Communications Law Bulletin- October 2004

The Month in Brief

October was an active month on a number of fronts, including broadcast, wireline and mobile telephone regulation. Notably, nearly all remaining obstacles to the Cingular/AWS wireless merger were cleared, the TV license removal cycle began, and the U.S. Supreme Court declined to hear appeals of the judicial rejection of the Federal Communication Commission’s ("FCC" or "Commission") rules on unbundling of local incumbent telephone companies’ local networks. We summarize some of the principal developments here. As always, we also provide a list of deadlines for your calendar.

FCC Introduces Advanced Wireless Service in the 1710-1755 MHz Band

The FCC recently adopted an order allowing advanced wireless services ("AWS"), including third generation wireless ("3G") systems, in the 1710-1755 MHz band. This band was initially allocated to the federal government. Pursuant to negotiations with the Department of Commerce’s National Telecommunications and Information Administration ("NTIA"), government users may relocate to the 2025-2110 MHz and 2360-2400 MHz bands. Although this decision is narrowly tailored to address the spectrum needs of federal wireless users, it is within a larger, complex series of decisions to make spectrum available for new and innovative services.

Under the revised allocation, the U.S. Department of Defense ("DOD") can use the 2025-2110 MHz band on a co-equal, primary basis with non-federal operations for 11 earth station sites that support military space operations. The DOD also may operate six station sites in the southwestern region of the United States in the fixed and mobile (except aeronautical mobile) services in the 2025-2110 MHz band on a secondary basis. Non-federal operations in this band include Television Broadcast Auxiliary Services, Cable Television Relay Service, and Local Television Transmission Service. The Commission concluded that sharing between the government and broadcasters is feasible and will promote the public interest so long as licensees follow appropriate coordination procedures. The secondary operations are in remote locations and should not significantly impact other operations in this band.

The principal use of the 2360-2390 MHz band is for aeronautical telemetry operations, although the FCC previously adopted service rules for Wireless Communications Services ("WCS") and Unlicensed Personal Communications Service ("UPCS") in this band. In order to ensure space for the government to move its operations from the 1710-1755 MHz band, the FCC rescinded the rules for WCS at 2385-2390 MHz and concluded that the 2390-2400 MHz band is no longer available for use by UPCS. (No commenters opposed removing WCS and UPCS.) Now, federal and non-federal flight test stations may operate in the 2385-2395 MHz band. This allocation also provides replacement spectrum for government and private test stations that recently lost access to 35 MHz of spectrum at 1525-1535 MHz and 2320-2345 MHz.

On October 1, the FCC began its TV license renewal cycle, reviewing the applications of stations in D.C., Maryland, Virginia and West Virginia. Indecency complaints against stations will be high on the list of the Commission’s considerations when deciding whether to renew a TV broadcast license, according to Commissioner Abernathy. Several renewal applications have been challenged for violating indecency laws by consumer advocacy groups, including the Parents TV Council, the United Church of Christ and the Center for Digital Democracy. The next wave of renewals begins on December 1 for stations in North Carolina and South Carolina. The process will go through all the states and Puerto Rico and end with Delaware and Pennsylvania in August 2007. The renewal cycle repeats every eight years.

The FCC proposed a fine of $7,000 per station against 169 Fox stations for airing a segment of "Married by America," which included scenes from bachelor and bachelorette parties, during a time when children were likely to be watching. The scenes depicted, among other things, a topless stripper straddling a man in a sexually suggestive manner, a male stripper about to put a woman’s hand down the front of his pants, whipped cream being licked off one woman’s bare chest and an underwear-clad man being spanked by two topless female strippers. The FCC deemed the material "gratuitous, vulgar, and clearly intended to pander to and titillate," regardless of the obscuring of nudity by means of a blurring technique. Fox denied that the show violated the indecency rules.

The FCC issued a $55,000 fine against Entercom for two incidents of broadcasting indecent material on the "Rob, Arnie & Dawn in the Morning Show" over KRXQ(FM), Sacramento, during times when children could have been listening. A September 2002 segment featured the host playing the role of a young child whose father wanted to take pornographic pictures of him. During a September 2003 segment, the hosts discussed ways men can disgrace and degrade women after intercourse. Although the Commission cited the egregious nature of the violations and Entercom’s history of violations in issuing the fine, Commissioners Copps and Martin both called for a larger fine.

Race car driver Dale Earnhardt is the latest celebrity subject of an FCC indecency complaint. The Parents TV Council filed a complaint against NBC stations for airing Earnhardt saying "shit" during a post-race interview on October 3. NBC has stated that it will put all future NASCAR race coverage on a five-second delay.

The FCC rejected Infinity Broadcasting’s petition for reconsideration of a $27,500 indecency fine against WKRK(FM), Detroit. Among other arguments, Infinity had claimed that the Commission’s enforcement of its indecency standard was unconstitutional.

Efforts to attach indecency measures to the Defense Department Authorization Bill failed on October 12 after proponents refused to separate controversial media ownership and violence provisions from the measure. The amendment, proposed by Senator Brownback (R-KS), would have increased fines for indecency to $500,000 per utterance, with a $3 million maximum for each incident. The legislation had passed the House, but failed to survive the Senate compromise process.

In response to Sinclair Broadcast Group’s plans to air "Stolen Honor," a documentary criticizing Senator John Kerry’s anti-war comments after he returned from Vietnam, Democrats have demanded that the FCC determine whether the broadcast would violate any regulations. In a letter to FCC Chairman Powell, 85 House Democrats stated: "The American public, which owns the airwaves that Sinclair would use for its partisan political purposes, expects the FCC to uphold the basic principle of fairness which is at the root of our democracy." Powell stated to reporters that he was not aware of any rule that would allow the Commission to prevent the broadcast of the show. He stated that "I think it would be an absolute disservice to the First Amendment and I think it would be unconstitutional if we attempted to do so." An FCC regulation obligates broadcasters to provide equal time to candidates in federal elections. According to Powell, this requirement may have been satisfied when Sinclair invited Kerry to a panel discussion to be aired after the show, which Kerry reportedly declined.

In a "win" for consumers and regulators, the United States Supreme Court recently declined to hear an appeal challenging the legality of the national Do-Not-Call ("DNC") registry. The telemarketing trade group American Teleservices Association ("ATA") had requested that the Supreme Court overturn a decision by the U.S. Court of Appeals for the 10th Circuit, holding that the DNC registry does not violate companies’ free-speech rights. The telemarketing group had argued that the DNC registry unlawfully restricts the marketing practices of businesses while exempting other groups such as charities, pollsters, and political organizations. The Supreme Court, however, declined to hear the appeal, ending telemarketers’ hopes of avoiding DNC requirements. Accordingly, companies that market products and services through telephone solicitations must continue to avoid calling the 63 million telephone numbers listed on the DNC registry.

Companies also continue to fight a morass of state telemarketing restrictions that may be more restrictive than the federal requirements. Specifically, the Commission seeks comment on three separate petitions for a declaratory ruling that certain state telemarketing laws are preempted by the Telephone Consumer Protection Act ("TCPA"):

• New Jersey.
ATA asks the Commission to preempt certain state telemarketing rules, arguing that the state requirements are inconsistent with the Commission’s "established business relationship" exemption, do not provide a personal relationship exemption, and impose stricter identification requirements than those in the TCPA.

• Florida.
Express Consolidation, Inc., a nonprofit organization, requests that the Commission preempt a Florida telemarketing statute that places more onerous restrictions on interstate telephone calls placed by tax-exempt nonprofit organizations than those imposed by the TCPA.

• North Dakota.
FreeEats.com, a Virginia-based company that uses prerecorded messages to conduct political polling, requests that the Commission preempt a North Dakota law that prohibits the use of autodialed, prerecorded messages, but does not include an exception for political polling calls.

Comments and replies regarding ATA’s and Express Consolidation, Inc.’s petitions are due November 17, 2004 and December 2, 2004, respectively. Comments and replies regarding FreeEats.com’s petition are due November 8, 2004 and November 17, 2004, respectively.

On October 21, the U.S. Department of Justice ("DOJ") released its Remedies Guide for use in merger reviews. Once DOJ finds that a proposed merger may substantially lessen competition, it seeks to impose a remedy that will fully restore competition. According to Hewitt Pate, Assistant Attorney General in charge of DOJ’s Antitrust Division, the Remedies Guide provides policies by which DOJ can "identify critical legal and economic issues regarding merger remedies and devise a remedy specifically tailored to the competitive harm." The Remedies Guide provides that structural remedies, such as the sale of assets, are preferable to regulating or managing a company’s post-merger conduct, given the cost and possible unintended consequences of conduct remedies.

The Remedies Guide endorses the principles that a remedy should promote "competition, not competitors," and that all remedies must be clear and enforceable. Any divestiture required as a structural remedy "must include all assets necessary to be an effective, long-term competitor," and the divestiture of an existing business entity in its entirety thus is preferable to the sale of a smaller set of assets that might be "missing some unanticipated yet valuable component," according to the guide. The guide is consistent with FCC Chairman Powell’s view that structural remedies are preferable to behavioral remedies. The guide also states that, in limited cases, conduct remedies may be appropriate, such as when outright prohibition of the merger would sacrifice significant efficiencies and a structural remedy would also sacrifice efficiencies or is infeasible. Assistant Attorney General Pate stated that "[e]ffective antitrust enforcement requires remedies based on sound legal and economic principles and closely related to the identified competitive harm" and that the Remedies Guide provides more clarity for all parties.

On October 4, FCC Chairman Michael Powell announced a new FCC campaign geared towards educating consumers and raising awareness about DTV. The "DTV — Get it!" initiative includes a new Web portal (www.dtv.gov) designed to serve as a source of information on the DTV transition, and a consumer tip sheet created by the FCC, the Consumer Electronic Association ("CEA") and the Consumer Electronics Retailers Coalition ("CERC"). Major retailers Best Buy, Circuit City and RadioShack have agreed to distribute these tip sheets to their customers.

At this same event, Chairman Powell said that he wanted to "wrap up" outstanding DTV transition issues by year-end. Specifically, proceedings regarding multicasting carriage, public interest obligations, and how to count the 85% of consumers that convert to digital have yet to be completed. Under current law, the transition is to occur in 2006 or once 85% of the population in a given market can receive a digital signal. The FCC has been focused on how to determine the 85%. The Commission’s Media Bureau has drafted a plan that would count anyone with a DTV set, a digital-to-analog converter or a cable or satellite set-top box that can downconvert or pass through a broadcaster’s digital signal toward this number. Nevertheless, the Commission has a good deal of work left to do before any of these three issues will be fully resolved.

Late in September, the Senate voted to amend S-2485, which is a bill to reform the intelligence community and the government’s intelligence-gathering activities. This amendment was pushed by Senate Commerce Committee Chairman John McCain (R-AZ) and sets a January 1, 2008 deadline for broadcasters in the 700 MHz bands (channels 63, 64, 68, and 69) to vacate the spectrum for first responders seeking to use them. The amendment is likely to affect stations owned by Paxson Communications, Univision Communications, Viacom and Tribune Co., among others, according to data by the Senate Commerce Commission. This measure, based on the SAVE LIVES Act, also sets firm deadlines for the FCC to finish various proceedings with respect to the DTV transition. The FCC must complete the multicast must-carry proceeding by January 1, 2005; the proceedings on DTV public interest obligations by January 1, 2005; and the DTV must-carry proceeding for DBS providers by January 1, 2006. Although present law requires broadcasters to vacate their old analog airwaves by 2006, industry experts predict that this will take at least a decade.

Senator McCain had hoped to force television broadcasters to relinquish analog airwaves and air only digital signals by 2009 in addition to mandating some stations to move by 2008 to make room for public safety. Because of opposition to this plan, McCain made some compromises to his idea and attached this measure to the pending legislation to overhaul U.S. intelligence.

The Senate approved the amendment by voice vote, but the intelligence bill will require final approval in the Senate, as well as in the House of Representatives. House Commerce Committee Chairman Joe Barton (R-Tex.) said he intends to oppose attaching any amendments similar to McCain’s to the House Intelligence Reform Bill (HR-10). Congress is hoping to complete work on the measure this month, but Senate Majority Leader Bill Frist warned that senators sought to add roughly 300 amendments to the intelligence bill.

The amended language also includes a provision for $1 billion in subsidies for consumers to buy a device that would convert digital signals into a format they could see, or subscribe to cable or satellite service to be able to see their broadcast stations. This plan would be funded by the auction of the analog airwaves vacated after the transition. FCC Chairman Michael Powell said he didn’t support any proposal that would provide subsidies to ensure that every TV set in a consumer’s home is receiving a digital signal. To do so would cause the DTV transition to be "another 50 years in the making."

In an order reforming its international settlements policy earlier this year, the FCC concluded that it had an insufficient record upon which to draw any conclusions with respect to foreign mobile termination rates ("FMTRs"). At that time, the FCC committed to gather additional data regarding these surcharges.

At its October open meeting, the FCC released a Notice of Inquiry ("NOI") to study the effects of foreign mobile termination rates on U.S. consumers and competition in the U.S.-international telecommunications services market. Although the full text of the NOI has not yet been released, the FCC appears to be interested in: (1) the level/amount of FMTRs; (2) the payment arrangements between U.S. carriers, foreign fixed/wireline carriers and foreign mobile carriers for terminating traffic and how these costs are ultimately passed on to customers; (3) the level of competition in the foreign mobile services market; (4) its authority to adopt regulations regarding FMTRs; (5) the appropriate regulatory framework for analyzing FMTRs; and (6) the value of consumer education efforts regarding FMTRs.

In essence, the FCC is exploring how to reconcile the effect of calls from customers in a receiving-party-pays ("RPP") system (like that in the U.S.) to customers in a calling-party-pays ("CPP") system (which is used in Japan and most of Europe, for example). In an RPP system, the calling and called parties share the cost of mobile calls, but in a CPP system, the calling party pays all the costs of the call. Accordingly, when a U.S. customer calls a number in a CPP system, the U.S. customer pays the surcharge for mobile termination, which is sometimes unexpected in light of the U.S. system.

The FCC acknowledged that some foreign regulators are already investigating FMTRs, and at least one commissioner expressly stated his hope that the market and foreign regulators will resolve this issue so that the Commission does not need to act.

Wireless carriers have expressed concern that the NOI could open the door for rate regulation of the mobile industry. Following the announcement of the NOI, the FCC released a consumer alert that invited customers to file comments on a series of specific questions regarding their awareness of, and reaction to, FMTRs.

For licensees subject to Section 301(b)(4)’s foreign ownership restrictions, Commission rules require applicants for declaratory ruling to exceed the 25% foreign ownership threshold to disclose information regarding both the control/voting and ownership/equity interests in the licensee. When one of the owners is an investment fund, however, it has been somewhat unclear if, and how much, information must be disclosed with respect to widely scattered, passive individual investors. Depending upon the number of investors in a fund (and how many funds are involved), this information can be very difficult and time-consuming to gather, and many investors are unwilling to provide this type of personal information for a public filing.

A few recent applications shed some light on the Commission’s thinking with regard to the required disclosures involving investment funds. First, in the recent application involving the acquisition of Verizon Hawaii, the applicants (including various Carlyle Group funds) set forth fairly detailed information regarding the sources of equity in the investment funds. Although the application did not specifically identify each individual investor, it did categorize the amounts of equity held by various types of individuals and entities, along with the countries of citizenship of each group.

In a second application involving the pending transfer of control of certain Intelsat subsidiaries to Zeus Holdings Limited, various investment funds also are involved. The applicants in this transaction, however, did not initially disclose information on the equity sources of the various funds. The Commission recently issued a letter to the applicants requesting more information on the investor groups comprising each fund, as well as more specific information on other communications investments by those funds. The Commission’s letter seemed to indicate an awareness of the difficulty of applying its traditional five-part "principal place of business test" to investment fund equity sources, and asked if the funds have this information for their investors. If such information is not available, the applicants must categorize fund investors into various groups (individuals, government agencies, banks/insurance companies/pension plans, foundations/endowments/trusts, and other institutional investors) and provide for each group (a) the aggregate percentage of equity held by that group, (b) the aggregate number of investors in that group, and (c) a list of countries where the investors in the group are organized or (in the case of individuals) have citizenship. This is almost precisely the information that was disclosed in the Verizon Hawaii application discussed above.

Accordingly, although it appears that applicants may not need to disclose disaggregated information regarding every single investor in the relevant fund(s), this information apparently will need to be collected in order to prepare the aggregate information that the Commission is requesting. Applications not containing this information risk follow-up requests from the Commission, which may delay consideration of the application.

On September 23 the California Public Utilities Commission, in a four-to-one vote and over the vigorous dissent of Commissioner Susan Kennedy, fined Cingular Wireless $12.14 million for imposing fees on customers who terminated their service contracts early during the time when Cingular was not providing customers with a service trial period. The Commission also said that Cingular had violated state consumer protection laws by failing to disclose network problems while continuing to actively market its services.

The $12.14 million fine represents a $10,000 per day penalty for the period from January 2000 through April 31, 2002. The Commission also ordered Cingular to reimburse those customers who had paid all or part of the early termination charges to Cingular or to one of its agents. Including these refunded amounts, the total cost of the Commission’s order could be close to $25 million.

Cingular responded that it is being punished for "failing to meet then-non-existent standards" and challenged the Commission’s authority to impose any network service standards on wireless carriers. Consumer groups, on the other hand, hailed the decision as one of the first to impose state consumer protection laws on a wireless carrier. Cingular has stated that it may appeal the decision.

The timing of the Commission’s decision could not be worse for Cingular, whose proposed merger with AT&T Wireless is pending before the Department of Justice and the FCC. The Commission’s finding that Cingular violated the law is at odds with earlier representations by Cingular that it is in full compliance with all states’ laws.

In response to consumer complaints against wireless carriers, state regulators are increasing their efforts to regulate mobile services. Federal law currently preempts state regulation of wireless rates or market entry, limiting state jurisdiction over wireless services to "other terms and conditions." Despite their limited jurisdiction, states continue to receive significant numbers of consumer complaints against wireless carriers and, according to the wireless carriers, the states’ efforts to resolve these disputes often exceed the boundaries of their limited jurisdiction.

Recently, wireless carriers in California and Minnesota challenged those states’ attempts to impose their consumer protection laws on mobile telephone companies. On September 3, a federal district court in Minnesota ruled that that state’s recently enacted Wireless Consumer Protection Statute was likely to escape federal preemption because it does not regulate rates but rather regulates "other terms and conditions." The Minnesota court’s decision dissolved an earlier temporary restraining order halting implementation of the law and denied the request for an injunction. In California, wireless carriers recently joined together to file two separate law suits challenging, on preemption grounds, the Public Utilities Commission’s recently enacted consumer protection rules. The California suits also seek an immediate injunction. There have been no rulings in either case.

Elsewhere, the Nebraska Public Service Commission ("PSC") is seeking legislation to give it the legal authority it believes it needs to resolve consumer complaints against wireless carriers, including the right to settle disputes, hold hearings, and impose penalties. The Nebraska PSC does not have statutory jurisdiction over wireless carriers and believes that the authority it seeks is consistent with that granted by federal law. Wireless entities oppose the legislation, arguing that consumers already can seek remedies through the state attorney general, a process the Nebraska PSC calls burdensome and costly.

BPL systems deliver high-speed communications services by merging radio frequency energy onto existing electric power lines. There are two types of BPL – "In-House BPL" and "Access BPL." In-House BPL systems transfer information between computers and other devices via the electrical outlets within a building. Access BPL systems transport high-speed voice and data signals from a telecommunications network over the medium voltage line. The high-speed communication signals enter the home through an exterior service power cable or through an Access BPL adapter module. BPL is expected to spur additional broadband competition and facilitate the ability of electric utilities to manage the power grid.

The Commission’s recently adopted BPL rules are expected to hasten these potential benefits, while addressing interference concerns. Specifically, the Commission adopted rules that: (1) establish new technical requirements for BPL devices; (2) prohibit BPL devices from operating in certain bands; (3) require consultation with public safety agencies, federal government sensitive stations, and aeronautical stations; (4) launch a new Access BPL notification database that will assist BPL providers and other service providers in identifying and resolving harmful interference; (5) require Access BPL systems to obtain certification; and (6) create improved measurement procedures for all devices that use radiofrequency energy to communicate over powerlines.

Commission and Federal Energy Regulatory Commission ("FERC") officials touted the benefits of the new BPL rules. FCC Chairman Powell and FERC Chairman Wood issued a joint statement claiming that "BPL holds great promise for the American public." The Powell/Wood statement added that regulators should allow market demand to dictate BPL development and impose minimal regulation on this promising new technology. Commissioner Copps, claiming that the United States ranks only eleventh in the world in broadband penetration, expressed optimism that BPL would lead to lower prices and higher penetration rates. However, Commissioner Copps reminded the Commission that it must take interference concerns seriously and act promptly to resolve harmful interference, as necessary.

In early October, Nextel CEO Tim Donahue indicated that before the end of the year, his company anticipates that it will finalize a plan to swap wireless airwaves with public safety groups. As we reported in our last issue, the Commission issued an order in July that offered a solution to Nextel’s interference with public-safety operations in the 800 MHz band and in September, Nextel asked the Commission to modify the order. The Commission likely will publish the Nextel order in the Federal Register this month, but the Commission could still modify the order or accept petitions from Nextel or third parties up until 30 days after the order is published.

Despite Nextel’s claims that the Commission could issue an erratum to address the issues Nextel raised, Commissioner Abernathy recently stated that a reconsideration motion would be more appropriate. While the Commission’s Wireless Telecommunications Bureau can draft an erratum, a reconsideration motion requires a full Commission vote.

On October 22, 2004, the Commission issued a Public Notice ("PN") requesting expedited comment on issues that Nextel raised in ex parte presentations regarding the 800 MHz Public Safety Order, which was released August 6, 2004. The PN also seeks comments on the ex parte presentations that other parties filed in response to Nextel’s ex partes. Comments are due ten days after the PN is published in the Federal Register, but the Commission is waiving the reply comment cycle in order to expedite the resolution of unacceptable interference to public safety licensees in the 800 MHz band.

In the PN, the Commission also extended certain deadlines by 45 days. However, the Commission emphasized that the extension does not apply to the statutory deadlines for filing petitions for reconsideration and seeking judicial review of the 800 MHz Public Safety Order or to the effective date of the rules set forth in the 800 MHz Public Safety Order.

On October 26, 2004, the FCC released its long anticipated order (the "Order") conditionally approving the merger between Cingular and AWS. Immediately thereafter, the parties closed on the transaction. Cingular emphasized that the merger would improve its current service offerings, quality, and coverage. Stan Sigman, Cingular’s President and CEO, promised AWS customers that his company would make the transition "as seamless as possible."

Analysts generally agreed that the divestitures detailed in the Order were very light and suggested that the FCC has a higher tolerance for large mergers in highly competitive sectors. The Order requires Cingular to divest AWS operating units and the associated spectrum in 16 markets, the largest of which is Oklahoma City. Cingular is required to divest 10 MHz of PCS spectrum in Detroit and Dallas. The FCC explained that the Dallas and Detroit divestitures were necessary because those markets are dense urban areas where competing carriers have higher spectrum needs. The FCC enforced Cingular’s voluntary commitment to reduce its spectrum to no more than 80 MHz in 43 mainly rural counties in Georgia, Tennessee, and Texas. Cingular must also convert to passive interests or divest its interests in four rural markets, located in Louisiana, Massachusetts, and Missouri. Finally, the Order prohibits the new entity from applying to bid in Auction 58 on any license located in a Basic Trading Area ("BTA") in which Cingular currently controls or has a 10 percent or greater interest in 70 MHz or more of cellular and/or PCS spectrum.

With these divestitures, the FCC concluded that the transaction was unlikely to cause competitive harm in most markets because the remaining carriers have a strong-enough market presence to discourage anti-competitive behavior. Even though the final vote was 5-0, Commissioners Copps and Martin partially dissented on intermodal competition grounds. Commissioner Copps wrote, "Can we expect that Bell-owned wireless carriers will compete tooth-and-nail against their wireline parents? I don’t think so." Chairman Powell responded that he took the intermodal competition issues "very seriously."

One remaining question is whether the Cingular/AWS transaction will serve as precedent for future wireless/wireline mergers. Frank Governali, a Goldman, Sachs & Co. analyst, predicted that the FCC’s approval "may bode well for other possible combinations in both the wireless and wireline sectors." However, the FCC warned that it intends "to monitor carefully further developments in this marketplace that may affect intermodal competition and to consider carefully transactions that may impede our efforts in that regard."

On October 8, the Commission announced its vote on the Core Communications ("CoreComm") petition for forbearance ("Petition") from the interim rules adopted in the Internet service provider ("ISP") Remand Order ("Order"). In the Order, the Commission concluded that ISP-bound traffic is interstate "information access" subject to Commission jurisdiction. With the Order, the Commission also: (1) set rate caps on intercarrier compensation for ISP-bound traffic; (2) established a growth cap on the total ISP-bound minutes for which a local exchange carrier ("LEC") could receive this compensation; (3) adopted a "mirroring" rule that requires incumbent LECs to pay the same rates for ISP-bound traffic that they receive for other traffic; and (4) announced a "new markets" rule in which interim intercarrier compensation rules would apply if two carriers were not exchanging traffic under an interconnection agreement before the Commission adopted the Order. The D.C. Circuit Court of Appeals rejected the legal authority upon which the Commission based these rules, but did not vacate the Order, so the interim rules remained in effect.

In its petition, CoreComm alleged that the interim rules discriminate against competitive LECs in favor of Bell Operating Companies and requested that the Commission forbear from applying the rate caps, growth caps, "mirroring" rule, and "new markets" rule. With respect to rate caps and the "mirroring" rule, the Commission dismissed CoreComm’s arguments as "cursory" and concluded that these rules protect the public interest by preventing regulatory arbitrage and encouraging efficient investment.

However, the Commission granted forbearance with respect to growth caps and the "new markets" rule. The Commission concluded that growth caps are no longer necessary to protect the public interest because of the declining usage of dial-up ISP services, and that the benefits of a unified compensation regime outweigh the previous concern of regulatory arbitrage. The Commission found that the "new markets" rule was no longer in the public interest because it created different rates for similar or identical functions, thus undermining the potential for a unified compensation regime.

The forbearance granted by the Commission extends to all carriers, effective October 8, 2004. Commissioner Adelstein dissented in part, arguing that forbearance from any of the rules was inappropriate at this time because dial-up minutes for ISP-bound traffic have remained constant or increased in some rural areas where broadband penetration is low.

As we reported in our last issue, the Commission, in a 3-2 decision, voted on September 9 to adopt the Nationwide Programmatic Agreement ("NPA"), which would streamline the review process for the construction and use of communications towers under the National Historic Preservation Act. On October 5, the Wireless Bureau released the NPA, which was signed by the National Conference of State Historic Preservation Officers and the Advisory Council on Historic Preservation, both of which were necessary signatories. Before the NPA, laws that varied by local jurisdiction made the tower construction process unclear and inconsistent. In September, Commissioner Powell lauded the NPA, claiming that the construction of communications towers was "essential" to the development of advanced communications services and public safety.

Despite the potential benefits of the NPA, questions remain about the Commission’s authority to implement it. According to the wireless industry, the NPA constitutes a federal "undertaking" that could lead to increased federal review of proposed tower construction plans. Under the National Environmental Protection Act, federal undertakings normally consist of roads, dams, and other public projects that require construction permits and a historic preservation analysis.

Wireless interests argue that the NPA would permit the Commission to regulate the construction of an antenna facility, even when the Commission does not issue a construction permit. Cellular Telecommunications & Internet Association ("CTIA") Senior Vice President and General Counsel, Michael Altschul, stated that with respect to carrier tower siting, "It’s no secret, though, that we still believe the FCC has no jurisdiction." In their dissents from the order adopting the NPA, Commissioners Abernathy and Martin expressed similar concerns. At this time, it is likely that CTIA and other wireless interests will seek judicial review regarding the federal undertaking issue.

On a related note, on October 25, the Commission announced that it had reached an agreement with the United South and Eastern Tribes, Inc. ("USET") regarding voluntary "best practices." USET consists of 24 federally-recognized tribes and is a leader in the Native American community in the area of tribal historic and cultural preservation. The FCC/USET voluntary best practices will guide applicants in their analysis of the impact that wireless towers will have on lands that are of religious and cultural significance to USET member tribes. In praising the voluntary best practices, Chairman Powell stated, "If everyone works together, the infrastructure necessary to bring wireless communications throughout the country can be built quickly, without harm to sites of religious and cultural importance to the Tribes, and without unnecessary FCC involvement."

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