -0500

The National Defense Authorization Act for 2013 has authorized satellite export licensing to move from the State Department back to the Commerce Department as part of the Export Control Reform. Join Sheppard Mullin for a lunch program by partners Curtis Dombek and Scott Maberry with an introduction by Brian Weimer, leader of the firm's Communication Practice. Curt currently serves on the Commerce Department Technical Advisory Committee working with the Administration to write the new regulations. You will learn which agency will regulate which aspects of satellites, earth stations and related equipment, how parts and components will be treated, how Technical Assistance Agreements and foreign nationals will be affected, and how launch sites and destination country policies are likely to change. The seminar will take place on Wednesday, March 20, 2013 at Sheppard Mullin’s Washington, D.C. office from 12 p.m. – 2 p.m. EST. To register for this event, please click here.

FCC Reminds Advanced Communications Services Providers and Equipment Manufacturers of CVAA Recordkeeping Obligations and Compliance Certification

Sheppard Mullin — Tue, 12 Feb 2013 17:50:05 -0500

By Brian Weimer and Douglas Svor

Recently, the FCC issued a Public Notice reminding the providers and equipment manufacturers of advanced communications services (ACS) of their obligation to maintain records evidencing their efforts to comply with the Twenty-First Century Communications and Video Accessibility Act (CVAA). In addition, these entities are also required to submit an annual certification stating that such records are being kept in accordance with the statute. The CVAA is a 2010 law ensuring access to ACS for people with disabilities, and the FCC began issuing regulations implementing the legislation in 2011.

It is important to keep in mind the continuously evolving nature of the FCC’s accessibility obligations. In 1999, the FCC issued rules implementing Section 255 of the 1996 Telecommunications Act, requiring telecommunications service providers and their equipment manufacturers to make their products and services accessible to people with disabilities. In 2007, the FCC extended the accessibility requirements of Section 255 to the historically unregulated interconnected Voice over Internet Protocol (VoIP) providers and equipment manufacturers.

The CVAA goes even further, extending these accessibility obligations to ACS providers and equipment manufacturers, thereby including both interconnected and non-interconnected VoIP, as well as electronic messaging services and interoperable video conferencing services in the realm of regulated services. As a result, many of these previously unregulated entities may be unaware not only that their operations are now covered by the CVAA, but that important compliance deadlines also loom on the horizon this year.

The new recordkeeping obligations for covered entities should be looked at as two separate but related requirements. First, covered entities are now required – beginning January 30, 2013 – to maintain in the ordinary course of business records of their compliance with the new regulations implementing the CVAA. These records must include the following items:

Information about efforts to consult with individuals with disabilities;
Descriptions of the accessibility features that are a part of products and services; &
Information about the compatibility of products and services with peripheral devices or specialized customer premise equipment commonly used by individuals with disabilities to achieve access.

By April 1, 2013, the covered entities must file their first certification showing that they are in compliance with the recordkeeping requirements, and also provide certain other contact information in order to efficiently resolve consumer complaints. Covered entities must identify the name and contact details of a person within the company who is authorized to resolve customer complaints, as well as an agent designated for the service of informal and formal complaints alleging violations of the CVAA rules. The contact information must list the person’s title, address, phone number, and if available, TTY number, fax, and email.

Covered entities should note that these designations must be done for each entity or subsidiary that is subject to the CVAA; the implementing regulations cannot be satisfied by designating one overall contact person for a parent company.

Importantly, the entire certification must be supported by an affidavit or declaration under penalty of perjury, which is signed and dated by an authorized officer of the company or subsidiary with personal knowledge of the representations provided.

Lastly, the certification must then be filed electronically on the FCC’s website. Once filed, it is the requirement of the covered entity to update the information within 30 days of any material change.

Since these new rules are now impacting many companies that have little or no experience with direct FCC regulation, newly covered entities should begin formulating a plan for compliance with these rapidly approaching deadlines as soon as possible.

FCC Adopts New Rules Governing WCS Spectrum

Sheppard Mullin — Tue, 06 Nov 2012 13:00:00 -0500

The Federal Communications Commission (“FCC”) recently adopted new rules governing the Wireless Communications Service (“WCS”) in the 2.3 GHz band. The new rules largely follow those proposed by AT&T and Sirius XM earlier this year and are designed to both encourage the development of new broadband services and mitigate the potential for harmful interference to Satellite Digital Audio Radio Service (“SDARS”) operations in the adjacent portion of the 2.3 GHz band.

The SDARS spectrum, licensed to Sirius XM, occupies the 2320-2345 MHz portion of the 2.3 GHz band. The 2.3 GHz WCS spectrum is located on either side of the SDARS spectrum at 2305-2320 MHz and 2345-2360 MHz, respectively. AT&T is the largest WCS licensee and has been substantially increasing its WCS spectrum holdings in recent months, as evidenced by its August 2012 agreement to acquire NextWave Wireless Inc. In a joint submission filed with the FCC earlier this year, AT&T and Sirius XM recommended changes to the WCS rules that they argued would lessen the technical limitations and regulatory uncertainty that have surrounded the spectrum since the FCC first established SDARS in 1997.

On October 17, 2012, the FCC adopted new WCS rules that largely follow those suggested by AT&T and Sirius XM in their joint proposal. Among other things, the new rules prohibit WCS mobile and portable transmitters from operating in all portions of WCS Blocks C and D—the 5-MHz WCS blocks immediately adjacent to the SDARS spectrum on either side. The prohibition effectively creates a guard band that will mitigate the potential for harmful interference to SDARS operations. The FCC also adopted a number of additional rules dealing with out-of-band emissions limits, duty cycle limits, information sharing requirements, coordination obligations, performance requirements, and other technical issues.

FCBA Charity Auction Offers Great Fun and Great Prizes for a Great Cause

Sheppard Mullin — Tue, 06 Nov 2012 12:54:56 -0500

One of the most important and exciting nights of the year for the communications industry is almost upon us. On November 8, 2012, the Young Lawyers Committee of the Federal Communications Bar Association will hold its 23rd Annual Charity Auction to benefit THC - Housing Families, Transforming Lives and the FCBA Foundation. THC serves D.C.’s homeless and other at-risk children and their families by providing housing and support services.

This year’s auction prizes include lunch for four with two former U.S. Senators; a ride for two in a vintage 1930’s-era Waco Biplane Barnstormer; NCAA Final Four tickets; and special dinners at top DC restaurants (including The Inn at Little Washington, Volt, Komi, Minibar, Rogue 24, and many more). The event runs from 6:30 -10:00 p.m. at the Capital Hilton, 1001 16th Street, NW, Washington, DC.

We hope to see you there!

The FCBA also offers an online version of the Charity Auction for those who can’t attend the Auction in-person: www.biddingforgood.com/auction/AuctionHome.action?vhost=FCBAFoundation.

FCC's New Closed Captioning Rules Kick Into Gear

Sheppard Mullin — Fri, 07 Sep 2012 15:50:01 -0500

By Edwin Komen and Brian Weimer

New FCC regulations on closed captioning of IP-delivered video programming have caught many by surprise even though they have been in the works for the past two years. Many of those who will be directly impacted by the new rules may still be unaware of the rapidly approaching compliance deadline of September 30, 2012. Most pre-recorded video programming must be captioned for IP-delivery if it is shown on television with captions on or after September 30, 2012. The producer or supplier of the content bears the initial responsibility for inserting the captioning but the distributors also have the duty to confirm compliance. There are many variations and different applicable dates for different kinds of programming (e.g., live vs. pre-recorded but edited vs. archived). As in all aspects of the law, the application of the law and the associated regulations depends on the specific circumstances surrounding each video program in a library. However, since the dates for implementation vary widely depending on the content and whether it has been broadcast on television in the US, producers, suppliers and distributors must carefully consider each video program in relationship to the relevant regulations. Video programming distributers will also be subject to new consumer complaint procedures that require distributors to have prescribed procedures in place by September 30, 2012. And while the deadline for device manufacturers to comply with their new closed captioning requirements is not until 2014, the reality of equipment development cycles requires device manufacturers to pay close attention to the new requirements immediately.

The FCC regulations in question seemingly arise outside the scope of the agency’s typical regulatory focus. However, the FCC authority for passing these regulations flows directly from the Twenty-First Century Communications and Video Accessibility Act of 2010, S. 3304, 11th Congress, effective October 8, 2010 (the “CVAA”). Notably, although signed into law by President Obama, the law was a bipartisan measure supported unanimously in the Senate and passed by a voice vote in the House. The purpose behind the legislation was to provide greater access to online video programming to both the visually and hearing impaired. This article focuses primarily on the hearing impaired rules that require, to one extent or another, the closed captioning of television programs and motion pictures.

With certain exceptions (e.g., archived content), once a television program or motion picture has been shown on television with captions in the United States on or after September 30, 2012, the same video program must also have captions for IP-delivery. Conversely, video programs that are distributed via IP are not required to be captioned unless and until they have been shown on television with captions in the United States on or after September 30, 2012. Foreign television broadcasts do not trigger the new IP closed captioning rules.

Below are several key provisions of the CVAA and the FCC implementing regulations:

The CVAA and FCC regulations never apply to -- so that no closed captioning is required for -- programming that is ONLY shown on the Internet and NEVER “published or exhibited” on television in the United States with captions.
The strangely worded “edited for Internet distribution” provisions are designed to reach program content altered for the Internet. Absent such a requirement, it might be possible to argue that edited content is a “new” program that was never “published or exhibited” on television and, hence, not subject to the IP closed captioning requirements. This would provide an easy mechanism for closed captioning avoidance simply by altering the content for Internet distribution. On the other hand, since altered content is less likely to include pre-existing captioning, the deadline for compliance is September 30, 2013, one year after the general compliance date.
The “live and near-live” programming requirement is designed to reach primarily simulcast retransmissions of live broadcast content such as, for example, the Olympics or other sports events. This requirement has an extended effective date of March 30, 2013.
The mandate only applies to full-length programming. It does not apply to “clips” of such programming.
The mandate does not apply to consumer-generated content such as the kind of video shorts commonly found on social networking sites like YouTube.
The primary obligation applies to video programming owners although the distributors have an obligation to make certain that the content they distribute is in compliance.
The video programming distributor must agree upon a mechanism with each video programming owner to determine whether programming is in compliance and then to make a good faith effort to identify programming subject to the requirements of the FCC regulations.
A distributor may rely in good faith on a certification from a video programming owner that the video programming need not be captioned if the certification includes a clear and concise explanation of why captioning is not required and the distributor is able to produce the certification to the FCC in the event of a complaint.
Nothing in the FCC regulations requires a video programming distributor to accept such a certification. Given the regulatory framework and potential risk, it seems likely that most distributors will, instead, insist on closed captioning prior to delivery especially where they are licensing a large library of content where each individual component would potentially be subject to its own closed captioning deadline.
The FCC regulations provide for exemptions based on economic burden. These provisions will likely NOT apply to many programming providers, but they should still be explored before drawing any hard and fast conclusions.
The FCC regulations provide for a specific complaint procedure. Complaints must be filed in writing with the FCC or the video programming distributor within 60 days after the date the complainant experienced a problem with the captioning. Video programming distributors must provide contact information for filing such complaints. A general notice on the company website will suffice provided the requisite contact information is included.
Private rights of action are expressly prohibited.
The CVAA “‘require[s] that, if technically feasible, apparatus designed to receive or play back video programming transmitted simultaneously with sound . . . and us[ing] a picture screen of any size be equipped with built-in closed caption decoder circuitry or capability designed to display closed-captioned video programming.’” This mandate becomes effective on January 1, 2014 and covers devices such as PCs, smartphones, and tablets (as well as any integrate software).
The FCC adopted the Society of Motion Picture and Television Engineers Timed Text format (SMPTE ST 2052-1:2010: “Timed Text Format (SMPTE-TT)” 2010) as a safe harbor interchange and delivery format. Where use of an alternate standard results in noncompliant captions, both the video programming owner and the video programming distributor may be held responsible for violations of the new rules.

Although the new FCC closed captioning regulations may be viewed as another regulation requiring burdensome compliance, video programming owners and distributors should be equally concerned by a recently issued decision in the U.S. District Court for the District of Massachusetts. In National Association of the Deaf v Netflix, Inc., C.A. No. 11-CV-30168-MAP, 2012 U.S. Dist. LEXIS 84518 (June 19, 2012), the Court denied Netflix’s motion for Judgment on the Pleadings in a complaint for failure to provide equal access to the Netflix video streaming web site, “Watch Instantly,” for deaf and hearing impaired individuals pursuant to Title III of the Americans with Disabilities Act (the “ADA”). The Court held that the Internet is a “place of public accommodation,” a term it found was not restricted to physical places. The Court did state that Netflix may be able to demonstrate that it does not “control” the content sufficiently to provide closed captioning due to copyright issues, but the Court merely invited the parties to revisit that issue in a later stage of the litigation.

Perhaps most significantly, however, the Court found no irreconcilable conflict between the ADA and the CVAA, since any obligation Netflix may have to provide captioning under the ADA would not contravene any provision of the CVAA. Furthermore, the different CVAA time line for captioning does not create an irreconcilable conflict with the ADA since Netflix can comply with both statutes. Also, the Court found the exclusively administrative complaint procedure under the CVAA was not inconsistent with a private right of action under the ADA for the same wrong. Finally, the Court found no inconsistency between the exemptions in the CVAA for demonstrated economic burdens and the ADA since a court may conclude that the ADA also forecloses liability for a de minimus lack of captioning that is reasonable under the circumstances.

As stated by the Court, “In sum, although the subject matter of the CVAA overlaps with the ADA and the two statutes to some extent impose different requirements on distributors of video programming, such as Defendant, none of these differences create a ‘positive repugnancy’ between the two laws. [Citations omitted.] As such, the court must give effect to both statutes.” The Court further justified its holding by observing that the ADA covers a substantially broader scope of closed captioning as opposed to the narrow scope of the CVAA’s reach that is limited solely to programming first broadcast on television with closed captioning.

The Netflix decision, relying on the ADA, seemingly provides a much broader mandate than the CVAA. Most disturbingly, the ADA mandate would seem largely unregulated whereas, in sharp contrast, the CVAA and the FCC regulations are narrowly tailored to provide a balanced approach to protecting the rights of the impaired while not overly burdening the duties of the video owners and distributors. It is not clear whether the Netflix decision, which is still on the Trial Court’s calendar, will ultimately be decided in the Plaintiff’s favor. However, it does strongly suggest that providing captioning earlier, rather than later, should be a goal of any video programming owner since it will likely be a delivery requirement of most distributors and, in any event, may serve to avoid potential ADA claims.

Proposed Easing of Satellite Export Controls Could Benefit U.S. Satellite Industry

Sheppard Mullin — Mon, 07 May 2012 10:10:20 -0500

By Curt Dombek, Brian Weimer, Dan Brooks, and Reid Whitten

Since 1999, strict controls on the export of U.S. satellites and satellite components have drastically eroded U.S. manufacturers’ market share in the global satellite industry. On April 18, 2012, the U.S. Departments of State and Defense released the “1248 Report” containing findings related to reducing some of those controls. The 1248 Report assesses the national security risks of removing certain satellites and related components from the tightly controlled United States Munitions List (USML) and transferring them to the generally less restrictive Commerce Control List (CCL). The report concludes that most communications satellites, lower-performing remote sensing satellites, and related components could be transferred from the USML to the CCL without harming U.S. national security. The transfer of these items to the CCL could greatly benefit the U.S. satellite industry by significantly easing the export controls placed on its products.

Background

Commercial satellites and related components are unique in that they are the only category of items required by law to be placed on the USML and the only dual-use items (i.e., items with both civilian and military applications) controlled as munitions. Typically, the President has the authority to determine whether a controlled item should be placed on the CCL and controlled under the Export Administration Regulations (EAR) or placed on the USML and controlled under the International Traffic in Arms Regulations (ITAR). In 1999, however, Congress removed the President's authority to change the jurisdictional status of commercial satellites and related components following revelations that U.S. satellite manufacturers had improperly transferred missile design information to China. In 2010, Congress passed legislation requiring the Secretary of State and the Secretary of Defense to assess the national security risks of removing satellites and related components from the USML and to make general recommendations for improving U.S. space export control policy.[1]

The 1248 Report

In a finding that could present new export opportunities for U.S. satellite manufacturers, the report concludes that many controls on satellites and related technologies are no longer necessary and that maintaining these items on the USML leaves U.S. satellite manufacturers at a distinct competitive disadvantage. The report notes that the United States is the only country that controls all items modified in any way for use with a commercial satellite. The report also recognizes that the United States is the only country that controls the reexport of foreign-origin satellites containing U.S.-origin satellite-related items and is the only country that classifies all commercial satellites and related items as munitions. The report suggests that subjecting commercial satellite systems, components, and related technologies to strict ITAR controls is anachronistic, because a substantial number of these items have moved from military use to predominantly civil use over the past fifteen years and therefore no longer properly belong on the USML.

In order to keep the regulations current and ease the export controls placed on satellites and related components, the report proposes transferring the following items to the CCL:

Communications satellites that do not contain classified components;
Remote sensing satellites with performance parameters below certain thresholds; and
Systems, subsystems, parts, and components associated with these satellites and with performance parameters below certain thresholds specified for items remaining on the USML.

Items that provide the United States a military or intelligence advantage in space would remain on the USML, including the following:

Satellites that perform a purely military or intelligence mission;
Remote sensing satellites with high performance parameters;
Systems, subsystems, parts, and components unique to the above satellite types and not common to dual-use satellites; and
Services in support of foreign launch operations for USML and CCL designated satellites.

Benefits for U.S. Satellite Exporters

The proposed changes to the CCL could vastly expand the export opportunities available to U.S. satellite manufacturers. As the report notes, the rules governing items listed on the CCL “provide[] for flexible controls that can be applied or removed as technology becomes readily available on the global market and transitions away from predominantly military uses to commercial purposes.” Notably, the proposed changes also would allow U.S. exporters to take advantage of the Strategic Trade Authorization license exception implemented in June 2011, which permits the export without a license of many items listed on the CCL to thirty-six countries, including NATO members and other close U.S. allies.

Transferring commercial satellites and related components to the CCL would also broaden export opportunities for U.S. satellite manufacturers by making it easier to reexport satellite components without having to obtain an additional license. Unlike the CCL, there is no de minimis exception for items listed on the USML. Thus, satellite components incorporated into foreign-made satellites always require a license for reexport. Transferring commercial satellites and related components to the CCL would allow industry to take advantage of the de minimis exception, which would permit the reexport of satellite components to most countries as long as they were incorporated into a foreign satellite containing less than 25% by value of controlled U.S.-origin material.

Limitations

The proposed changes to the CCL would not open the gates for export to every county. Under the report’s recommendations, the CCL would continue the current policy of prohibiting the export of satellites and related components to certain destinations and end-users, including embargoed countries and China. The report argues that China in particular warrants “special scrutiny” because it “implements active and effective technology acquisition techniques that target U.S. space-related technologies . . . .” The de minimis rule described above also would not apply to transfers of controlled items to embargoed countries and China. Thus, the export to any of these countries of a foreign-made satellite containing even a negligible amount of U.S.-controlled material would still require an additional license, and applications for such a license would be subject to a policy of presumptive denial.

Special Export Controls

The report also makes recommendations that would lower or eliminate the cost of Special Export Controls (SECs) for certain satellites and components. The report recommends a more flexible application of SECs for items that remain on the USML. SECs such as Department of Defense (DoD) monitoring are currently required for exports of satellites and related items for launch in a foreign country unless the country is a NATO member or other major U.S. ally. Certain SECs, however, are discretionary for other activities licensed under the ITAR. The industry is currently required to reimburse DoD only for monitoring costs associated with mandatory SECs. Allowing DoD to waive or exempt certain activities from monitoring and require reimbursements from industry for all SECs likely could shift the costs and controls associated with lower-risk activities to higher-risk activities that are not currently subject to monitoring.

Conclusion

Although the proposals contained in the report hold the potential to benefit U.S. satellite exporters immensely, they are still a long way from becoming law. In order for the transfer of commercial satellites and related components from the USML to the CCL to occur, Congress first would need to pass legislation returning the authority to determine the export control jurisdictional status of such items to the President. The proposed transfer also would require a formal notice-and-comment rulemaking procedure and Congressional notification. The potential upside of such changes, however, is clear: the United States would stand in a better position to regain a broader share of the global satellite industry.

[1] This requirement was published in Section 1248 of the National Defense Authorization Act for Fiscal Year 2010 (Pub. L. No. 111-84), thus the report is often referred to as the “1248 report.”

FCC Proposes to Grant DISH's Wish

Sheppard Mullin — Fri, 23 Mar 2012 12:28:00 -0500

By Brian Weimer and Dan Brooks

In a striking move by the FCC, the Commission has proposed to eliminate the ancillary terrestrial component ("ATC") rules from the 2 GHz Mobile Satellite Service ("MSS") band and repurpose the spectrum for pure terrestrial use (while retaining the mobile satellite allocation in the band). While the proposal is a long way from being adopted, DISH Network Corporation stands to gain tremendously now that it has become the only 2 GHz licensee after acquiring both DBSD and TerreStar out of bankruptcy earlier this month. The FCC postponed for another day the question as to what to do about the ATC rules for Big LEO MSS (i.e., Globalstar) and L-band MSS (i.e., LightSquared).

Background

In 2003, the FCC adopted ATC rules that allowed MSS licensees to use their MSS spectrum to provide terrestrial services, provided that the licensees met certain "gating" criteria. The ATC gating criteria required each MSS licensee to provide "substantial satellite service" (i.e., by providing continuous satellite service in specified geographic areas, maintaining one or more spare satellites, and making MSS commercially available throughout the licensee's required coverage area) and to "integrate" its terrestrial services with its satellite services (e.g., through the use of a dual-mode handset).

DBSD and TerreStar were granted ATC authority in 2009 and 2010, respectively. However, both companies filed for bankruptcy after failing to successfully offer an MSS/ATC service. DISH acquired both DBSD and TerreStar out of bankruptcy earlier this month, but its plans for making use of the companies' ATC authority were temporarily halted when the FCC denied its request for a waiver of the ATC gating criteria. In denying DISH's waiver request, the FCC was doubtlessly seeking to avoid a debacle similar to what ensued after the Commission granted a similar waiver request to LightSquared in January 2011. In that case, the FCC was harshly criticized for granting the LightSquared waiver outside of the formal rulemaking context and was forced to recommend that the waiver be revoked after the National Telecommunications and Information Administration issued a letter concluding that LightSquared's terrestrial operations would cause insurmountable interference to GPS receivers and devices.

While the 2 GHz MSS spectrum has remained essentially unused since it was first allocated in 1997, the FCC has recently been under increasing pressure to make more spectrum available for broadband use. The National Broadband Plan recommended that the Commission make 500 MHz of spectrum available for broadband use within ten years, that 300 MHz of this spectrum be made available for mobile use within five years, and that the FCC should "accelerate terrestrial deployment" in 90 MHz of MSS spectrum, including in the 2 GHz band.

Notice of Proposed Rulemaking

On Wednesday, the FCC released a Notice of Proposed Rulemaking ("NPRM") and Notice of Inquiry ("NOI") proposing to rebrand the 2 GHz MSS spectrum as "AWS-4" spectrum and adopt terrestrial service rules that would largely follow the Commission's rules for miscellaneous wireless communications services. The ATC regulations in the 2 GHz band will be eliminated, and the Commission has signaled that it will address the ATC rules for Big LEO and L-band MSS in a future proceeding.

The uplink and downlink pairing designations for the AWS-4 spectrum will likely remain at 2000-2020 MHz and 2180-2200 MHz, respectively, though the Commission is also seeking comment on alternative plans in which the uplink band could be shifted up 5 MHz to 2005-2025 MHz or shifted up 10 MHz and compressed to 2010-2025 MHz. The AWS-4 spectrum would be licensed in 10-MHz blocks using a geographic area licensing approach, and the FCC would apply existing AWS power limits to the AWS-4 band. New licenses would be assigned on an Economic Area basis to provide spectrum access opportunities for smaller carriers. The licenses would likely have a ten-year term that could be renewed, though the Commission has requested comments on whether the license term should be matched to the 15-year term of the satellite licenses.

In an effort to preempt another LightSquared debacle, the Commission has also requested comments on whether any special interference rules protecting GPS are warranted for the AWS-4 band, whether there is any potential for receiver overload interference between AWS-4 operations and operations in any spectrum adjacent to AWS-4 spectrum, and whether any other interference-related issues should be considered. The FCC is also proposing to apply AWS-1 signal strength limits to AWS-4 to ensure that licensees do not cause interference to co-channel systems operating along common geographic borders, and AWS-4 licensees will be required to protect 2 GHz MSS licensees from harmful interference as well.

The NPRM proposes to assign all AWS-4 licenses in the 2 GHz band to the incumbent MSS licensee (i.e., DISH) by modifying DISH's MSS licenses to add terrestrial authority and obligations that would apply to all AWS-4 service areas. The Commission's rationale for this proposal is that current technology does not permit separate MSS and terrestrial mobile services to operate simultaneously in the band unless they are controlled by a single licensee.

In terms of build-out requirements, AWS-4 licensees would be required to provide signal coverage and offer service to at least 30% of their total AWS-4 population within three years (the "Interim Build-out Requirement") and to at least 70% of the population in each of their license authorization areas within seven years (the "Final Build-out Requirement"). If an AWS-4 licensee fails to meet the Interim Build-out Requirement, all of that licensee's AWS-4 license authorizations will automatically terminate, and in the event that an AWS-4 licensee fails to meet the Final Build-out Requirement in any of its license authorization areas, its AWS-4 license for each license authorization area in which it fails to meet the build-out requirement will automatically terminate as well. The failure to satisfy a build-out requirement would also trigger the automatic termination of the MSS authorization in any area in which the terrestrial authorizations are terminated. Competitive bidding would be used to resolve any mutually exclusive applications for any AWS-4 licenses that are automatically terminated or that otherwise become a part of the FCC's spectrum inventory.

The NPRM also seeks comment on whether AWS-4 licensees should be permitted to partition their service areas or disaggregate their spectrum into new licenses. The Commission has also proposed to allow AWS-4 licensees to enter into spectrum manager lease arrangements (in which the licensee retains both de jure and de facto control of the license) and to allow de facto transfer arrangements (in which the licensee retains de jure control but relinquishes de facto control of the license) to the extent that the Commission permits disaggregation and partitioning.

Notice of Inquiry

In addition to the proposals contained in the NPRM, the FCC is also seeking comment on an alternative band plan that would reallocate the 1695-1710 MHz band from Federal to commercial use and would create two new blocks of spectrum, the PCS-Extension block and the AWS-Extension block. This "2 GHz Extension Band Concept" would consist of the existing MSS downlink band at 2180-2200 MHz paired with an uplink band at 1695-1710 MHz and a 30-MHz PCS-Extension block (which could be subdivided into smaller blocks) consisting of the existing MSS uplink band at 2000-2020 MHz, the lower portion of the AWS-2 J block at 2020-2025 MHz, and the upper portion of the AWS-2 H block at 1995-2000 MHz, all of which would be converted to downlink use.

The 2 GHz Extension Band Concept would sever the current 2000-2020 MHz pairing from the 2180-2200 MHz band, which could require moving DISH's assigned uplink spectrum from 2000-2020 MHz to 1695-1710 MHz. This would likely result in DISH either forgoing the mobile uplink portion of its existing satellite spectrum and converting it to a one-way satellite transmit system or requiring it to launch another satellite to provide MSS using 1695-1710 MHz. The resulting 30-MHz PCS-Extension block would be auctioned as downlink spectrum and would either be paired with a matching uplink block or licensed as an unpaired downlink block. The FCC could also choose to conduct an incentive auction for the MSS uplink band. However, the legislation authorizing the FCC to conduct incentive auctions contemplated at least two "competing licensees." Having acquired both DBSD and TerreStar out of bankruptcy earlier this month, DISH is now the only licensee in the 2 GHz band and it is therefore unclear whether the FCC has the authority to conduct such an auction.

CFIUS Submits Annual Report To Congress

Sheppard Mullin — Wed, 01 Feb 2012 12:18:10 -0500

The Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”) recently submitted its annual report to Congress for calendar year 2010. The report, which provides general information on notices filed, reviews and investigations completed by CFIUS during the year, and the types of security arrangements and conditions that the Committee has employed to mitigate national security concerns, reveals that a larger number of reviews are proceeding to the investigation stage and that the Committee is increasingly conditioning its tacit approval of transactions upon the parties’ adoption and implementation of various mitigation measures.

Background

Section 721 of Title VII of the Defense Production Act of 1950, as amended (“Section 721”), authorizes the President to suspend or prohibit transactions that could result in control of a U.S. business by a foreign person (“covered transactions”) if there is credible evidence to suggest that the foreign person might take action that threatens to impair U.S. national security. CFIUS is a multi-agency committee chaired by the Secretary of the Treasury that reviews and advises the President on such transactions. Section 721 authorizes the President to order the divestiture of any assets acquired through a covered transaction if the parties fail to notify CFIUS and obtain a termination letter (which effectively authorizes the transaction) from CFIUS beforehand. Parties therefore generally prefer to file a voluntary notice with CFIUS containing detailed information on the transaction and the parties involved prior to closing the transaction.

The initial CFIUS review period lasts 30 days, after which CFIUS may either “conclude all action” with respect to the transaction or commence an additional 45-day investigation if it determines that the transaction raises national security concerns. Upon completion or termination of the 45-day investigation period, the Committee will either advise the President to suspend or prohibit the transaction or conclude all action with respect to the transaction. The Committee may also require parties to implement measures to mitigate any national security concerns as a precondition to its tacit approval of the transaction. Absent special circumstances, CFIUS and the President are barred from taking any further action under Section 721 once CFIUS has advised the parties that it has concluded all action with respect to a covered transaction.

The Report

93 notices of covered transactions were filed with CFIUS in 2010—a 43% increase compared to the 65 notices filed in 2009, though significantly fewer than the 155 notices filed in 2008. Because parties often withdraw a filing and submit a new notice in order to restart the 30-day review period if the Committee is unable to reach a decision within the applicable time period, the total number of notices filed does not necessarily equal the number of distinct covered transactions. CFIUS conducted an investigation with respect to 35 of the 93 notices filed in 2010. Twelve of the 93 notices were withdrawn. The parties filed new notices in seven of those cases, and in the remaining five cases the parties decided to abandon their transactions.

Roughly two-thirds of the total notices filed in 2010 were filed by foreign investors in the United Kingdom (26 notices), Canada (9), Israel (7), Japan (7), China (6), and France (6). As in 2009, transactions involving Chinese investors accounted for approximately 6% of all notices filed in 2010. The Committee also reviewed one notice for a covered transaction involving a Hong Kong acquirer. (CFIUS considers Hong Kong and Taiwan separately from China for purposes of determining an acquirer’s home country.) Because CFIUS considers both the nature of the U.S. business over which control is being acquired as well as the identity of the foreign person that is acquiring control, the fact that an acquirer’s home country is a strong ally of the United States does not necessarily mean that a covered transaction does not present national security considerations or that submitting a voluntary notice is not advisable. In 2010, for example, more than one-third of the total notices filed involved acquirers from the United Kingdom and Canada.

As in 2009, CFIUS investigated approximately 38% of all notified transactions in 2010. In contrast, the Committee investigated only 4% of all notified transactions in 2007 and 15% of all notified transactions in 2008. Investigations beyond the initial 30-day period are thus becoming more customary, with nearly two out of every five cases proceeding to the investigation stage of the CFIUS review process.

The data provided in the report also indicate that CFIUS is increasingly requiring the adoption and implementation of mitigation measures negotiated with various CFIUS member agencies as a precondition to its tacit approval of a covered transaction. In 2010, mitigation measures were utilized in 10% of all covered transactions. In contrast, mitigation measures were utilized in only 1% of all covered transactions in 2008 and 8% of all covered transactions in 2009. As in 2009, the use of mitigation measures in 2010 was limited to acquisitions of U.S. companies in the computer software, telecommunications, and energy sectors. Such measures may require the businesses involved to establish guidelines and terms for handling existing U.S. government contracts and customer information; notify relevant U.S. government parties of any material introduction, modification, or discontinuation of a product or service, as well as any awareness of any vulnerability or security incidents; or establish a corporate security committee, security officers, and other mechanisms to ensure compliance with all required actions. CFIUS may monitor and enforce compliance with mitigation measures by means of on-site compliance reviews, periodic reporting, investigations, and third-party audits.

Although no covered transaction resulted in a Presidential decision in 2010 (the last occurred in 2006), parties to covered transactions typically prefer to withdraw their notices before reaching this stage of the CFIUS review process in order to avoid the negative publicity of an adverse Presidential decision. As we previously reported here, there are a number of recent transactions in which the parties withdrew their notice after receiving indication from the Committee that it intended to recommend that the President block the transaction. Many of these deals involved proposed acquisitions of U.S. businesses by Chinese acquirers. In 2009, for example, the parties to a transaction in which a Chinese company sought to acquire a 51% equity interest in a U.S. company that operated a mine in Nevada abandoned the deal after CFIUS advised them that the proximity of the mine to a U.S. Naval air base presented insurmountable national security concerns.

The Committee’s report also analyzes foreign direct investment in the United States by countries that boycott Israel or do not ban terrorist organizations. The report cites Algeria, Iraq, Iran, Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria, Sudan, the United Arab Emirates, and Yemen as countries that boycott Israel (with the caveat that Iraq’s status remains under review). The Committee’s list is more expansive than the Treasury Department’s list of countries that require or may require participation or cooperation in an international boycott. (Treasury’s list does not include Algeria, Iran, Iraq, and Sudan.) The report cites Cuba, Eritrea, Iran, North Korea, Syria, and Venezuela as countries that do not ban terrorist organizations. According to the report, seven transactions involving investors from countries that boycott Israel were completed in 2010, and CFIUS reviewed notices for two of them. The remaining five transactions were not notified to CFIUS, and the Committee has not requested – at least to date – that the parties to those transactions provide any additional information or submit a voluntary notice. No transactions involving countries that do not ban terrorist organizations were completed in 2010.

Conclusion

Because CFIUS considers a number of factors in determining whether a covered transaction raises national security concerns, buyers, sellers, and investors need to be mindful of the CFIUS review process even when the acquirer’s home country is a strong ally of the United States. The Committee’s 2010 report also suggests that parties to covered transactions should plan for a lengthier CFIUS review process than in previous years. With more Committee reviews proceeding beyond the initial 30-day period to the investigation stage, companies should be prepared for a process that could last up to 75 days or more. Finally, parties to such transactions should be prepared to negotiate and implement mitigation measures to assuage CFIUS of any potential national security concerns, especially when the transaction involves the acquisition of a U.S. company in the computer software, telecommunications, or energy sectors.

Proposed ITAR Rule To Relax ITAR Licensing For Components Incorporated Into Commercial Products

Sheppard Mullin — Thu, 17 Mar 2011 13:18:24 -0500

The author is a member of the Firm's Government Contracts & Regulated Industries Practice Group. For additional articles and postings concerning this and related topics, please refer to Sheppard Mullin's Government Contracts Blog, which can be found at www.governmentcontractslawblog.com.

On March 15, 2011, the State Department Directorate of Defense Trade Controls published a proposed new rule that marks a significant change in the approach to ITAR regulation. Historically, ITAR controls have always applied to commercial end products incorporating any ITAR controlled components. This was the basis of the highly publicized QRS chip case, in which the State Department asserted continuing ITAR control over avionics chips that had originated on a military program but had come to be widely used in civilian jet aircraft. That case resulted eventually in a special exception to allow jet aircraft to remain in production and passenger service with the QRS chip and without ITAR licensing.

The new rule, §126.19, sets out conditions under which an ITAR license will not be required for the export or reexport of a defense article incorporated into an end-item that is subject to the EAR. The conditions are that:

The defense article would be destroyed (i.e., rendered useless beyond the possibility of restoration) by its removal from the end-item, or the end-item would be rendered inoperable by the removal of the defense article and the value of the defense article is less than 1% of the value of the end-item;
No technical data for development or production are transferred with the defense article; and
The incorporation of the defense article does not provide and is not related to a military application.

The rule provides expressly that export of the ITAR controlled components as replacement parts would remain subject to ITAR licensing.

The new rule will not go into effect until the Department of Commerce amends the EAR such that the ITAR and CCL provide complimentary coverage of the articles in question. The Federal Register notice invites comments on the new rule through April 14, 2011.

Once it takes effect, this ITAR change has the potential to create new opportunities for commercial exploitation of technology in U.S. manufacturing by allowing EAR controlled equipment made in the United States to incorporate ITAR controlled components meeting the above conditions and be exported without ITAR licensing. The need for continued ITAR licensing of replacement parts will largely limit its impact, however, to products where repair and maintenance could be structured to provide for replacement of the entire EAR controlled end item or assembly.

If you have questions about this ITAR change and the new exporting opportunities it may create, please feel free to contact us.

For further information concerning our Government Contracts Practice, contact our Practice Group Leaders, Bryan Daly in Los Angeles at (213) 617-5466 and Anne Perry in Washington, D.C. at (202) 218-6875.

Authored by:

Curt Dombek
213-617-5595
cdombek@sheppardmullin.com

FCC Approves Controversial Net Neutrality Rules

Sheppard Mullin — Tue, 04 Jan 2011 16:14:41 -0500

On December 21, 2010, the FCC approved controversial net neutrality rules in a party-line vote. Democratic Commissioners Copps and Clyburn joined Chairman Genachowski in approving the Order, despite concerns that it did not go far enough. Republican Commissioners McDowell and Baker wrote lengthy dissents, arguing that the FCC had stepped far beyond its regulatory authority in approving Internet regulations.

According to the Order, the rules can be summarized as achieving three main objectives: (i) transparency; (ii) no blocking; and (iii) no unreasonable discrimination. More specifically, "fixed and mobile broadband providers must disclose network management practices, performance characteristics, and terms and conditions of their broadband services." Additionally, "[f]ixed broadband providers may not block lawful content, applications, services, or non-harmful devices; mobile broadband providers may not block lawful websites or block applications that compete with their voice or video telephony services." Finally, "[f]ixed broadband providers may not unreasonably discriminate in transmitting lawful network traffic."

The regulations have garnered much criticism. Those who believe the FCC has overstepped its regulatory authority have called for reversal either by Congress or the courts. Indeed, Hill Republicans have vowed to reverse the new FCC rules. Commissioners McDowell and Baker both expressed dismay at the FCC's attempt to regulate a sector of the economy that, in their view, needs no fixing, particularly in light of the D.C. Circuit's recent decision that enforcement of net neutrality principles is beyond the FCC's authority.

Those who believe the Order did not go far enough complain that the rules apply primarily to fixed broadband providers, leaving wireless providers largely exempted, and that the rules do not expressly prohibit "paid prioritization," which would allow content providers to pay for faster transmission of their data.

Chairman Genachowski has defended the new regulations, stating in an interview with Gary Shapiro, head of the Consumer Electronics Association, "Our hope is that there's an outcome here that preserves a free and open Internet [that will] promote innovation, protect the free flow of information … and preserve and accelerate the kind of economic activity that we've seen out of this platform for the last several decades."

Whether the FCC's net neutrality rules can withstand judicial review and Congressional challenge remains to be seen.

Authored By:

Christopher S. Huther
(202) 772-5374
chuther@sheppardmullin.com

and

Megan H. Troy
(202) 772-5373
mtroy@sheppardmullin.com

and

Brian D. Weimer
(202) 469-4904
bweimer@sheppardmullin.com

and

Celia V. Cohen
(202) 469-4947
ccohen@sheppardmullin.com

FCC And FDA Focused On Convergence Of Communications And Medical Systems

Sheppard Mullin — Wed, 04 Aug 2010 10:24:47 -0500

Last week, the Federal Communications Commission ("FCC") and the Food and Drug Administration ("FDA") launched a joint initiative to clarify the approval process and regulatory requirements for converged communications and health care devices. In a two-day joint meeting held on July 26-27, 2010, the two agencies solicited comments from industry representatives "to gain a better understanding of the convergence of communications technologies and medical devices, the future of wireless health technologies, and the challenges they face." The goal of the initiative is "to enhance coordination between FDA and FCC for future devices and applications, and to clarify and delineate the respective areas of expertise and jurisdiction between the agencies."

The joint collaboration implements a key recommendation of the FCC's National Broadband Plan, released in March 2010, which cautioned that a lack of clarity regarding the appropriate regulatory approach could stifle innovation, slow the application approval processes, and deter adoption of convergent technologies in the health care industry. Such technologies include, for example, mobile applications that allow individuals to monitor their health conditions, wireless patch-like sensors that transmit data to practitioners and caregivers, and neural pathway replacements that stimulate muscle movement. FCC Chairman Julius Genachowski described the joint initiative as a key component of a larger strategy for the health care industry that also seeks to increase broadband access to rural clinics and increase spectrum availability. He noted that broadband technology is especially promising for the industry because of its ability to enable remote diagnostics and health care, remote medical monitoring, and remote access to health records.

Industry representatives generally reacted positively to the meeting, noting that the current lack of clarity as to whether the FDA or FCC has ultimate authority over medical device product safety issues related to signal interference often discourages venture capitalists from investing in the industry, and that parallel approval processes for the two agencies tend to be duplicative and time-consuming.[1]

The FDA and FCC are currently seeking comments on how they may clarify and identify each agency's respective jurisdiction and how to best improve, coordinate, and simplify the regulatory approval process. The deadline for filing comments is August 16, 2010.

Authored By:

Brian D. Weimer
(202) 469-4904
bweimer@sheppardmullin.com

and

Peter S. Reichertz
(202) 772-5333
preichertz@sheppardmullin.com

and

Daniel Brooks
(202) 469-4916
dbrooks@sheppardmullin.com

[1] See Monica Hogan, FDA Partners with FCC to Spur Wireless Health Technology Development, "The Gray Sheet," Aug. 2, 2010; Monica Hogan, Philips Healthcare CTO: "The Right Things are Happening" in Wireless, "The Gray Sheet," Aug. 2, 2010.

Comments Received In FCC Reclassification Proceeding

Sheppard Mullin — Thu, 22 Jul 2010 12:25:16 -0500

The FCC received thousands of comments last week in response to its Notice of Inquiry (NOI) regarding the appropriate regulatory classification for broadband Internet service. At issue is the hotly-debated topic of whether and how broadband services should be regulated after the DC Circuit's recent Comcast decision, which held that the FCC lacked the authority to regulate a broadband service provider’s network management practices. See FCC Law Blog Post (Apr. 7, 2010).

At issue in the NOI are three regulatory alternatives:

Maintain the status quo and continue to classify broadband service as an "information service" under Title I, thereby effectively ensuring that the regulation of broadband Internet services will remain extremely light to non-existent.
Reclassify broadband service as a "telecommunications service" under Title II and apply the full weight of "common carrier" regulations to broadband providers.
Reclassify broadband service as a "telecommunications service" under Title II, but simultaneously forebear from all but a handful of the Title II regulations (an approach that has commonly been referred to as the "Third Way").

The NOI also asks how wireless broadband services should be treated. That is, the NOI does not assume that terrestrial wireless and satellite-based broadband Internet services will necessarily be treated the same as wireline and cable-based technologies.

The Commission is currently split (3-2) on which approach to pursue. The three Democratic Commissioners (Chairman Genachowski and Commissioners Copps and Clyburn) favor the "Third Way." They believe that only through reclassification will the Commission be able implement President Obama's (and Chairman Genachowski's) communications policy initiatives. In particular, in the wake of the DC Circuit’s Comcast decision, they believe that the FCC needs the additional regulatory authority provided by Title II to achieve its universal service and net neutrality objectives, to advance the goals of the National Broadband Plan, and to implement a variety of consumer protection initiatives.

The two Republican Commissioners (McDowell and Baker) favor the first approach. They prefer maintaining the status quo, keeping broadband service classified as an "information service," and pursuing a largely hands-off approach to regulating the Internet. They fear that reclassification under Title II – even if the "Third Way" is adopted – would create unacceptable regulatory uncertainty, lead to years of litigation, and reduce incentives for investment in broadband infrastructure.

The comments received last week largely mirror these concerns. Public interest groups such as The Center for Media Justice, Consumers Union, and internet search engine giant, Google, support reclassification under Commissioner Genachowski’s "Third Way." Some groups, such as the Media Access Project, argue that the "Third Way" does not go far enough. Under Genachowski's proposal, the FCC would forbear from all Title II provisions except Sections 201, 202, 208, 222, 254 and 255. These groups claim that the Commission should go further and "may not and need not forbear from any provisions that place an obligation on the Commission itself and do not constitute regulations applicable to a telecommunications carrier or telecommunications service."

Those in favor of maintaining the currently minimal approach to broadband regulation vigorously object to reclassification of any kind. These commenters predict that any move to reclassify broadband services under Title II will be subject to almost certain legal challenge, and that protracted litigation will inevitably ensue. Opponents also note that the public interest groups that favor reclassification are expected to challenge any attempt by the FCC to restrict the reach of Title II regulation through forbearance. If such a challenge is successful, the broadband industry may experience the worst of both worlds – not only will it now be regulated, but it would be subject to the full array of requirements and prohibitions under Title II. These commenters also note that, even if such challenges to forbearance were to fail, the composition of the FCC is certain to change over time, creating great uncertainty as to whether future Commissioners will chose not to forebear.

Members of Congress have also weighed in. Notably, in a single week, 282 members of Congress (171 House Republicans, 74 House Democrats and 37 Republican Senators) sent letters to Chairman Genachowski urging him to abandon his plans to reclassify broadband as a Title II service. These lawmakers believe that, before any action is taken by the FCC, Congress should be given the opportunity to revise the Communications Act and clarify the FCC’s authority in this area – a position with which parties such as AT&T agree, arguing that "the Commission should work with Congress to bring the Communications Act into the 21^st century." Other Members have threatened to eliminate any funds from the FCC's budget that may be used to implement Chairman Genachowski's "Third Way."

The FCC is asking for reply comments by August 12, 2010 – a deadline that should provide the Commission sufficient time to vote on reclassification before the November mid-term elections.

Authored By:

Christopher S. Huther

and

Megan H. Troy

and

Jennie Eskin Ekdahl

Replacement of the Legacy High-Cost Universal Support Fund with a Connect America Fund: Key Economic and Legal Considerations

Sheppard Mullin — Tue, 04 May 2010 13:41:49 -0500

A Note by Christopher Huther and Megan Troy of Sheppard Mullin Richter & Hampton LLP and Christian Dippon of NERA Economic Consulting

On April 21, 2010, the Federal Communications Commission (FCC) released a Notice of Inquiry (NOI) and a Notice of Proposed Rulemaking (NPRM) that seek the public's input on the FCC's effort to replace the legacy high-cost universal service fund (USF) with a broadband "Connect America" fund (CAF). In effect, the FCC seeks to implement cost-cutting measures for existing voice support and create a new fund to support the provision of broadband communications in areas that would be unserved without such support or that depend on universal service support for the maintenance of existing broadband service.

In this note, Christopher Huther and Megan Troy of Sheppard Mullin Richter & Hampton LLP and Christian Dippon of NERA Economic Consulting identify key economic and legal considerations raised by the FCC's first step towards comprehensive universal service reform. As the note highlights, the path that the FCC will take on sizing the CAF and reforming the USF will have a significant impact on existing subsidy regimes and on the competitive landscape in the United States communications industry.

To request a copy of the note, please contact Christopher Huther at chuther@sheppardmullin.com, (202) 772-5374 or Megan Troy at mtroy@sheppardmullin.com, (202) 772-5373.

FCC Loses Net Neutrality Suit

Sheppard Mullin — Wed, 07 Apr 2010 15:33:33 -0500

On Tuesday, the U.S. Court of Appeals for the D.C. Circuit ruled that the FCC lacks the authority to regulate Internet service providers' network management practices. The unanimous decision by a three-judge panel immediately throws into question the FCC's ability to require Internet providers to treat all network traffic equally (a concept known as "net neutrality"). The ruling may also hinder the FCC's efforts to move forward with key aspects of its National Broadband Plan for expanding high-speed Internet service nationwide.

At issue in the case was the FCC's decision in 2008 that Comcast had improperly interfered with its customers' use of peer-to-peer programs, which allow users to share large files directly with one another and hence consume substantial amounts of bandwidth. While conceding that it lacked the express authority to prevent Internet service providers from blocking or slowing Internet traffic, the FCC argued that it possessed "ancillary" authority under Title I of the Communications Act to regulate network management practices as "reasonably ancillary to the . . . effective performance of its statutorily mandated responsibilities." The D.C. Circuit disagreed, concluding that the FCC had "failed to make that showing."

In responding to the decision, FCC spokesperson Jen Howard emphasized that the court had not "closed the door to other methods" for implementing its open Internet regulations and that the FCC was committed to finding a "solid legal foundation" for its policies. While the FCC did not specify whether it plans to appeal the court's decision or what "other methods" it may employ to achieve its objectives, the FCC may attempt to reclassify broadband Internet access as a traditional telecommunications service, which would provide the FCC with regulatory authority under Title II of the Communications Act. The easiest solution, of course, would be for Congress to clarify the FCC's authority in this area, though it is likely to be difficult to find time this year to enact any such legislation.

Authored By:

Christopher S. Huther
(202) 772-5374
chuther@sheppardmullin.com

and

Megan H. Troy
(202) 772-5373
mtroy@sheppardmullin.com

and

Brian D. Weimer
(202) 469-4904
bweimer@sheppardmullin.com

and

Daniel Brooks
(202) 469-4916
dbrooks@sheppardmullin.com

National Broadband Plan Recommends Lower, Uniform Pole Attachment Rates

Sheppard Mullin — Tue, 23 Mar 2010 07:30:22 -0500

The Federal Communications Commission ("FCC") released its long-awaited National Broadband Plan (the "Plan") on March 16, 2010. The Plan emphasizes that encouraging and facilitating access to infrastructure, such as utility poles, is critical to the continued deployment and enhancement of broadband facilities in America. The Plan states that, "[c]ollectively, the expense of obtaining permits and leasing pole attachments and rights-of-way can amount to 20% of the cost of fiber optic deployment." Plan at 109. The Plan notes that "[t]hese costs can be reduced directly by cutting fees" and "can also be lowered indirectly by expediting processes and decreasing the risks and complexities that companies face as they deploy broadband network infrastructure." Plan at 110.

Accordingly, the Plan recommends the following:

(1) Establish pole attachment rental rates that are as low and close to uniform as possible. The Plan notes in particular the fact that incumbent local exchange carriers ("ILECs") are subject to almost three times the rates charged to cable television ("CATV") providers, while using similar amounts of space. The Plan states that "[a]pplying different rates based on whether the attacher is classified as a 'cable' or 'telecommunications' company distorts attachers' deployment decisions." Id. The Plan thus recommends that the rate currently charged to CATV providers – a rate that has been held to be just and reasonable and fully compensatory to utilities – should be applied to telecommunications carriers. The Plan leaves the door open for the application of such a rate to ILECs.

(2) Implement rules to lower the cost of pole attachment "make-ready" work. The Plan recognizes that make-ready charges are often the source of significant cost and delay when building broadband networks. The Plan acknowledges that "[r]eform of this inefficient process presents significant opportunities for savings." Plan at 111. To lower the costs of make-ready work and speed up the process, the Plan recommends (among other things): (a) establishing a schedule of charges for the most common types of work; (b) allowing prospective attachers to use independent, utility-approved and certified contractors to perform the make-ready work; (c) mandating that existing attachers take action to accommodate new attachers within a specified timeframe (e.g., 30 days); and (d) linking make-ready payments to the performance of the work, as opposed to requiring that all payments be made up front."

(3) Establish a comprehensive timeline for the attachment process and create a forum for dispute resolution. Currently, no federal regulations address the duration of the process for obtaining access to poles, ducts, conduit and rights-of-way. As such, prospective attachers can spend months or even years attempting to gain access to necessary infrastructure. The Plan therefore recommends the creation of a federal timeline, applicable to all forms of communications attachments, to cover each step of the Section 224 access process (from application to issuance of the final permit). The Plan also takes issue with the lack of procedures for the timely resolution of pole attachment disputes. Accordingly, the Plan advises the FCC to consider approaches that not only speed up the attachment process, but also provide guidance to the industry. Among the things to be considered are creating specialized fora and processes for attachment disputes, establishing target deadlines for dispute resolution, and awarding compensation based upon the date access was denied as a means of expediting dispute resolution.

(4) Improve the collection and accessibility of information regarding the location and availability of poles, ducts, conduits and rights-of-way. The Plan states that the FCC "should ensure that information about utility poles and conduits is up-to-date, readily accessible and secure, and that the costs and responsibility of collecting and maintaining data are shared equitably by owners and users of these vital resources." Plan at 112. The database should be easily searchable, identify the owner of each pole, and contain up-to-date records of attachments and make-ready work that has been performed. The Plan recognizes that the collection of such information would assist pole owners and attachers by ensuring accurate and efficient application processing and fee collection.

(5) Amend Section 224 to establish a harmonized access policy for all poles, ducts, conduits and rights-of-way. The Plan notes that "without statutory change, the convoluted rate structure for cable and telecommunications providers will persist," and that "due to exemptions written into Section 224 [for poles owned by municipalities, cooperatives and utilities in states that have adopted their own pole attachment regulatory regime], a reformed FCC regime would apply to only 49 million of the nation's 134 million poles." Id. The Plan thus recommends amending or replacing Section 224 with a "harmonized and simple policy that establishes minimum standards throughout the nation." Id. This new statutory framework would: (a) establish a minimum set of criteria for all poles, ducts, conduits and rights-of-way; (b) provide all broadband providers (whether wholesale or retail) the right to access pole attachments, ducts, conduit, and rights-of-way based on reasonable rates, terms and conditions; (c) mandate that infrastructure access be provided with standard timelines established by the FCC and give the FCC the authority to award damages for non-compliance; and (d) allow the FCC to compile and update a comprehensive database of physical infrastructure assets.

(6) Establish a joint task force with state, Tribal and local policymakers to develop guidelines for rates, terms and conditions for access to public rights-of-way. The Plan requests that the task force make its recommendations within six months of the task force's creation.

Of course, the aforementioned proposals are recommendations, and thus have not been formally adopted or imposed upon industry participants. We expect the FCC to initiate or revive multiple rulemaking proceedings in the coming months to address in greater depth these suggestions, as well as the rest of the recommendations contained in the National Broadband Plan.

Authored By:

Christopher S. Huther
(202) 772-5374
chuther@sheppardmullin.com

and

Megan H. Troy
(202) 772-5373
mtroy@sheppardmullin.com

and

Jeremy Keim
202) 741-8429
jkeim@sheppardmullin.com

FCC Initiates Net Neutrality Rulemaking

Sheppard Mullin — Mon, 02 Nov 2009 13:12:05 -0500

In its latest move in the "net neutrality" debate, the Federal Communications Commission (FCC) issued a Notice of Proposed Rulemaking (NPRM) in late October 2009 that breaks from the FCC's historically restrained approach to Internet regulation and proposes a host of new prohibitions and requirements on broadband providers. While some have praised the move as a necessary means to ensure continuing investment in innovative content and competition in the Internet access market, others have argued that formal regulation will discourage broadband providers from investing in infrastructure, stifle broadband-related job creation, and lead to congested, slow-moving networks. In addition, some opponents of the move have questioned whether the FCC even possesses the legal authority to regulate Internet network management.

As expected, the proposed rules would codify four existing Internet principles established by the FCC in 2005 as mere "guidelines." These four principles are the following:

1.Subject to reasonable network management, a provider of broadband Internet access service may not prevent any of its users from sending or receiving the lawful content of the user's choice over the Internet.

2.Subject to reasonable network management, a provider of broadband Internet access service may not prevent any of its users from running the lawful applications or using the lawful services of the user's choice.

3.Subject to reasonable network management, a provider of broadband Internet access service may not prevent any of its users from connecting to and using on its network the user's choice of lawful devices that do not harm the network.

4.Subject to reasonable network management, a provider of broadband Internet access service may not deprive any of its users of the user's entitlement to competition among network providers, application providers, service providers, and content providers.

The proposed rules would also establish two new "nondiscrimination" and "transparency" rules:

5.Subject to reasonable network management, a provider of broadband Internet access service must treat lawful content, applications, and services in a nondiscriminatory manner.

6.Subject to reasonable network management, a provider of broadband Internet access service must disclose such information concerning network management and other practices as is reasonably required for users and content, application, and service providers to enjoy the protections specified in [the FCC's net neutrality principles].

Under the proposed definition of "reasonable network management," broadband providers would still be able to manage their networks to reduce congestion and address quality-of-service concerns, address harmful traffic or traffic that is unwanted by users, and prevent the unlawful transfer of content. Thus, while it may be reasonable for a broadband provider to temporarily limit usage during periods of congestion or to charge subscribers based on usage rather than a flat monthly fee, it would not be reasonable to block or degrade VoIP traffic but not other services that similarly affect bandwidth usage, or to block or deprioritize particular content on the basis of viewpoint alone. Similarly, it would be reasonable under the proposed rules for a broadband provider to prevent the unlawful distribution of copyrighted works or to block spam, child pornography, or content that a particular individual has requested be blocked.

Despite the vast expenditure of energy that has gone into debating whether the FCC should promulgate net neutrality rules and what form those rules should take, many commentators have questioned whether the FCC possesses the legal authority to regulate Internet network management. The FCC has argued in the Comcast/BitTorrent proceeding that it has ancillary jurisdiction over broadband Internet access service because the subject matter falls within the FCC's general statutory grant of jurisdiction and the regulation is "reasonably ancillary to the effective performance of the Commission's various responsibilities." While this position was echoed by Chairman Genachowski and Democratic Commissioners Copps and Clyburn in the FCC's NPRM, the merit of the argument is far from clear. Republican Commissioners McDowell and Baker have both expressed doubts, and the Comcast/BitTorrent proceeding is currently on appeal before the U.S. Court of Appeals for the D.C. Circuit. Oral arguments in the case are currently scheduled for January 8, 2010, which presents interesting timing for the case given the FCC's desire to complete its rulemaking next year. In addition, Senator John McCain (R – AZ) has introduced a bill (S. 1836) that would prohibit the FCC from regulating Internet services altogether.

The FCC is currently seeking comments from the public as to what form the final rules should take and whether the FCC possesses legal authority to regulate Internet network management in general. Comments are due on January 14, 2010 and reply comments are due on March 5, 2010.

Authored By:

Christopher S. Huther
(202) 772-5374
chuther@sheppardmullin.com

and

Megan H. Troy
(202) 772-5373
mtroy@sheppardmullin.com

and

Brian D. Weimer
(202) 469-4904
bweimer@shepparmullin.com

and

Daniel Brooks
(202) 469-4916
dbrooks@sheppardmullin.com

D.C. Circuit Strikes Down Cable Ownership Cap

Sheppard Mullin — Thu, 10 Sep 2009 09:42:24 -0500

On August 28, 2009, the Court of Appeals for the District of Columbia Circuit issued an opinion in Comcast Corporation v. FCC, which vacated the FCC's 30% limit on the number of subscribers to which a cable operator could offer service.

The 30% cap, created in 1993, was initially intended to promote competition in the cable television market and increase consumer access to diverse network programming. In 1993, however, the cable television market was dominated by large companies that had exclusive monopoly franchises in particular geographic areas. Since that time, the cable television landscape has changed dramatically. Now, direct broadcast satellite companies provide programming to approximately one-third of subscribers, consumers have access to significantly more channels of programming than ever before, competitive wireline providers are expanding rapidly, and alternate transmission methods of video media are playing ever-increasing roles in the lives of consumers.

Despite these fundamental changes, however, the FCC refused to alter or eliminate the 30% subscriber limit to better reflect market realities. Moreover, the FCC applied the cap not only to incumbent cable providers, but to competitive wireline providers – telephone companies providing fiber optic video services – which, ironically, decreased competition by limiting the total number of subscribers to which these new providers could offer service.

Citing to the “substantial competition” in the cable television marketplace today, the D.C. Circuit struck down the FCC’s 30% limit as arbitrary and capricious. The Court found the record “replete with evidence of ever increasing competition among video providers,” and properly observed that “the broadcast industry is dynamic in terms of technological change; solutions adequate a decade ago are not necessarily so now, and those acceptable today may well be outmoded 10 years hence.” Refusing to ignore this “crucial fact about the nature of the video industry,” the Court vacated the FCC's 30% subscriber limit.

Though the D.C Circuit did not “think that prospect looms large,” the FCC will have another opportunity to justify the 30% limit. In weighing this decision, the FCC would be wise to remember that competitive markets consistently prove themselves superior to regulatory fiat in fostering investment and innovation and in protecting consumers' interests and serving their needs. The FCC thus should promote robust competition and avoid placing unnecessary restrictions on cable operators – particularly competitive wireline providers, who, by definition, have never possessed bottleneck monopoly power over access to video programming. In light of the Court's ruling and the realities of the cable market, it appears unlikely that the FCC will be able to justify any future cap-based regulation.

Authored by:

Christopher S. Huther
(202) 772-5374
chuther@sheppardmullin.com

and

Megan H. Troy
(202) 772-5373
mtroy@sheppardmullin.com

and

Jeremy Keim
(202) 741-8429
jkeim@sheppardmullin.com