Communications Law Bulletin- October 2004 (continued)

FCC Weighs Competing Approaches to Permanent Unbundling Rules as High Court Refuses to Hear Appeals of Decision Overturning Triennial Review Order

Judicial Review: On October 12, the Supreme Court, without comment, denied requests by AT&T, the National Association of Regulatory Utility Commissioners ("NARUC") and various state commissions to consider their appeals of the D.C. Circuit decision overturning much of the Triennial Review Order ("TRO"). The high court’s denial, which had been expected, forecloses any further judicial review of the D.C. Circuit decision, which remanded the case back to the FCC to come up with incumbent local exchange carrier ("ILEC") network unbundling rules that would pass judicial muster. The previous week, on October 6, the D.C. Circuit issued an order holding in abeyance the mandamus petition filed by Verizon, Qwest and the US Telecom Association ("USTA") against the interim network unbundling rules released by the FCC on August 20. The court stated that it would postpone any action on the petition until January 4, presumably to give the FCC an opportunity to formulate permanent unbundling rules on remand from the D.C. Circuit’s decision. Verizon, Qwest and USTA previously also had appealed the interim rules to the D.C. Circuit, and BellSouth and SBC intervened in support of the appeal on September 27.

FCC Proceedings:

With the end of judicial review of the TRO and the D.C. Circuit’s order removing the immediate threat of mandamus relief against the interim unbundling rules, all eyes are on the FCC’s rulemaking to establish permanent network unbundling rules under Section 251 of the Communications Act to replace the rules overturned by the D.C. Circuit decision. The FCC’s Wireline Competition Bureau ("WCB") is racing to complete final rules — its fourth attempt to develop unbundling rules that can withstand judicial scrutiny — by December.

Parties filed initial unbundling comments on October 4. The ILECs’ comments urged the FCC to formulate "narrowly tailored" rules that reflect the rapidly increasing competitiveness of the telecommunications industry and its cable, wireless and Voice over Internet Protocol ("VoIP") intermodal alternatives, especially in the areas of switching and high-capacity facilities. The Bell companies stated that competitive local exchange carriers ("CLECs") "control … more than half of the market for large enterprise customers; and approximately three-quarters of the market for high-capacity data services" and urged the FCC to eliminate local switching, high-capacity local loops (i.e., subscriber lines) and transport from the list of unbundled network elements ("UNEs") that ILECs are required to offer to CLECs. SBC argued that marketplace realities and repeated guidance from the courts leave the FCC no choice but to eliminate those UNEs. The Bells also stressed CLECs’ widespread use of ILEC special access services in providing their own high-capacity services. Verizon pointed out that 80 percent of its special access services "is sold on a wholesale basis to other carriers." Verizon also argued that the FCC should make it clear that ILECs are not obligated to provide UNEs at total element long-run incremental cost ("TELRIC") rates and that any state commission requiring TELRIC rates for UNEs will be preempted.

CLECs and state regulators, on the other hand, cautioned the FCC not to overreact to the D.C. Circuit decision by abandoning the goals of the Telecommunications Act of 1996 ("1996 Act") in a mistaken effort to placate the courts. A coalition of CLECs argued that the court’s criticism of the FCC’s delegation to the states of the local switching "impairment" decision — i.e., whether CLECs would be impaired in competing with ILECs without access to local switching UNEs — does not prevent the FCC from reaching its own conclusion that CLECs would be impaired without such access and, thus, access to UNE-P offerings (i.e., combinations of the local loop, local switching and shared transport UNEs). MCI asserted that the FCC should pick up where the states left off and undertake a "granular, market-by-market analysis of impairment," building on the data collected by the states. It argued that the D.C. Circuit vacated the prior rules because of the delegation to the states, not because of any analytical defect in the FCC’s approach to the impairment determination. Another CLEC coalition called on the FCC to make "business class dialtone" — DS-1 loops and DS-1 enhanced extended links (combinations of unbundled enterprise loops and dedicated transport) — available nationwide as UNEs. CompTel urged the FCC to "establish a presumption in favor of impairment for all high-capacity loops and transport," based on the rising rates and high profit margins of ILEC special access services and the lack of new competitive entry.

The National Association of State Utility Consumer Advocates ("NASUCA") proposed that, "in order to avoid reinventing the wheel," the FCC adopt "most of the impairment standards it previously imposed on the states, … make decisions based on those standards and … delegate fact-finding to the states." For example, "[i]n many areas of the country, incumbents did not challenge the Commission’s national finding of impairment for mass-market local switching. In those areas, impairment should be presumed." A number of state commissions expressed concern that their statutory authority might not be preserved and that their role would be diminished "to one of a mere fact-gatherer," as the New Jersey Board of Public Utilities put it. Various state commissions also submitted summaries of the parties’ positions in their impairment proceedings, while others included findings and recommendations on a variety of impairment and unbundling issues, including requests that local switching and other network elements continue to be unbundled.

WCB officials have stressed that they need concrete information and proposals from the industry in order to complete their work on time. ILECs have recently charged that CLECs are not providing information about their own deployment of facilities and use of facilities leased from other providers, allegedly because the data would show they are not impaired in the absence of access to UNEs. WCB officials emphasized at a September 29 luncheon that parties should present their best data and most sophisticated legal arguments to the WCB, rather than saving the best arguments for the commissioners. Bureau Chief Jeffrey Carlisle warned that a company "planning to save the best argument for November … is not going to get it in the" TRO remand order. He also mentioned that parties to any FCC rulemaking proceeding should explain why their proposals are workable, provide legal support and be prepared to compromise.

In a related development, XO Communications petitioned the FCC on September 29 to reaffirm that ILECs must continue to provide CLECs with access to unbundled high-speed DS-1 local loops at cost-based wholesale rates. XO requested that, because ILECs take the position that the D.C. Circuit decision overturned the FCC’s finding in the TRO that CLECs are impaired without access to unbundled DS-1 loops, the FCC issue such a ruling immediately. All five commissioners indicated previously that they support such a requirement.

On October 4, the FCC’s "line-sharing" requirement (i.e., that ILECs permit CLECs to use the high-capacity portion of ordinary local loops to provide broadband services to the ILECs’ local service customers) was phased out as to new customers pursuant to the TRO. Also on that date, the Association for Local Telecommunications Services ("ALTS") and CompTel/ASCENT requested the FCC to act on a 2003 petition filed by the Coalition for High-speed Online Internet Competition and Enterprise ("CHOICE") requesting a delay in the phase-out of the line-sharing requirement. ALTS/CompTel asserted that eliminating line-sharing requirements for new customers, before the FCC has an opportunity to revisit those requirements in formulating final unbundling rules, "would result in massive disruption in broadband services to residential and rural consumers" and that it would be "nonsensical" for the FCC to let that happen, given the "strong support for linesharing expressed by a majority of this Commission." The FCC has not taken any action to reinstate line-sharing, in spite of statements in support of the requirement by four of the five commissioners, including Chairman Powell. It appeared during the summer that the FCC might take action to reinstate line-sharing on reconsideration of its interim unbundling rules, but the time to do so passed on October 12 with no action by the FCC. Commissioner Copps commented that allowing the line-sharing phase-out to go forward is "yet another body blow to competition."

On October 18, the FCC released an order granting petitions for reconsideration of the TRO filed by BellSouth and SureWest Communications requesting that the FCC extend the "fiber-to-the-home" ("FTTH") unbundling exemption to "fiber-to-the-curb" ("FTTC") loops. This decision, which is limited to mass market loops, frees fiber facilities extended within 500 feet of a customer’s premises from unbundling requirements, thereby encouraging deployment of fiber broadband networks in residential neighborhoods, according to the FCC. The FCC based its decision on its finding that CLECs are not impaired in the local service market without access to mass market FTTC loops. In his dissent, Commissioner Copps blasted the decision as "yet another in a series of prescriptions this Commission is willing to write to end competitive access to last mile facilities." The Bell companies lauded the decision as encouraging mass market broadband investment, while CLECs and consumer groups criticized the decision as anticompetitive. ALTS stated that "the FCC has now immunized the Bell companies from competition for residential and small business customers over existing loops ..." Independent analysts noted that the decision will strengthen ILECs in their race against the cable industry to win broadband customers.

On October 27, the FCC released an order granting Bell company petitions requesting the FCC to "forbear" from imposing, under the "checklist" in Section 271 of the Communications Act, unbundling requirements that the FCC has lifted under Section 251 of the Act for broadband facilities. Under Section 271, a Bell company may seek FCC authorization to enter the interstate long distance service market in its own local service territory on certain conditions, including compliance with a checklist that includes unbundling obligations. Approval of the Bell forbearance petitions means that long distance authority previously granted to a Bell company under Section 271 does not impose unbundling obligations on the Bell that were lifted for all ILEC FTTH and FTTC loops, hybrid copper-fiber loops and packet-switching facilities under the TRO and the decisions extending unbundling relief to FTTH and FTTC facilities. The FCC based its forbearance decision on the finding that ILECs are not dominant in the provision of broadband services and that removal of unbundling obligations would spur Bell broadband investment. In his dissent, Commissioner Copps criticized the decision as "another nail in[] the coffin [the majority] is building for competition," resulting from the majority’s "cheerful blindness to stubborn market reality." Commissioner Adelstein concurred in the decision but dissented as to what he characterized as "the Order’s lack of in-depth market analysis." In his statement accompanying the order, Chairman Powell mentioned that the order had removed Section 271 unbundling obligations only as to fiber-based facilities and did not affect the ILECs’ line-sharing obligations. Commissioner Martin, however, asserted in his statement that, because the order granted Bell petitions that included requests to forbear from enforcing line-sharing obligations, line-sharing was included in the order "by default." A WCB spokesman stated that the Bureau "hopes to resolve" the ambiguity as to line-sharing in the final rules to be released in December.

State Commission Proceedings:

On September 28, it was reported that AT&T had requested the Virginia Corporation Commission to determine whether Verizon may terminate UNE-P offerings to "enterprise" customers (i.e., business customers with more than four lines). AT&T argued that Verizon incorrectly applied change-of-law provisions in its interconnection agreement and that Verizon had no right to terminate UNE-P service while the FCC’s interim unbundling rules remain in effect. On September 29, it was reported that at least one CLEC, Covad Communications, was pleased by the California PUC decision of the previous week setting new UNE rates for SBC. Although the PUC raised narrowband UNE-L (i.e., UNE loop) and UNE-P rates 20 percent, it cut the rates for DS-1 broadband loops, which Covad uses to provide VoIP and other business services. As a facilities-based CLEC, Covad makes little use of UNE-L or UNE-P offerings. In response to a Covad complaint against BellSouth, the Florida PSC staff recommended that, unless the FCC determines otherwise, BellSouth no longer be compelled to provide line-sharing after October, according to a September 29 report. The staff stated that line-sharing is not one of the Section 271 competitive "checklist" obligations, and line-sharing was phased out as of October 4. In an order issued on September 30, the Pennsylvania PUC required Verizon to change certain wholesale rates, reducing some and increasing others, in spite of the "standstill" order freezing UNE rates as of June 15 in the FCC’s interim unbundling rules. The PUC explained that its decision to modify UNE rates was made in December 2003 and thus was not affected by the subsequent standstill order. Moreover, the FCC’s order makes an exception for state-ordered rate increases, but not decreases, and the PUC rate changes, averaged together, result in an overall rate increase.

It was reported on October 4 that the Wisconsin PSC approved rate increases of 13-20 percent for SBC’s UNEs, which SBC was required to tariff by October 13. Both SBC and CLECs expressed disappointment in the order. It was reported on October 7 that the Alaska Regulatory Commission ("ARC") declined to reconsider an order requiring ASC of Anchorage to continue providing switching and transport UNEs to GCI Communications, at the rates the ARC set in June, until the FCC releases permanent unbundling rules. On the same day, it was also reported that the Maine PUC refused to reconsider its refusal to require Verizon to keep offering unbundled line-sharing pending further investigation. The PUC said that there was no clear evidence that lack of a standstill order would harm competition. On October 27, it was reported that the Pennsylvania PUC denied Verizon’s request to reconsider an August decision to suspend and investigate Verizon tariff amendments withdrawing certain UNE offerings for business customers, citing the lack of harm to Verizon and the state’s interest in continuing with the investigation. Verizon, which has appealed the suspension and investigation order to the federal courts, had argued that federal policies supersede the state’s authority on these issues and that it should be permitted to discontinue the UNEs at issue.

It was reported on October 4 that the Utah PSC ruled that Qwest is required to file all negotiated interconnection agreements with CLECs for state approval, even agreements that involve network elements that are no longer required to be unbundled. The PSC stated that the 1996 Act requires all voluntarily negotiated interconnection agreements to be filed, irrespective of the requirements of Sections 251 and 252. On October 15, it was reported that a Texas state court upheld the Texas PUC order that SBC and Sage Telecom publicly file their entire negotiated network access agreement. The court held that Section 252 clearly requires all negotiated interconnection agreements to be filed with the PUC for review and that the agreement must be filed in its entirety for the PUC to fulfill its statutory duty to determine whether the agreement is discriminatory or otherwise against the public interest.

Responding to a question at a September 29 panel discussion about the Bell companies’ attempts to raise UNE rates in state commission proceedings during the "standstill" period (see September Communications Law Bulletin article regarding industry struggles over unbundling rules), WCB Chief Carlisle said that he did not know whether the Bells were acting inconsistently with the commitments they had made to maintain current UNE rates. He recommended that competitors file complaints if they believe that the Bells are breaking their commitments, but cautioned that such allegations can be counter-productive without proof.

In late September, two financial analysts reacted to the recent developments regarding unbundling rules at a Brookings Institution panel discussion. Precursor Group CEO Scott Cleland predicted a major revolution soon based on expanding intermodal competition, while Medley Advisors Senior Policy Director Jessica Zufolo discounted the impact of such developments for investors unless and until broadband becomes more widespread in the U.S. Cleland said the UNE-P era will soon be gone. He pointed out that the effort to open local service to competition did not go as well as the long distance competition resulting from the 1984 divestiture because local services are much less price-elastic. Unlike in the case of long distance service, consumers do not buy more local service when the price drops. Also, the capital demands are much greater in the case of local service market entry, and the capital cannot be used as efficiently as in the case of long distance services. Cleland stated that the competitive model will only start to work for local service now that "the intermodal future is here," bringing much cheaper alternatives into the home, such as cable and wireless. Zufolo indicated that UNE pricing is still a significant issue and that the Bell companies are trying to get UNE rate increases from the state commissions during the six-month interim period before the FCC completes the final UNE rules. Cleland and Zufolo agreed that now that "UNE-P is dead," UNE-L has become an attractive option as CLECs buy cheaper soft switches.

The House Passes Legislation to Extend and Modify Satellite Home Viewer Act

On October 6, the House of Representatives by unanimous voice vote passed a bill that would amend the Satellite Home Viewer Act of 1994 to extend authority for the satellite distant network signal compulsory license and the copyright compulsory license. Notably, the bill also (1) allows direct broadcast satellite ("DBS") providers to negotiate royalty rates with copyright holders, rather than requiring the Copyright Arbitration Royalty Panel to determine the rates; (2) requires DBS providers to deliver local broadcast programs using a single dish, thus banning EchoStar’s practice of using a second dish to carry some local programs; and (3) directing the FCC to report to Congress regarding methods for identifying consumers who will be unable to receive local digital television broadcasts. The DBS industry generally supported the bill, while urging Congress to add a provision allowing DBS providers to deliver digital television programs to areas that do not receive local digital broadcasts. The unanimous passage of the bill increases the likelihood that the Senate also will pass the bill, or at least some version of it.

FCC Releases Text of Order Adopting Rules to Encourage Deployment of Services to Rural Areas

Nearly three months after adopting its decision, the FCC on September 27 released the full text of a report and order adopting various measures to encourage deployment of new services to rural areas. These measures include (1) establishing a general presumption that counties with a population density of 100 persons or fewer per square mile constitute "rural areas" for wireless spectrum purposes; (2) eliminating the cellular cross-interest rule and transitioning to case-by-case review of all applications involving cellular transactions; (3) allowing licensees the option to grant a security interest in commercial and private, terrestrial-based wireless licenses to the U.S. Department of Agriculture’s Rural Utilities Service, subject to prior FCC approval; (4) increasing permissible power levels for certain wireless service base stations in rural or unserved areas; and (5) clarifying FCC policies governing infrastructure sharing and declaring that the more flexible de facto control standard for spectrum leasing will apply to infrastructure sharing arrangements involving facilities only.

Additionally, the FCC allowed certain geographic area licensees the flexibility to comply with their build-out requirements by demonstrating "substantial service." These licensees include 30 MHz PCS licensees, 800 MHz SMR licensees (blocks A, B, and C), certain 220 MHz licensees, Location and Monitoring Service licensees, and 700 MHz public safety licensees. As a result of the FCC’s action, these licensees will have the option of meeting their build-out requirements by either providing substantial service or complying with existing service-specific construction benchmarks. The FCC declined to extend similar flexibility to Multipoint Distribution Service and Instructional Television Fixed Service licensees and licensees in the 70 GHz, 80 GHz, and 90 GHz bands. The FCC noted that construction rules for those licensees have been or will be addressed in other proceedings.

Furthermore, the FCC issued a further notice of proposed rulemaking ("FNPRM"), seeking comment on build-out requirements for licensees after their initial license terms. The FCC also sought comment on measures such as a "keep what you use" approach to reclaim and re-license unused spectrum. Comments and reply comments are due, respectively, 30 days and 60 days after publication in the Federal Register.

FCC Proposes $50,000 Fine Against Sprint PCS for E911 Noncompliance

Signaling its intent to vigorously enforce Enhanced 911 ("E911") requirements against wireless carriers, the FCC proposed a substantial forfeiture of $50,000 against Sprint PCS for failure to provide E911 Phase I service to Santa Cruz County, Arizona, within six months of a request to do so. Although the Public Safety Answering Points ("PSAPs") in Santa Cruz did not complete the necessary equipment upgrades to receive Phase I information until three months after the request for Phase I service, the FCC found that the rules merely require the PSAPs to complete their upgrades within six months of the request, and not at the time of the request. Furthermore, although Sprint PCS missed the Phase I deployment deadline by only one month, the FCC found that a substantial proposed forfeiture is warranted, noting that the E911 rules are intended to promote safety of life and thus a violation of those rules is "extremely serious."

Brief Delay in Enforcement of Red Light Rule

As part of its implementation of the Debt Collection Improvement Act, the FCC adopted the so-called "red light" rule. As reported in our September edition, under this rule, the FCC will not act upon an application or any other request for a benefit (such as numbering resources) if the applicant is delinquent in any debt owed to the FCC.

This rule was scheduled to take effect on October 1, 2004, but the FCC announced a one-month delay in enforcement until November 1, 2004.

In a recent information session on the new red light rule, Commission staff clarified how the rule will be applied in certain situations. Although the FCC will not grant an application until the "red light" has been removed (i.e., paid), each Bureau has discretion to move forward with processing the application short of grant. Although the rule provides that any outstanding debt must be paid within 30 days of notice to avoid dismissal of an application, the staff noted that there is discretion to make exceptions under certain circumstances. For example, if the indebted party has negotiated an installment plan to pay the debt, the FCC may remove a "red light." Similarly, if a party files a "well-documented" challenge to a notice letter, the Commission has the discretion to temporarily lift the "red light" pending resolution of the challenge. Finally, the staff noted that any delinquency, regardless of amount, is sufficient to create "red light" status. If the staff finds that "red lights" are frequently incurred due to de minimis debts, however, the FCC will consider establishing a minimum threshold for the "red light" trigger in the future.

If you need any assistance in determining whether you have any delinquent debt to the FCC or negotiating resolution of any such debt, please contact any of the attorneys in our Communications Group.

Telemarketing Developments

The FCC has issued two orders affecting implementation of the telemarketing restrictions in the Telephone Consumer Protection Act ("TCPA").

First, the FCC established a limited safe harbor from the prohibition on placing autodialed or prerecorded message calls to wireless numbers when such calls are made to numbers that have been recently ported from a wireline to a wireless carrier. Specifically, callers will be protected from liability if the number has been ported from a wireline to a wireless carrier within the previous 15 days (provided the number was not already on the national do-not-call registry or the caller’s company-specific do-not-call list). The safe harbor, however, does not excuse willful violations if calls are knowingly made to wireless numbers, and the safe harbor extends only to voice calls, not text messages. In addition, to achieve consistency with recent Federal Trade Commission rules, the FCC amended its safe harbor rules to require telemarketers to check the do-not-call list no more than 31 days prior to making a telemarketing call (with no further grace period). This more frequent checking of the list replaces the current rule that requires updating only every three months, and the new rule becomes effective on January 1, 2005.

In a second order, the FCC extended for six months (through June 30, 2005) the effective date of its determination that an established business relationship is not sufficient to demonstrate prior express permission to receive unsolicited facsimile advertisements. The FCC’s related rules requiring signed, written statements of permission are similarly extended. The Commission took this action because Congress is considering bills addressing these precise issues, and thus decided not to impose unnecessary compliance costs upon businesses until the outcome of any Congressional action on these issues is clear. This extension will permit Congress to act or permit the FCC to address the petitions for reconsideration filed on these issues.

Universal Service Controversies Will Likely Trigger FCC and Congressional Action

The FCC and the Universal Service Administrative Company ("USAC"), which administers the universal service program for the FCC, have been subject to increasing scrutiny as significant problems with the universal service mechanism keep emerging. Although the long-term stability of the universal service fund ("USF") has long been a concern of Congress, suggestions to reform the mechanism have been more theoretical than concrete. However, recent developments, including a report that USAC has now lost millions of dollars due to an accounting change, may push a Congressional overhaul of the program.

This year, audits of the Schools and Libraries universal service program ("E-rate Program") have revealed the unlawful receipt of universal service monies. Congress has held multiple hearings and the FCC has issued new rules trying to stem further waste, fraud, and abuse. Although the concern that the E-rate Program is fraught with fraudulent activities is still a high priority, USAC’s reported loss of $4.6 million has taken center stage. The FCC recently ordered USAC to change its accounting practices from GAAP (generally accepted accounting principles) to government accounting principles. As a result, USAC is now required to keep cash on hand to cover all of its funding obligations. In order to comply with this mandate, USAC was forced to sell high-interest Treasury bills and other assets, incurring significant penalties in the process, at a loss of $4.6 million. It also is estimated that the accounting change may cost USAC, and thus the USF, as much as $30 million overall. USAC also implemented a freeze in early August on all funding requests through the E-rate Program and the universal service health care support mechanism.

Some legislators have alleged that the FCC’s mandate that USAC change its accounting practices was politically motivated. Chairman Powell denied the accusation, stating it is "ridiculous and unfounded." The FCC’s Democrats, Commissioners Copps and Adelstein, also have criticized how Powell handled the change in accounting practices, with Adelstein noting that he was only informed that USAC suspended all funding weeks after the freeze had been implemented. Powell has responded that the accounting changes were necessary to comply with appropriations laws.

In order to make up for the loss of monies, it is likely that the FCC will raise the USF contribution factor. The contribution factor for the fourth quarter of 2004 is 8.9 percent. Raising the factor to more than 10 percent would likely force telephone bills higher and push a political hot button. The industry has generally viewed 10 percent as the threshold after which Congress will actively investigate changing the contribution mechanism.

Potentially confusing the issue further, Jeffrey Carlisle, Chief of the Wireline Bureau, has stated that the staff will begin looking at changing the contribution methodology from the current revenue-based system to a system based on numbers or connections. The proposal to change the methodology has been dormant since the FCC raised the issue more than a year ago. Furthermore, WilTel filed a petition with the FCC seeking a reduction of the fourth quarter contribution factor because it does not take into account the monies AT&T would owe to the USF if its enhanced prepaid calling services are ruled to be telecommunications services. (The FCC is currently considering an AT&T petition to determine whether AT&T’s prepaid calling services are unregulated information services or regulated telecommunications services.) AT&T sent a letter to the FCC arguing that it was proper for the FCC not to take revenues from its prepaid calling services into account when calculating the USF contribution factor. WilTel’s petition has become moot, however, because the contribution factor was deemed automatically approved at the end of September.

In related news, Carlisle indicated that an item regarding E-rate Program enforcement may start circulating on the 8th Floor in the next couple of weeks. The item would, among other things, ask whether the FCC should lower the discount rate for the poorest schools. The issue has been prompted by criticism from some legislators that schools do not put enough of their own money into the E-rate Program to discourage fraud and waste. The FCC also recently released the list of eligible services for the 2005 funding year.

VOIP Developments

Although the debate regarding regulation of voice-over-Internet-protocol ("VOIP") services rages on, significant steps may be taken soon by the FCC to clarify at least the regulatory classification of some VOIP services. The FCC’s actions are prompted in part by a bipartisan letter from Congress and continued disagreement regarding the role of states in VOIP regulation. In addition, foreign regulators have recently taken multiple actions to address VOIP.

Federal Developments

Vonage’s petition for a declaratory ruling that its VOIP service is interstate in nature and is therefore not subject to state regulation is circulating on the 8th Floor for vote and is expected to be on the agenda of the FCC’s November 9 open meeting. FCC officials noted that the jurisdictional issue is very important to avoid conflicting decisions and regulations at the state and federal levels and that quick action is necessary. However, the Vonage decision will only address specific services. The pending rulemaking that raised broad issues regarding the regulation of IP-enabled technologies will not be acted on until the first quarter of 2005 at the earliest. According to FCC sources, after the FCC issues its decision on IP-enabled technologies, the FCC may tee up the issue of VOIP access charges.

At the 2004 VON Conference in Boston, Chairman Powell stated that he would pursue broad federal regulatory jurisdiction over VOIP to avoid a patchwork of conflicting state regulations that could stifle the emerging VOIP market, stating his intention to introduce a proposal within the next month. Powell also urged the industry to adopt four Internet "freedom" principles that would empower consumers and promote competition: (1) access to content; (2) use of applications; (3) attaching personal devices; and (4) obtaining service plan information.

A bipartisan majority (61 members) of the House Commerce Committee had sent a letter to Chairman Powell urging the FCC to assert exclusive jurisdiction over VOIP in the Vonage proceeding. Although legislation is pending regarding VOIP regulation, the letter stated that the jurisdictional issue is "such an important, but narrow, finding [that it] cannot wait for a more comprehensive VOIP bill to work its way through the legislative process." House Commerce Committee Vice Chairman Pickering (R-Miss.) was credited with obtaining support for the letter from Republicans and Democrats in only ten days.

In contrast to some members of the House Commerce Committee focusing on the jurisdictional nature of VOIP, Representative Markey recently stated at the VON Conference that the more important issue is whether VOIP providers have equal, nondiscriminatory access to broadband networks and thus to consumers. Markey urged VOIP providers to start lobbying on the access issue before Congress and the FCC.

Members of the VOIP industry at the VON Conference argued that the FCC should not require VOIP providers to supply E911 services. Rather than apply mandates based upon the "network topologies and capabilities of yesterday," the FCC should instead rely on the industry to develop emergency applications and services. Whether this would be successful, however, is still in question. VOIP provider Vonage recently stated it can provide customers in Rhode Island with E911 location service, but noted that Rhode Island was a unique case because, unlike other states, Rhode Island owns the selective router for 911 and has only one public safety answering point.

The debate regarding VOIP also is extending beyond the FCC and Congress. Various cities recently filed comments with the Internal Revenue Service ("IRS") urging the application of the federal excise tax to VOIP. The cities argued that exempting VOIP from the federal tax would jeopardize their fiscal health because their utility user taxes are applied in the same way as the federal excise tax.

State Developments

Although state regulators at the VON Conference generally could not agree on whether the FCC should preempt state regulation of VOIP services, most agreed that, at a minimum, states should have some role in consumer protection. As most states already have general consumer protection requirements and deceptive trade practices laws, it is questionable whether state public utility commissions would even take an active role in such oversight. In other developments, the U.S. Court of Appeals for the 8th Circuit has scheduled oral arguments for November 17, 2004 to hear whether the Minnesota Public Service Commission has authority to regulate VOIP.

International Developments

Germany’s regulatory agency, RegTP, organized a forum of regulators from the European Union. The regulators, however, appeared to agree on only one thing – that European nations should coordinate their regulation of VOIP. What that regulation scheme should be remains hotly contested among nations, with many already making unilateral decisions affecting VOIP services within their respective countries:

• Canada.
The chairman of the Canadian regulatory agency has warned that it may regulate VOIP services. Chairman Charles Dalfen stated that the agency’s inclination is to regulate VOIP services because they are so similar to traditional telephone services. The agency has accepted comments on its proposal, although a decision is not expected before early 2005.

• United Kingdom.
The United Kingdom’s Office of Communications ("Ofcom") has initiated a proceeding to determine whether VOIP services should be regulated. Ofcom has stated that it is not necessarily seeking to require all voice services, including VOIP, to offer the same features as traditional services, nor will it rely on whether the service simply appears to be similar to traditional services. Although Ofcom expressed concern about emergency services, it also stated that it may not be appropriate to apply such requirements to new services. Ofcom also stated that VOIP providers will be able to offer consumers geographic phone numbers, switch existing wireline numbers to VOIP services, or provide service using a new non-geographic numbering code (065).

• Germany.
RegTP prohibited several VOIP providers from allowing customers to have geographic telephone numbers outside the customers’ home area. VOIP providers had begun this practice because they could not obtain and allocate area code numbers for every German city. To address the providers’ concerns, however, RegTP ruled that VOIP providers are eligible to allocate geographic numbers according to the local numbering plan. It also stated that it would allow VOIP providers to offer customers number porting.

• Ireland.
The Irish regulatory agency recently decided that it will allocate geographic numbers for all services that are classified as publicly available telephony services ("PATS"), regardless of whether they are traditional or VOIP services. The agency also stated that it would make geographic numbering resources available to services classified as "electronic communications services," which do not have the same rights or responsibilities as PATS. Furthermore, the agency concluded that it would open a new non-geographic number (076) for VOIP services.

Upcoming Deadlines for Your Calendar

Note: Although the dates listed below are accurate as of the day this edition goes to press, please be aware that these deadlines are subject to frequent change. If there is a proceeding in which you are particularly interested, we suggest that you confirm the applicable deadline.

November 3, 2004	Auction No. 37 (FM broadcast) begins.
November 8, 2004	Comments due on NPRM regarding application of CALEA to broadband Internet access and VOIP services.
November 8, 2004	Reply comments due on International Bureau mandatory electronic filing NPRM.
November 15, 2004	Reply comments due on NOI re impact of violent TV programming on children.
November 15, 2004	Inside wiring FNPRM and cable inside wiring NPRM comments due.
November 15, 2004	Pay-per-call NPRM comments due regarding audiotext information services.
November 16, 2004	Radio license post-filing announcements due for Iowa and Missouri.
November 16, 2004	Radio license pre-filing announcements due for Colorado, Minnesota, Montana, North Dakota and South Dakota.
November 16, 2004	TV license post-filing announcements due for Florida, Puerto Rico and Virgin Islands.
November 16, 2004	TV license pre-filing announcements due for Alabama and Georgia.
November 16, 2004	Auction No. 58 (broadband PCS) short-form application filing window opens.
November 17, 2004	Secondary markets 2nd FNPRM comments due.
November 17, 2004	Comments due on NPRM regarding shortening time interval for intermodal local number portability.
November 23, 2004	Comments due on advanced wireless services ("AWS") NPRM.
November 26, 2004	Reply comments due on 37 & 39 GHz NPRM.
November 29, 2004	Pay-per-call NPRM reply comments due re audiotext information services.
November 30, 2004	Auction No. 58 (broadband PCS) short-form application window closes.
November 30, 2004	Comments due on unlicensed operation in TV broadcast bands NPRM.
November 30, 2004	Reply comments due on attribution of joint sales agreements in local TV markets NPRM.
December 1, 2004	Broadcast localism NOI reply comments due.
December 1, 2004	Radio license expiration date for Illinois and Wisconsin.
December 1, 2004	Radio license post-filing announcements due for Iowa and Missouri.
December 1, 2004	Radio license renewal applications due for Colorado, Minnesota, Montana, North Dakota and South Dakota.
December 1, 2004	Radio license post-filing announcements due for Colorado, Minnesota, Montana, North Dakota and South Dakota.
December 1, 2004	Radio license pre-filing announcements due for Kansas, Nebraska and Oklahoma.
December 1, 2004	TV license expiration date for North Carolina and South Carolina.
December 1, 2004	TV license post-filing announcements due for Florida, Puerto Rico and Virgin Islands.
December 1, 2004	TV license renewal applications due for Alabama and Georgia.
December 1, 2004	TV license post-filing announcements due for Alabama and Georgia.
December 1, 2004	TV license pre-filing announcements due for Arkansas, Louisiana and Mississippi.
December 3, 2004	Comments due on NPRM regarding competitive bidding in 39 GHz band.
December 6, 2004	Inside wiring FNPRM and cable inside wiring NPRM reply comments due.
December 7, 2004	Reply comments due on NPRM regarding application of CALEA to broadband Internet access and VOIP services.
December 16, 2004	Radio license post-filing announcements due for Colorado, Iowa, Minnesota, Missouri, Montana, North Dakota and South Dakota.
December 16, 2004	Radio license pre-filing announcements due for Kansas, Nebraska and Oklahoma.
December 16, 2004	TV license post-filing announcements due for Alabama, Florida, Georgia, Puerto Rico and Virgin Islands.
December 16, 2004	TV license pre-filing announcements due for Arkansas, Louisiana and Mississippi.
December 17, 2004	Secondary markets 2nd FNPRM reply comments due.
December 17, 2004	Reply comments due on NPRM regarding shortening time interval for intermodal local number portability.
December 29, 2004	Auction No. 58 (broadband PCS) upfront payments due.
December 30, 2004	Reply comments due on unlicensed operation in TV broadcast bands NPRM.
December 31, 2004	Deadline for commercial DTV stations to provide city-grade coverage.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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