Following up on the landmark USF Order last fall in which it first adopted a plan to distribute Universal Service Fund money for broadband build-outs, the FCC has released a Public Notice setting out the basic ground rules for the “reverse auction” by which the money will be distributed. The Notice fills in some important gaps in how the whole process is supposed to work.  

As we have previously reported, the FCC is proceeding for the first time with an unusual reverse auction under which rights will be determined by the party which bids the lowest amount for the area in question.   In this case, carriers will be bidding to provide service to relatively high cost parts of the country provided they receive certain subsidies.   The company asking for the lowest subsidy to do the job will get the money and the attendant service obligation. Many of the key features of this auction remain subject to petitions for reconsideration, but the Wireless Bureau is nevertheless plunging forward to set the ground rules on the assumption that the auction will proceed largely as laid out in last fall’s USF Order.

In addition to the usual provisos, warnings, disclaimers, and notices that accompany every FCC auction, the Public Notice alerts us to the following:

While the prospect of free government money is usually attractive, the significant strings which the FCC has attached to this process make the decision to bid on the awards a difficult one. Potential bidders should consider all of the risks as well as the rewards of participating in this program.

The FCC has been extraordinarily vigilant about enforcing the requirement that telecom carriers offer their customers certain minimum numbers of hearing aid-compatible handsets.   This requirement arose in 2008 when the Commission established a gradually increasing quota of acoustically coupled and inductively coupled handsets which carriers must make available to hard-of-hearing customers. The idea is that hearing-impaired folks must have a broad range of handsets of different feature levels to select from.

Although the FCC alerted the industry repeatedly to the requirements of Section 20.19 of the rules, T-Mobile seems to have seriously dropped the ball. According to a recent Notice of Apparent Liability (NAL), T-Mobile came up way short: as many as 33 acoustic hearing aid compatible handsets short in 2009 and 2010, and 14 inductive handsets short in that same period. These shortfalls were clear on the face of the annual report that T-Mobile (like other carriers) must file with the FCC detailing, among other things, the handsets they offer. The NAL doesn’t explain how T-Mobile could have failed to take steps to bring itself into compliance when its own disclosures apparently showed a shortfall in the required handsets.

The price tag for this problem?  $819,000.

Several things are notable about the NAL which, we hasten to mention, is only a preliminary set of allegations, not a final determination. T-Mobile will still have plenty of opportunity to plead its case to the Commission.

No more. The FCC has now decided that that approach didn’t encourage compliance, since it essentially forgives all but one of the months when you are non-compliant. It also treats you the same if you were non-compliant for 12 months or one month. T-Mobile would have gotten only a $165,000 fine under the old approach.

Under the new policy, you can be fined for being short a handset in every month of the year. The shortfalls each month are added together to calculate the total. Accordingly, since T-Mobile was apparently short seven handsets in November and December of 2009 and 45 handsets through August of 2010, its base penalty was $780,000 (i.e., 52 handsets short x $15K per handset short). The FCC then adjusted that amount upward by $39,000 to take into account T-Mobile’s size, but mitigated that increase to reflect the fact that it had cooperated in the investigation.

• Third, we observe that normally the FCC can impose forfeitures on common carriers only for violations occurring within one year of the NAL. All of the violations charged here occurred in 2009 and 2010, more than a year ago. That’s not a problem here, though, because T-Mobile had voluntarily agreed to toll the statute of limitations for offenses occurring after October, 2009. But the FCC said it was exercising its “prosecutorial discretion” not to fine T-Mobile for violations occurring prior to that time. Hmmm – it’s not clear that the FCC could legally have assessed a fine for those old violations even if it wanted to.
• Finally, a cautionary note. In reporting the Hearing Aid Compatibility (HAC) ratings of its handsets, T-Mobile made a few mistakes, according to the FCC. T-Mobile defended itself by claiming that it had relied on HAC rating information provided by one handset’s manufacturer – and that information turned out to be wrong. The FCC rejected that claim. Turns out that T-Mobile had relied on a manufacturer’s tech sheet that was incomplete, as the tech sheet itself clearly indicated. Later filings by the manufacturer with the FCC all showed that the device was not HAC-rated. Moral: If you’re going to rely on the manufacturer for HAC ratings information, be sure to get the final technical specs supplied by the manufacturer to the FCC

So, as with many FCC enforcement actions, the message from the FCC here is simple: “Listen up, people. We mean business."

Last fall we reported on an FCC Notice of Proposed Rulemaking in which the FCC is considering how to simplify the application of the foreign ownership restrictions that appear in the Communications Act.   After digesting the comments submitted in that proceeding, the FCC has asked for more input. It seems that a number of commenters were concerned about the interplay of Section 310(b)(3) of the Act with Section 310(b)(4).

Section 310(b)(3) strictly forbids ownership of a broadcast or common carrier licensee by a corporation which is more than 20% owned by aliens or their representatives or by foreign governments or foreign corporations.   In other words, no more 20% of the licensee entity itself may be owned by aliens or their representatives. Section 310(b)(4), however, permits licensee entities to be owned by companies that are themselves owned by aliens or their representatives, so long as the FCC OKs the ownership. In other words, indirect ownership of licensee entities by any quantum of aliens is permissible as long as the FCC approves it.   These provisions have long been thought to define two separate classes of ownership, direct and indirect, with distinct restrictions applicable to each.

Apparently Verizon – a company whose Cellco Partnership subsidiary has significant foreign ownership – pointed out that the FCC’s 2004 effort to provide guidance on these matters actually confused things. Those 2004 guidelines seemed to treat indirect interests in licensees as being subject to the strict 20% prohibition of 310(b)(3) rather than the more liberal 25% provision applicable to indirect interests under Section 310(b)(4). Verizon correctly noted that this makes no sense, and the FCC seems to have heard Verizon’s plea.

This seems to us to be a cumbersome and unnecessary procedure that could be handled much more directly. If the FCC simply interpreted 310(b)(3) straightforwardly to apply only to direct ownership interests in licensee – as Congress seems to have intended – the Commission would limit the application of that section to a very limited number of situations while handling the indirect ownership scenario through the now tried and tested Section 310(b)(4) approval process.

The forbearance process floated by the FCC in its recent notice can apply only to telecom licensees because the forbearance process is limited to that class of regulated entities. By contrast, the course we are suggesting would have the added benefit of applying to broadcast licensees since it would apply across the board to all licensees.  However, since to date the FCC has virtually never approved indirect foreign ownership of more than 25% of a broadcast entity, broadcasters under our approach would get only the marginal relief of being able to have up to 25% foreign ownership without running afoul of the statute.

There’s a short window to comment on this one – 21 days from publication in the Federal Register, plus ten more days for replies. We’ll let you know when that happens.

In response to years of increasingly urgent agitation about the need for interoperability in the 700 MHz band, the FCC has issued a Notice of Proposed Rulemaking to look into the basic questions of whether there are any interference issues raised by interoperability and whether there is a need for regulatory intervention to ensure that users of all licenses in the band have roaming access to each other’s spectrum and can get affordable handsets.

The problem arises because AT&T and Verizon have significant holdings in the 700 MHz band. Verizon has many licenses in the Lower A and B Blocks and the entire Upper C Block, while AT&T has Lower B and C Block licenses and all or most of the Lower D and E Blocks.   The 3GPP (i.e., 3rd Generation Partnership Project) standards setting body has established Band Class 12 to cover operation over the entire lower 700 MHz band and Band Class 17 to cover operation in only lower B and C Blocks. This means that user devices manufactured for Band Class 17 will not be able to operate on the A Block where the licenses are held mostly by smaller entities, though the A Block licensees will be able to operate on the B and C Blocks.

You might think that it would be the Verizon and AT&T customers who would have the most to lose from this situation, since they would have Class 17 handsets and would not be able to roam in many of the smaller rural areas where A Block licensees will be building out.   To be sure, AT&T and Verizon customers will find that they are unable to get 700 MHz service in places where only A Block service is available. But the thing that gives A Block licensees nightmares is not so much the loss of that significant roaming revenue, but the inability to get handsets at all.

The interference claims raised by Verizon and AT&T in support of the separate Band Class arise from the proximity of TV Channel 51 to the A Block.    Recall that the 700 MHz block was created out of the old UHF TV Channels 52 to 69 that were vacated by the Digital Transition in 2009. TV Channel 51 continues to sit adjacent to the A Block, and digital TV licensees can operate at up to a million watts in power. There is therefore theoretically the potential for adjacent channel interference from that high power source in many parts of the U.S. Since the B and C Blocks don’t need to worry about such interference, they can be designed without that issue in mind. AT&T says that if the interference concern can be resolved, it has no problem going with Band Class 12.

So this all leaves the FCC with a few basic questions. Is there really potential interference from Channel 51 that cannot be safely avoided by appropriate filters in 700 MHz handsets? Is the market really not functioning to permit independent licensees to buy Class 12 handsets at a reasonable cost?   Does the FCC even have the power to do anything about this since it has limited direct authority over equipment manufacturers?   This proceeding must be wrapped up quickly since Verizon and AT&T are already rolling out LTE service on their 700 MHz bands using Class 17. The more that such units get out into the marketplace, the harder it will be to impose a consistent policy across the whole user community.

The FCC candidly admits that it is hoping that the industry itself will work out a solution to this problem without regulatory intervention.   So far it has been loath to impose interoperability conditions on AT&T and Verizon in the context of their spectrum acquisitions, but the need for a global solution is becoming increasingly urgent for all parties as the initial build-out deadline for 700 MHz licensees approaches and the need for broadband spectrum becomes more intense.  Both of the new Commissioners whose confirmations have been languishing in the Senate for many months are well aware of the interoperability issue and seem to have expressed some sympathy for A Block position, so their entry onto the scene may also help to sweep the FCC to action.

The deadlines for comments and reply comments in response to the Notice of Proposed Rulemaking will be established when the Notice is published in the Federal Register. Check back here for updates.

In a little noticed section of the landmark Middle Class Tax Relief and Job Creation Act, Congress has thrown the wireless industry – or, more specifically, the folks who build towers for the wireless industry – a small measure of relief in the on-going struggle to get tower modifications approved and constructed. Buried in a collection of odds and ends dumped, seemingly as afterthoughts, at the end of the law, Section 6409 requires state and local governments to approve modifications of wireless towers and base stations as long as those modifications don’t substantially change the dimensions of the existing structures.

The wireless industry has long complained that local authorities hold up approval of new tower construction either out of either misplaced concern for interference issues or simply as a revenue-generating mechanism. That problem has increasingly spread to tower modifications as well.

The streamlining of needed approvals is a big inducement to licensees to collocate on existing structures, saving considerable time and money in getting a station up and operating. Most federal rules properly treat minor modifications of existing structures as non-events that require little or nothing in the way of prior approvals. Local authorities, by contrast, have come to see such collocation applications as an additional opportunity to interpose themselves into the process, usually not to the financial or operational benefit of the carriers.

Congress moved to correct this abuse. In Section 6409 it simply pre-empts states and local authorities from being able to deny eligible facilities requests, i.e., requests involving:

• the collocation of new transmission equipment;
• the removal of transmission equipment; or
• the replacement of transmission equipment.  

Once the President signs the act into law, these seemingly innocuous alterations of existing structures will be safe from state and local meddling.  (The law does leave all applicable environmental rules with respect to such towers in effect.)

At least two questions remain.

Second, this section of the Act applies to “wireless towers and base stations”. Neither term is defined here or anywhere else in the Communications Act. Do “wireless towers” include broadcast towers, which of course transmit their content wirelessly?  If so, this would add a large set of towers to the protected mix. Some broadcast towers, of course, simultaneously serve, or can serve, as towers for wireless communications carriers. The legislative history suggests that Congress had in mind “cellular towers” when it referred to “wireless towers”, but the law itself includes no such limitation. The scriptural exegesis of this point will no doubt put many a lawyer’s offspring through private school in the years ahead.

Section 6409 also extends another apparent helping hand to the tower industry. It provides that agencies of the Federal government “may” grant an easement or right-of-way to applicants seeking to install wireless service antenna structures on Federal property. While the thought here was nice, the absence of a mandate to permit the easement (i.e., the critical use of “may” rather than “shall”) pretty much leaves such things where they were: in the hands of sometimes quixotic bureaucrats. 

The law recognizes that a maze of different Federal agencies have been imposing a farrago of widely varying tower siting application requirements on hapless applicants.   To rationalize the process, Congress has now mandated the development of a single government-wide form for siting applications and a standard contract for facilities sited on Federal property.  This seemingly small step could simplify enormously the process of securing rights to construct towers on Federal properties. 

These modest measures, together with the recent upholding of the FCC’s “shot clock” rules, should put at least a small smile on the faces of tower constructors.

The FCC has released a Public Notice announcing proposed ground rules for its planned “reverse auction”  to award $300 million in funding for mobile service to under-served parts of the country.    In a reverse auction, bidders vie to accept the lowest payment from the FCC to provide a slate of designated services by a certain date. The Commission is inviting comments on its proposed approach, but interested parties will have to act fast (as will the Commission): the auction is tentatively scheduled for September 17, 2012, but there is a lot of work to be done before the auction can actually take place. 

No one can say the FCC isn’t moving quickly on this auction – perhaps too quickly. It issued this public notice only a month after the new Mobility Phase I process became effective as part of the watershed USF/ICC reform order adopted last fall. The problem is that petitions for reconsideration were filed in December challenging the timing and structure of the proposed auction. Until those are resolved, the FCC can hardly proceed too far with the auction.  

At the same time, the source of the funds to be distributed in the auction remains up in the air. Long-time observers of this space will recall that the FCC in 2010 took the unusual step of “re-purposing” some $500 million dollars that has been designated under the USF program for CETCs.   (When Verizon and Sprint agreed to forgo USF payments that would have been due to them over the next five years, the FCC decided to put that money into a rainy day fund for broadband build-out rather than distributing it to the remaining CETCs.) That highly unusual and suspect action remains under review by the U.S. Court of Appeals for the D.C. Circuit. Depending on the outcome of that case, there may not be any money to hand out. 

Curiously, the FCC failed to alert folks interested in the auction that the auction and the money are both still very much up in the air.

Assuming that the auction proceeds in something like its present form, however, the FCC’s notice sheds some light on what is likely to be in store.

 As the Commission reminds interested parties, reverse auction bidders must both (a) be eligible telecommunications carriers (ETCs) and (b) have rights to spectrum in the areas they bid on, so if they don’t have that status now, they need to move quickly on those fronts. The map alerts prospective bidders as to whether this is even something they should be interested in pursuing.

For the auction itself, the FCC proposes to have only a single round. Unlike all other FCC auctions, here participants would have one chance to make one bid, and that’s it.   This encourages parties to make their solitary offer the best one they can reasonably live with. The identities of bidders will also be kept secret (presumably except to the extent necessary to implement the anti-collusion rules). Since there is only one round, though, the secrecy rule is essentially meaningless.

The biggest question mark for the FCC is how to aggregate eligible areas for bidding. This problem has been a perennial one for auctions that cover applicant-defined geographic areas: how do you compare bids from people who are bidding on different areas? The FCC proposes bidder-defined aggregations, predefined aggregations, and a variant of the first option where bidder-defined aggregations can nevertheless be awarded in subsets. The FCC seeks other options as well. 

The bottom line is that any method must allocate the money within the cap of $300 million that the FCC says will be available for this Fund.   This cap indirectly undercuts the FCC’s assertion that no maximum bids are being set; you can bid as high as you want, but if there is insufficient money in the pool to pay you, you aren’t going to win. It remains unclear how the FCC will decide winners if, as it expects, the total bids exceed the cap.

Lastly, the FCC proposes that lucky winners who default on the performance of their obligations after winning the auction not only must pay back the money received from the FCC in full, but must also pay a 10% performance penalty.   The lucky winner’s ability to meet these penalties must be guaranteed by a letter of credit – a feature which has been challenged on reconsideration.

Interested parties have until February 24, 2012 to get their comments in and until March 9 to file replies.

Cellular tower builders and wireless companies can breathe a sigh of relief: the “shot clock” presumptions imposed by the FCC on local government permitting processes have been upheld by the U.S. Court of Appeals for the Fifth Circuit. As a result, those presumptions – i.e., that state and local officials should ordinarily take no more than 90 days to act on wireless “collocation” applications and 150 days to act on all other wireless siting applications – remain in effect. But in affirming the Commission’s judgment in the face of challenges brought by two Texas communities, the Fifth Circuit acknowledged that local governments may still be able to rebut the presumptions – and, thus, drag out the permitting process – in individual cases.

The issue of local foot-dragging in antenna siting processes got on the Congressional agenda back in the 1990s. Out of concern that local governments might be reluctant to authorize new or modified transmission facilities in their particular bailiwicks (can you spell NIMBY?) and that such reluctance might in turn stymie the spread of wireless services, Congress weighed in. In the 1996 Telecom Act, Congress required that state and local governments act on requests to “place, construct, or modify” wireless facilities “within a reasonable period of time” after the filing of such requests. 

That statutory mandate, however, proved less than effective because – here’s a surprise – tower builders, wireless operators and municipalities tended to differ over what constituted a “reasonable period of time”. Is a year too short? Is ten years too long? In 2008, more than a decade after the 1996 Telecom Act, CTIA-The Wireless Association® asked the Commission to tie down the concept of “reasonableness” a bit tighter than Congress had. 

After soliciting and considering a broad range of comments, the Commission obliged.

So the pressure is on for localities to act on wireless siting proposals: if they don’t meet the Commission-imposed time limits, the siting proponents have a prima facie argument that the locality is in violation of the Communications Act. That immediately puts the locality on the defensive (although, since the “shot clock” time frames are just presumptions, the local governments do have the opportunity to try to rebut those presumptions).

The Texas municipalities of San Antonio and Arlington challenged the Commission’s declaratory order on a number of grounds, both procedural and substantive. The Fifth Circuit had little trouble brushing all the quibbles aside. 

Actually, the Court needed brush only Arlington’s quibbles aside. In a ruling of key interest to communications law practitioners, the Court dismissed San Antonio’s petition. San Antonio, which did not seek reconsideration at the Commission, did not file its own request for judicial review until after the FCC had disposed of others’ petitions for reconsideration. Too late: the Court reasoned that San Antonio’s time for seeking review ran from the original FCC action date, not the date of FCC action on the reconsideration petitions.   Since the action on those petitions simply affirmed the original decision, the FCC’s reconsideration action was not a separate and independent event opening a new opportunity for appeal by San Antonio.   These procedural niceties keep lawyers awake at night but have the opposite effect on lay readers, so we won’t discuss them further here. The net result was that a couple of arguments raised by San Antonio but not by Arlington could be ignored by the Court.

With respect to the nitty-gritty substantive issue in the case – i.e., are the 90 and 150 day limits valid? – the Court concluded that the FCC’s judgment was reasonable and entitled to the level of deference courts normally afford agency decisions (at least when the judges can make sense out of the agency’s reasoning). Importantly, the Court observed that the FCC’s “shot clock” limits are not absolute. That is, failure by a local government to meet those time limits does not automatically mean that that locality has per se violated the 1996 Telecom Act. Rather, it merely means that the burden shifts to the locality to explain its failure to meet the applicable deadline. Such explanations might, in the Court’s view, hinge on “extenuating circumstances”, or possibly on the wireless applicant’s own failure to submit requested information.  Alternatively, the local government might note that it was acting diligently in its consideration of an application, that the necessity of complying with applicable environmental regulations occasioned the delay, or that the application was particularly complex in its nature or scope. Essentially, the Court seemed to view the Commission’s 90/150-day limits as guidelines, entitled to deference but not absolutely and irrevocably binding in all circumstances.

To get to that point, the Court made reasonably quick work of a variety of procedural complaints advanced by Arlington. While the Commission’s method of dealing with CTIA’s initial request may not have conformed precisely with requirements of the Administrative Procedure Act – when it adopted its declaratory order, was the FCC engaging in “rulemaking”, “adjudication”, or some other activity? – the Court concluded that any FCC deviation from the procedural straight-and-narrow was harmless.

The Court did spend a fair amount of time grappling with Arlington’s argument that Congress hadn’t given the Commission the authority to put specific limits on the “reasonable period of time” language in the 1996 Telecom Act. Truth be told, the scope of the FCC’s authority is not at all clear here, but the Court determined that the statute, and the legislative history underlying it, were ambiguous. Given that ambiguity, the Court concluded that the FCC was entitled to do what it had done below. And, as noted above, the Court was inclined to defer to the Commission’s substantive determination.

Where, then, does the Court’s decision leave us? Wireless operators and/or tower companies are entitled to assume that, once they have filed all information required by a local jurisdiction, the jurisdiction will act on their siting applications within the applicable 90- or 150-day time period. If the local government drags its feet beyond that time frame, the aggrieved party may seek judicial intervention because of the locality’s failure to meet the FCC’s presumptive time limits. The threat of such litigation might be enough to cause the local officials to act on the construction proposal – but there’s no guarantee of that. As the Fifth Circuit seemed to emphasize, the locality could still cling successfully to a variety of excuses or explanations for its tardiness. In the end, the siting proponent will have the burden of persuading the court that the locality’s delay has been unreasonable.

Nevertheless, at least we have a clear starting point with which to mark the approximate outlines of local governmental delay. Ideally, that will prove useful to all concerned.

We reported last year on FCC citations against convenience store chains Circle-K and 7-Eleven. We don’t usually think of convenience stores as being subject to FCC regulation. But because the stores stocked prepaid cell-phone handsets, the FCC designated them “resellers of wireless services,” and went on to fault them for failing to file certain reports relating to compatibility of the handsets with hearing aids.

The FCC has now withdrawn those citations along with eight others, plus nine proposed fines.

When the FCC or any federal agency adopts a rule that imposes new paperwork burdens, the hilariously-named Paperwork Reduction Act requires the rule to be approved by the Office of Management and Budget (OMB) before it can go into effect. The FCC ships the newly-adopted rule over to OMB for review, a process which normally takes just a few weeks. OMB almost always approves the rule, even if it triggers staggering amounts of new paperwork, and gives the rule a “control” number. The FCC then puts a notice in the Federal Register saying the rule is effective.

Unfortunately, this seemingly simple process has been breaking down with increasing frequency.

Back in 2008, the FCC required wireless service providers to carry a line of hearing aid compatible handsets. It also – and here’s where the paperwork comes in – required an annual report detailing the handsets offered, along with other efforts to make service more accessible to the hearing impaired. The industry by and large has provided these reports since January 2009, assuming the rule was in effect, and indeed, was helped along by reminders from the FCC of the need to file. A few hapless entities, including Circle-K and 7-Eleven, selling handsets next to the Slim Jims and hotdogs, did not even know they were “service providers” subject to FCC rules. Yet in 2010, the long arm of the FCC reached out and tapped them on the shoulder. Both received “citations,” warning them of fines of up to $150,000 per violation, per day, for not filing the report.

But then, last December 13, the FCC published a public notice indicating that the 2008 rule had just then become effective. OMB had approved the rule back in July 2008, but the FCC neglected to publish the necessary notice of its effectiveness. (The FCC did publish the fact of the OMB approval on July 21, 2008, but forgot to say that the rule was effective.) In any event, since the FCC cannot issue citations and other punitive actions based on supposed violations of the then-not-yet-in-effect reporting rule, the citations and proposed fines had to be quietly withdrawn.

So the Paperwork Reduction Act, which so often seems to create mounds of additional paperwork for all concerned, for once did its job. It spared a few innocent members of the public from the horrors of reporting. But while Circle-K and 7-Eleven are now vindicated, the thousands of poor souls who spent an average of 13.2 hours per year filling out unnecessary reports (by the FCC’s estimate) will never get that time back. 

And as of December 13, the reporting requirement is officially on the books, so failure to file the reports from here on out will lead to forfeitures that probably won’t be rescinded.

The FCC released its historic 751-page Report and Order and Further Notice of Proposed Rulemaking on the Universal Service Fund (USF) and Intercarrier Compensation on November 18, providing a sumptuous repast for the communications industry to feast on over the Thanksgiving holiday.   It took many readers a few weeks to fully digest the vast smorgasbord of items resolved by the Commission in this one proceeding.   But having pushed ourselves away from the table at last, we can now comment on particulars of the Order that most affect wireless providers.   The Order also very radically affects the rules governing intercarrier compensation and USF for wireline service, but we are reporting on those developments separately out of compassion for our readers.

Definition of Supported Services. The first big step taken by the Commission was to bring broadband within the universe of services supported under the USF umbrella. The FCC chose not to simply define broadband as a supported service, but instead to expand its definition of supported “voice telephony” to include VoIP. At the same time, the FCC is requiring supported voice telephony providers to provide broadband.  

This awkward dance permits the Commission to continue ducking the issue of whether broadband should be re-classified as a “telecom” service regulated under the common carrier regime of the Communications Act or an “information” service regulated only under the FCC’s ancillary jurisdiction. But this dance creates problems of its own.

One of the requirements so imposed is that an ETC must provide stand-alone voice telephony throughout its “designated service area,” yet many non-telecom broadband providers will not have designated service areas. Similarly, many broadband providers simply offer a broadband data pipe and do not care what particular applications (such as a VoIP application) their customers use over the pipe. Although it would make sense for such service providers to qualify for USF support, the Commission’s scheme would exclude them.

Required service levels. USF fixed service recipients must provide broadband at speeds of 4 Mbps downstream and 1 Mbps up. This represents a great leap upward in the minimum speed expected of a broadband provider. Latency of less than 100 milliseconds is expected and, while monthly capacity requirements are not specified, the FCC expects wireless broadband providers to offer capacity limits consistent with those offered in urban areas. 

Build-out areas and “unsubsidized competitors”. USF support will be offered for the build-out of areas now unserved by an unsubsidized competitor.  The definition of an “unsubsidized competitor” is critical here because there are many areas where mobile wireless providers offer service and landline providers do not. This would prevent landline providers from receiving build-out support in those areas. The Commission protected local exchange carriers (LECs), however, by defining an “unsubsidized competitor” as a “facilities-based provider of residential fixed voice and broadband services.” Fixed voice and broadband service is defined as service to end users primarily at fixed endpoints using stationary equipment. This limitation to fixed services is curious since so many people these days are now cutting the cord not only for voice service but for data service as well.

Broadband service to end users primarily using mobile stations would not qualify. However, the FCC did note that a mobile services provider could become an unsubsidized competitor by offering fixed service that guarantees that the speed, latency and capacity minima applicable to fixed providers will be met throughout the relevant area. 

Elimination of identical support rule. The FCC has done away with the identical support rule which subsidized multiple carriers in any given area. This action alone hacks several hundred million dollars in support away from competitive ETCs (CETCs) because they now no longer qualify for duplicate payments. 

Strangely, the FCC did not seem to even consider the possibility that a CETC, whether wired or wireless, should be the surviving single recipient of the funding instead of the LEC.  It simply provided for a phase-out of support to existing non-LEC recipients by mid-2016. In addition to retaining their current subsidies (as revised to cut out certain support mechanisms), LECs also get the privilege of offering to be the sole provider of basic services in currently unserved areas in each part of a state where they provide service. That is, an existing LEC ETC may propose to provide the full panoply of supported services everywhere – but not less than everywhere – in the state where it is the designated LEC. 

If the LEC picks up that option, obviously no other carrier would be designated to provide fixed service in those areas. If no LEC picks up the challenge, then there will be unserved areas in each state where USF support will be offered by a reverse auction mechanism. Build-out in these currently unserved areas will be supported by a one-time distribution of up to $300 million to price cap LECs.

Mobility Fund (Phase I). The FCC is also offering a one-time build-out subsidy to mobile services providers via a Mobility Fund (Phase I). Under this program, up to $300 million will be distributed to companies willing to provide service to areas currently without 3G or better wireless service. (An additional $50 million is made available for build-out of unserved tribal areas.)  These funds are expected to be up for grabs by a reverse auction to be conducted in the third quarter of 2012. Several components of participating in this auction involve considerable lead time.

• Identifying unserved areas. The FCC has promised to identify, prior to the auction, the areas that are actually currently unserved. This is a big improvement over the 2009 federal stimulus plan process where each individual applicant had to figure out for itself whether an area was unserved or not. In determining whether an area is unserved, the FCC will take into account commitments to provide service in an area (including stimulus fund-based commitments) made prior to the end of 2012. 

Unserved areas will be determined on a census block basis using road miles as the marker of mobile service. A tentative map of unserved areas will be posted prior to the auction, with the public given an opportunity to point out that areas have not been accurately characterized. A final map of unserved areas will be posted prior to the auction (typically a couple of months before), but that poses an obvious logistical problem: most interested parties will not have enough time to apply for ETC designation in those unserved areas.

• Auction eligibility requirements. To participate in the auction, an entity must: (1) be an ETC; (2) have access to spectrum by ownership or lease; and (3) be financially qualified to provide service after the build out takes place. This raises a host of chicken and egg problems that the FCC does not seem to have adequately considered.  

First, in some states the ETC designation process can take years. By imposing this hurdle, the FCC is precluding perfectly capable and willing carriers from participation. 

Second, in many instances it may be impossible to serve as an ETC unless one is receiving USF support. One would be loathe to take on ETC responsibilities without knowing beforehand that the support money will be available, but the rules are set up backwards. The Commission alludes cryptically at one point in the Order to a “conditional” ETC designation where one could be designated as an ETC conditioned on receipt of USF support. This process would partly solve the problem, if both the FCC and the states will grant provisional ETC designations – something that is far from clear. In any case, interested parties should start thinking about applying for ETC designation now if they hope to participate in the auction.

Third, a prospective service provider whose viability depends on whether it will be receiving USF money might not be want to buy or lease the necessary spectrum without that assurance. Yet the Commission’s rules require that the spectrum be in hand. The sole break here is that the spectrum acquisition or lease may be conditioned on receipt of Phase I USF support.    

And fourth, the auction participant must not only certify that it is financially capable of providing service in the area after the build-out is complete, but also secure its obligation by posting a letter of credit in favor of the FCC. This unusual arrangement might preclude all but very financially well-heeled companies from being able to participate.

• Obligations of winners.   Winners in the reverse auction will have to provide either 3G service (200kbps down/50 kbps up) or 4G service. The service provided must be measured by drive tests and reported to the FCC. Winners must also: allow collocation at reasonable rates on towers constructed with USF money; allow voice and data roaming; and charge rates comparable to urban rates.   Winning bidders who fail to meet their build-out obligation will default on their Line of Credit to the FCC and be required to repay all monies received under the program.

• Auction procedures. Most of the details of the reverse auction have been left to the FCC’s auction staff to hash out, but the FCC did express a preference for a single-round sealed bid auction, as distinct from its normal multiple round bid process. This would obviously require bidders to make their single best bid at the outset with no opportunity to drop the bid lower in reaction to other bids.

Mobility Fund (Phase II). In addition to the one-time Phase I funding opportunity, the FCC plans a Phase II program providing funds to cover on-going costs of providing mobile service to areas requiring subsidies. $500 million has been allocated for this purpose, of which up to $100 million is prioritized for tribal needs.   This money will be awarded by a reverse auction process similar to that used for Phase II.  

The specifics of which areas – unserved? underserved? high cost? – will qualify for such subsidies are not yet clearly defined. In particular, if Phase II support is limited to unserved areas, that would seem to preclude recipients of Phase I build-out funding from qualifying for Phase II operations funding, particularly since they would have been required as a Phase I condition to attest that they have the financial wherewithal to operate without such support. Phase II will be fleshed out by the further rulemaking portion of the FCC action.

Intercarrier compensation (wireless issues only).   The second major subject area of the FCC’s order is intercarrier compensation, a field which spans all exchange of traffic between carriers and, now, some non-carriers. Because of the sweeping extent of the changes regarding intercarrier compensation, we will limit this discussion to items particular affecting wireless interests.

The FCC’s Order here is a genuine and fundamental sea change in the way traffic exchanges have been handled for generations.   Specifically, the FCC has adopted as its root principle that “bill-and-keep” should be the basis for exchanges. This principle – that each carrier should charge its own customers for service provided to them and not be compensated by other carriers that interconnect with it – represents a repudiation of the previously prevailing concept that the calling party is the party who benefits by a communication. Instead, the FCC now recognizes that both the called and calling party benefit by connection to the network and that each party should bear its own costs for participating. 

This radical reform at one swoop would erase a myriad of complex payment structures that have governed intercarrier relationships for years. To minimize the trauma of this upheaval, the FCC has provided a six-to-ten year transition period for LECs who have depended on these intrinsic subsidies. The ultimate effect of this reform should be positive for wireless carriers, since various access charges will be reduced or eliminated over time.  To be sure, the FCC did confirm that non-access traffic exchanged between wireless carriers and LECs (typically intraMTA traffic) is to be exchanged on the basis of interconnection agreements between the parties. But with bill-and-keep as the default payment model, non-LECs have a significant leg up in such negotiations. A few other points to be aware of:

• The Commission did not immediately impose the bill-and-keep regime on originating access charges, though it capped those charges and signaled that intends to move in that direction.
• The Commission intends its bill-and-keep principle to apply to both intrastate and interstate communications, but the Commission’s authority to impose this rule on intrastate communications is questionable. This issue will certainly be hashed out in the appeals that have already been filed in court.
• Reciprocal compensation rates between CMRS carriers must be consistent with the rate model adopted for price cap carriers.
• The FCC decided to treat all VoIP-to-PSTN traffic similarly, regardless of whether it is fully interconnected on a two-way basis. Such VoIP traffic is subject, in the case of toll traffic, to the same rates applicable to non-VoIP traffic, and in the case of other traffic, to reciprocal compensation agreements. This reform is intended to eliminate the widely decried disparity in treatment between VoIP and non-VoIP traffic. Here again the Commission’s refusal to denominate VoIP traffic as telecommunications could undercut its regulatory effort.

We have gone on at greater length here than is our wont, but only because the scope of the FCC’s order is so vast. We expect to be providing further guidance on some of the elements of the USF/ICC Order in the weeks ahead. 

In the meantime, interested parties should be aware that, since FCC’s magnum opus was published in the Federal Register on November 29, the date for seeking reconsideration of any part of the FCC’s action is December 29. Comments on the rate represcription, Connect America Fund, ETC, and auction refinement elements of the Further Notice of Proposed Rulemaking are due by January 18, 2012, and reply comments by February 17. Comments on the intercarrier compensation portion of the rulemaking are due by February 24. with replies by March 30.  

Judicial appeals are due no later than January 30.  Anyone thinking about taking the new rules to court should be aware that a number of other parties have already headed down that path – and, thanks to the U.S. Judicial Panel on Multi-District Litigation, it has been decided that the U.S. Court of Appeals for the Tenth Circuit, headquartered in Denver, will be the court to hear all such appeals in a consolidated proceeding.

The November 7, 2011 edition of the Federal Register contained what appeared at first blush to be a fairly routine notice that certain rules had received approval from the Office of Management and Budget (“OMB”) and were therefore going into effect as of the publication of that notice.   But when we lift up that seemingly innocent flat rock of a notice, we observe a swarm of ugly questions about just how and when FCC rules become effective. Because FCC regulations have the force of law and are enforceable by fines in thousands and even hundreds of thousands of dollars, it is critical that the public know exactly when compliance is required. Yet that seemingly simple detail – when do we have to obey a new rule? – can be hopelessly obscure, as was certainly the case in the proceeding referenced in the November 7 notice.  

That proceeding involved amendments to Form 477, but the same question – i.e., when does a requirement become “effective” – applies to many other FCC proceedings.

The amendments to §§1.7001 and 43.11 in this document contain information collection requirements that have not been approved by the Office of Management and Budget. The Federal Communications Commission will publish a document in the Federal Register announcing the effective date.

On Christmas Eve, 2008, the FCC sent the new rules, including the revised Form 477, over to OMB for its review pursuant to the Paperwork Reduction Act. OMB signed off on the new rules and the revised form on January 30, 2009 – but the revised form was approved for only one year (rather than the usual three), i.e., through January, 2010. OMB was apparently concerned about the burdens the revisions would impose on entities required to complete the form, so OMB insisted that the FCC come back in a year, after re-evaluating the reporting requirements and methods.

Usually, once OMB approval has been granted, the FCC publishes a brief notice in the Federal Register alerting everyone that the rules (a) have been approved by OMB and (b) are effective as of the date of that notice.

Not this time.

It wasn’t until November 7, 2011 that the FCC published the notice declaring that the rules were effective as of that date.  That lag time – from 2009 to 2011 – was noteworthy in and of itself. But further examination of the OMB website reveals even more interesting information.

It turns out that, when the one-year approval issued by OMB in January, 2009, expired in January, 2010, the FCC went back for a full three-year approval, which OMB duly granted (through April 30, 2013) – but not until April 26, 2010, i.e., more than a month after the March, 2010 deadline for filing Form 477.  So the revised version of Form 477 would appear not to have been approved at all by OMB for that particular filing opportunity.  The November 7 Federal Register notice doesn't mention that.

And even though the form had technically been approved by OMB since 2009 (assuming we ignore that gap in 2010), the FCC apparently failed to notify the public (including all affected regulatees) of any OMB approval until November, 2011. Since the Commission itself had specified that the revised rules and form would not be effective until the Commission published a Federal Register notice announcing the effective date, it would appear that Form 477, as revised in 2008, did not become effective until November, 2011. 

Of course, everyone in the industry had used the new form twice a year starting in March, 2009, justifiably assuming that the form and its information requirements had become effective. Imagine their surprise when the Federal Register announced that the new reporting requirement had not really become effective until November, 2011!

When it comes to completing Form 477, we’re not talking about a minor chore that can be tossed off in a couple of minutes. According to the FCC’s own estimate (submitted to OMB in the FCC’s February, 2010 re-submission of the form), the burden of filling in Form 477, per semi-annual response, was a whopping 289 hours – and that estimate was reduced from the Commission’s original 2008 estimate of 337 hours.   Let’s do the math: 289 hours twice a year equals 578 hours, divided by 40 hours/week (i.e., a standard work-week) equals more than 14 weeks. In other words, completion of the form could be expected, on average, to require the full-time attention of a single employee for more than 14 weeks, or more than three months each year.

In view of this burden, it’s not unreasonable to expect the FCC to be clear as to when the requirement has taken effect.

But a glance at the Code of Federal Regulations, which would normally be the authoritative reference on an issue like this, only confuses the issue further. Section 43.11 of the 2009 edition sets forth the text of the revised reporting rule, but includes a footnote stating that it “will not become effective until approval has been given by the Office of Management and Budget.”   And over in Section 0.408, a section in which all OMB control numbers and their related expiration dates are maintained, the expiration date for Form 477 is listed as “06/30/11”. But that’s the expiration date for the old version of the form, not the version as revised in 2008.

For an agency information collection requirement to become effective, the Paperwork Reduction Act provides only that the OMB must approve that requirement. As far as we can tell, there is no separate requirement that the FCC or OMB publish a Federal Register notice reflecting OMB’s approval.   So, theoretically, a rule adopted “subject to OMB approval” could become effective immediately upon OMB approval without further action by the FCC. But how would anybody know that the rule had become effective since OMB does not itself publish its approval actions? And why would anyone even think to delve into the deep weeds of the OMB’s records to see if OMB has indeed issued its approval when the Commission has clearly and unequivocally stated that the Commission would announce the effective date in the Federal Register?

Let’s say you are a regulated company and you have to file some information with the FCC, subject to heavy civil penalties and potential damage to your good standing as a licensee if you don’t file, or if you file the wrong information.   Did the pertinent “information collection” requirement that tells you what you have to file become effective when the FCC formally voted to adopt it? Did it become effective when the text was released? Did it become effective 31 days after it was published in the Federal Register? Did it become effective when OMB approved the requirement? Did it become effective when the form bearing the OMB control number was posted? Or did it become effective when the FCC published the OMB approval and announced that it was now “effective” – a date that, in the case of Form 477, occurred more than three years (and six separate filing opportunities) after the information collection was technically adopted by the Commission? 

You make the call. Good luck.

Notwithstanding the uncertainty about when the rule went into effect, few would disagree that it makes no sense for the FCC to adopt a rule in March, 2008 – presumably because the rule was in the public interest – only to have that rule sit in limbo until November, 2011 as a result of the Paperwork Reduction Act.    The FCC has recently pledged to get its orders out more quickly after they are adopted, but how about tying up the rest of the loose ends, too?

It turns out, however, that a handful of these star-crossed rules were omitted from the original packet sent to OMB for approval. So yet another trip to OMB was necessary. The final seven rules were duly approved by OMB on September 26, 2011, and have become effective as of October 31, 2011 through publication in the Federal Register. The rules in question deal with coordination or certification by or between WCS and SDARS licensees and other parties. (For those of you keeping track, those rules are Sections 27.14(p)(7), 27.72(b), 27.72(c), 27.73(a), and 27.73(b), all of which have now become effective, and Sections 25.202(h)(3), 25.214(d)(2), and 27.53(a)(10), which will now be enforced.)

While this situation may have been anomalous – let’s hope so, at least – it is clearly unacceptable for rules, once formally adopted by an administrative agency, to remain in regulatory limbo for a year and a half pending perfunctory review by another government agency. If the rules were worth adopting in the first place, they should be worth putting into effect right away.   Here the notification and coordination requirements established by the rules have not been effective and therefore have not been able to serve their intended purpose for no good reason.

At this writing, the FCC has not yet issued its magnum opus, a tome likely to reach Moby Dick-like proportions. The FCC’s action included both a Report and Order (R&O) adopting many new rules that will go into effect after publication in the Federal Register, and a Further Notice of Proposed Rulemaking (FNPRM) seeking comment on some important loose ends left hanging by the Report and Order.   A myriad of the details of the plan will be known only when the full text of the R&O is released; in the meantime, however, the FCC has released a brief Executive Summary outlining the most important provisions of the new regime. These include:

We have been critical over the years of the Genachowski Commission’s failings, but in this instance we have to credit it with finally taking on a many-headed monster that had defied regulatory reform for years, even though everyone agreed reform was needed.   There will still be plenty of argument and a spate of appeals before any of this is finally settled, but the FCC has at last set a firm course for USF and ICC reform and gotten the ship underway.

As we reported a little less than a year ago, the FCC released a Notice of Proposed Rulemaking proposing that wireless carriers be required to take steps to avoid “bill shock”.  Readers with good memories will recall that in the summer of 2010, Congress, the Administration and the FCC were highly exercised about the heartbreak of bill shock. Numerous complaints were rolling in from parents of teenagers and international travelers, among others, who were shocked to discover that they had somehow exceeded their plan limits or incurred international roaming charges which they had not expected. Horror stories of phone bills of $34,000 and $18,000 prompted our trusty regulators to leap into action with a plan to make carriers warn consumers of impending danger before it strikes.

That was then; this is now.

The guidelines are, of course, voluntary. No carrier has to abide by them, unless it voluntarily subscribes to the CTIA’s Consumer Code.  The notifications are to be phased in over the next couple of years. By October, 2012, participating wireless providers will be providing required alerts relative to at least two of the four service categories (i.e., voice, text, data and international use); full compliance is not due until April, 2013. The fine print on the guidelines has yet to be revealed – for example, how and when is the consumer supposed to receive these warnings?   Nevertheless, the FCC breathed a sigh of relief at not having to impose new regulations on an already highly regulated industry. If the industry is willing to police itself, all the better. So the FCC put its proposed anti-bill shock regulations back in the freezer in the hope and expectation that the industry guidelines will eliminate the problem.

This observer can attest that he has already gotten a timely warning from AT&T that his daughter was fast approaching the data limit on her smart phone plan. That warning resulted in a rather more forceful and dire warning being delivered to the daughter in question. Disaster safely averted. And possibly proof that common sense, bad publicity and the mere threat of regulatory intervention can sometimes work as well as actual governmental regulation in addressing social ills.

In May, 2010, we reported that the FCC had adopted a set of rules designed to promote technical harmony between the Satellite Digital Audio Radio Service (SDARS) operators and their immediately adjacent electromagnetic neighbors, the Wireless Communications Service (WCS) licensees. A few of the new rules involved a paperwork burden and therefore had to go through the often perfunctory gauntlet of being approved by the Office of Management and Budget (OMB). The process, mandated by the Paperwork Reduction Act (PRA), can often be completed in less than four months.

Not this time.

The first step in the PRA process calls for the FCC to solicit comments from the public about the “information collection” aspects of the new rules. That solicitation involves a pro forma notice in the Federal Register. For some reason it took the Commission eight months to get that less-than-one-page notice into the Register. 

The PRA requires a 60-day comment period at that point, a period that wrapped up on March 22. After that, the Commission is supposed to bundle up all the comments it receive, tack on a “supporting statement” explaining everything to OMB, and ship it all over to OMB for its review. In significantly more complicated proceedings we’ve seen the Commission accomplish this hand-off within 24 hours of the close of the 60-day comment period.

Not this time.

The final step in the process is an FCC notice in the Federal Register announcing that OMB approval has been received. Again, such notices routinely appear within a matter of days after the approval has walked in the door. This time, however, it took the Commission more than two months to get the notice published. The notice didn’t show up in the Register until September 19. But take heart – as of that publication date, the new rules officially took effect.

While we should applaud the extraordinary thoroughness of the PRA process, we still have to wonder why exactly it took so long for the Commission to run these particular rules through the PRA drill. The lengthy delay in bringing that process to completion raises once again the question of whether the PRA may be having the perverse effect of unduly delaying needed administrative actions while having no appreciable effect on paperwork.

With the issuance of an extensive Notice of Proposed Rulemaking (NPRM), the FCC is looking to liberalize its approach to permitting alien ownership of common carrier and aeronautical radio station licenses. While it’s not exactly a re-opening of Ellis Island, the plan should significantly expand opportunities for aliens to acquire or increase license ownership. The FCC correctly recognizes that its current policies and processes are burdensome to prospective foreign investors, unnecessarily impeding, delaying and obstructing the ability of aliens to buy, or buy into, FCC licensees – and thus also creating barriers to investment capital that could benefit U.S companies and U.S. consumers.

The starting point for any discussion of alien ownership of domestic U.S. communications interests is Section 310(b) of the Communications Act, a provision that dates back to the original 1934 version of the law.  Drafted in an era when foreign Fascists and Communists had to be prevented from acquiring control of our communications media, Section 310(b) strictly prohibited – and continues to prohibit – aliens from directly owning a broadcast, common carrier, or aeronautical radio license or even from owning more than 20% of a company that holds such a license. 

However, having erected a seemingly impenetrable fortress against evil foreign influences, Congress left the back door wide open.

In 1997 the U.S. joined with 68 other countries to sign the World Trade Organization (WTO) Basic Telecommunications Agreement which committed all participants to “to open their markets to foreign competition for some or all basic telecommunications services.” (That Agreement has been incorporated in the General Agreement on Trade in Services (GATS).) To implement that commitment, the Commission adopted an “open entry standard” for WTO Member investment in the U.S. basic telecommunications services market, while continuing to apply an “effective competitive opportunities” (ECO) test to proposed investment from non-WTO Member countries. The Commission therefore routinely approves ownership of U.S. telecom interests by aliens from WTO countries. (The world being a happier place now than it was in the old days, WTO countries currently account for 94% of the world’s gross domestic product, which officially makes just about everyone our friend.)

The FCC also approves ownership by aliens from non-WTO countries as long as they can show that their country provides ECO to U.S. nationals.   This still leaves out a few large countries (notably Russia) and outlaw states like Iran, Libya and North Korea, but by and large aliens are nowadays welcome to indirectly own common carrier licenses, as long as they jump through the necessary hoops.

Notice that we said common carrier licenses. Even though the statute does not distinguish between (a) alien ownership of common carrier licenses and (b) alien ownership of broadcast licenses, the Commission has steadfastly refused to permit even indirect alien ownership of broadcast licenses to exceed 25%, no matter how friendly the foreign nation might be. The Commission appears to draw the line based on capacity for control of content: a broadcast licensee obviously controls the content of the information transmitted with its license(s); a common carrier, on the other hand, is prohibited from influencing the content of the transmissions on its system. Control of broadcast content is deemed so crucial to national security that aliens cannot be trusted with it. 

(The NPRM does not propose to change this bifurcated approach to the statute, but one could certainly argue that the media landscape has become so diversified and fragmented that aliens might now safely own broadcast stations without peril.)

Even with the somewhat liberalized approach adopted pursuant to the WTO Agreement, the FCC still has to carefully review requests for approval of alien ownership. Such requests are usually presented as requests for declaratory ruling that the proposed ownership is not contrary to the public interest.   If the alien is from a WTO country, the approval is a no-brainer: the Commission will permit identified friendly (i.e., WTO) aliens to indirectly own 100% of a common carrier licensee. It will also permit unidentified and unapproved aliens to indirectly own large chunks of the parent of the licensee, as long as no more than 25% of such unapproved alien ownership is non-WTO or a single person or entity. The hardest part in this process tends to be determining who owns what and where.

Often in today’s transnational business environment, companies are owned by other companies owned by other companies, some of which are foreign-owned and some of which may be publicly traded.   Sometimes the companies themselves do not know who their smaller owners are, much less what nationality they are, because the stock is held in street names or is registered to addresses that do not necessarily correspond to the nationality of their owners. Yet to satisfy the Commission, the would-be alien licensee owner is expected to precisely lay out the national origin of its direct and indirect owners, sometimes to the second decimal point, to ensure that the 25% threshold is not transgressed. And that goes for each different affiliate of the licensee, and is required each time the company enters a new FCC service category or expands into a different geographic area. 

Clearly, there is an enormous waste of time, money and energy here with virtually no concomitant pay-off in national security or anything else.

The FCC is proposing to simplify things and thus reduce the number of annual filings by an astounding 70%, according to the Commission’s own estimate.   While the basic regulatory framework will remain in place, the FCC plans to: (1) permit alien ownership approvals to apply to entire families of companies, as long as there is no substantive change to the original parent company; (2) permit approved aliens to increase their ownership up to 49.99% non-controlling interests without additional approval; and (3) not require approval of specific aliens unless they are to own more than 25% of the parent company. The company would still have to carefully monitor its alien ownership to determine when the 25% threshold is reached. A potential leg-up in that regard: a proposal that non-WTO alien interests of 5% or less be ignored.  That single reform would take much of the pain out of trying to identify and add up non-qualifying alien interests. The Commission also proposes to require disclosure of all persons holding 10% or greater interests in the entity for which approval is being sought.

The Commission hastens to remind everyone that none of these reforms would alter the normal requirement that all transfers of control of licenses be approved in advance. That requirement continues to apply regardless of whether the owners are alien or not.  And, of course, the Department of Homeland Security, the Department of Justice, and other federal agencies continue to have input into alien ownership issues from a national security perspective.

Comments on the NPRM will be due 45 days after Federal Register publication, with replies thirty days later. Check back here for updates on that front.

Even as privacy advocates are getting increasingly nervous about the extent to which our communications devices keep tabs on our whereabouts, the FCC is looking to make it easier to monitor our location more precisely and over a broader range of devices.   In a combined Notice of Proposed Rulemaking, Third Report and Order, and Second Further Notice of Proposed Rulemaking (let's just go with R&O/NPRM for short), the FCC has taken steps to enhance E-911 accuracy in two respects.  

The new measures build upon rules adopted last year in which the FCC tightened and clarified the accuracy requirements for carriers who employ “handset” and “network” solutions for achieving specified location accuracy levels. (Handset carriers rely on the GPS capabilities of the customer’s handset to establish his or her location.   Network carriers rely on triangulation of radio signals among cell towers to find their customers.) By requiring accuracy levels to be met at the county or PSAP level, the Commission indirectly raised the accuracy bar by ensuring that high accuracy is achieved in all parts of a carrier’s service area. (The FCC provided exceptions for areas where dense forestation or the lack of triangulation would not permit these high levels to be reached.)   These accuracy requirements are to take effect over an eight-year period.

In the R&O/NPRM released July 13, the FCC has ordained that, following that eight-year implementation period, the Commission will do away with the separate network-based accuracy standard entirely.

The new rules also mandate that carriers conduct periodic tests of their actual accuracy levels, with the results to be reported to local authorities and the Commission itself. The Commission feels, understandably, that if called upon to measure their performance regularly and be judged on the results, carriers will be more likely to make maintenance of accuracy a priority.   The exact nature of the tests to be conducted awaits recommendations from the Communications Security, Reliability and Interoperability Council.

Always looking for ways to further the reach of call location technology, the FCC is also seeking comment (in the NPRM portion of the R&O/NPRM) on whether it should extend the E-911 accuracy requirements to outbound-only interconnected voice services. (After much debate, the FCC a few years ago extended the location-identification rules to two-way, interconnected voice services provided over the Internet.  The problem was that a computer being used for VoIP doesn’t know where it is, nor does the network, so the customer has to affirmatively register his/her location so the system will know where he/she is. This is not a very good solution since it depends on the customer to vigilantly protect his/her own health and safety rather than making it the service provider’s responsibility.) 

So now the FCC is now asking: (a) if it should extend this requirement incrementally to include one-way VoIP calling (a “Skype-out” only situation); and also (b) whether there is some way technically to locate VoIP users that does not depend on registration by customers themselves.   No one yet has been able to figure out how over-the-top VoIP providers can possibly do the latter.  

The FCC is also seeking input on how indoor calling locations can be established more accurately. This capability will be increasingly helpful as more and more consumers use their mobile phones as their only phone. Locating a cell phone in a ten-story apartment building on a city block would be impossible even with the strictest outdoor standards adopted by the Commission. Finally, the FCC wants to see if WiFi hotspots can somehow be used to help locate callers.

Comments on this forward-looking part of the FCC's action are due 60 days after publication in the Federal Register, with replies 30 days later. (Check back here for updates on those deadlines.)

We cannot close without sounding a warning note on the civil liberties front. The FCC certainly means well in trying to compel carriers and VoIP providers to carefully, constantly and precisely track the location of their customers. But the potential for abuse is already apparent. Divorce lawyers have discovered that they can track an errant spouse's whereabouts by cell phone. Law enforcement now relies on cell phones to easily track not only fugitives from justice but also “persons of interest”. Merchants track people’s whereabouts so that coupons and promotional offerings can be sent to them when they are immediately next to the potential point of sale.  

Knowledge of a person’s location, it turns out, is a valuable commodity indeed.  

But we are being forced to give this knowledge away for free and without any opt-out choice. The Commission’s R&O/NPRM nods at the privacy concerns raised by the heightened location requirements, but also notes that consumers’ privacy rights are statutorily waived in connection with the delivery of emergency services.

Imagine if a chip were compulsorily implanted in each of us at birth that would permit a government computer to know where we are at all times. In some ways that would be very useful – no lost children, no missing persons, no wandering dementia victims – but the notion is an affront to the inviolability of our persons. Unfortunately, the cell phone, which has become a kind of externally-appended computer chip for many of us, will soon serve that exact function.   We are learning once again that “security” is too often purchased with a subtle loss of privacy, a loss of freedom, and a loss of that most  cherished right cited by Justice Brandeis in his dissent in Olmstead v. United States: the right to be let alone.

In a widely anticipated move, the FCC has mandated that all facilities-based providers of “commercial mobile data service” make available automatic data roaming to other such providers – with some important exceptions. This mandate was strongly lobbied for by almost everyone in the industry – except AT&T and Verizon (collectively, The Big Two), who strongly opposed it. The issue of data roaming has become more and more pressing as mobile communications have rapidly morphed from a voice-centric, common carrier-centric, circuit-switched-centric system to one where voice applications are a small subset of packet-switched data offered by carriers and non-carriers. The Internet is all.

The old mandatory roaming rule which the new requirement supplements applied only to CMRS carriers who are interconnected with the public switched telephone network. The new rule expansively applies to a new species – facilities-based providers of “commercial mobile data services”. (The Commission appears resistant to embracing the obvious acronym, i.e., CMDS, for that universe of services – but we’re not.) 

The operative characteristics of this hitherto undiscovered species are notable both for what they include and what they don’t.  The inclusions and exclusions reflect a careful balancing of the policy issues that raged beneath the surface of this decision.

This latter point raises some questions here at CommLawBlog. The new rule defines CMDS as any mobile data service that is: (a) not interconnected with the public switched network (PSTN); (b) provided for profit; and (c) available to the public or such classes of eligible users as to be effectively available to the public. Except for the bit about interconnection with the PSTN, that’s pretty much the definition of what we used to call a common carrier. Yet the FCC is at pains to insist that it is not treating CMDS providers as common carriers. That’s because such treatment would be forbidden by Section 332(c)(2) of the Communications Act, which prevents the Commission from treating private carriers like common carriers. 

The trick for the FCC was to impose virtually the full panoply of common carrier obligations on facilities-based CMDS providers but to do so outside the realm of normal Title II regulations applicable to common carriers. Those obligations include the duty to interconnect by providing roaming and the duty to do so on “commercially reasonable terms and conditions” (query: is that different from the “just and reasonable” terms that common carriers must offer?). And the targeted carriers are subject to the threat of enforcement through an FCC complaint process.

The distinction in the FCC’s mind seems to be that CMDS providers can negotiate individualized terms and conditions with different companies; they are therefore not bound by the fundamental common carrier obligation to offer the same terms and conditions to all similarly situated customers. However, that characterization seems to contradict the FCC’s own definition of a CMDS provider, which requires an offering of service to the public at large. This tension creates a fault at the very center of the FCC’s regulatory scheme which may be difficult to slip past alert appellate eyes. The FCC continues to impose common carrier-like regulations on services which it is afraid to call common carriage. At some point, however, the quacking gets too loud to avoid calling it a duck.

More granularly, the FCC neatly dealt with a number of the objections raised by the Big Two. It was claimed that, because of the volume of roaming service expected to result from the data roaming obligation, carriers would be swamped and thus unable to serve their own customers. But the FCC has made it clear that CMDS providers can give their own customers priority if capacity becomes squeezed.

There were also questions about how incompatible data technologies would be handled. The FCC declared that facilities-based CMDS providers will not be required to offer data roaming if the requester’s system is incompatible with the host system or would require the host provider to change its own system to accommodate the requesting entity’s service. Finally, to preclude would-be piggybackers from installing older generation data systems on their own systems while taking advantage of newer 3G or 4G technology on other companies’ networks, the FCC said that a roaming provider could condition access to its service on the availability of comparably advanced technology from the requesting company.  

These exceptions to the general rule served to assuage the major concerns raised by the Big Two while also significantly reducing the likelihood that  potential requesters will qualify for roaming privileges. Given that the Big Two were already pretty stingy about entering into roaming arrangements under the existing roaming rules (which brook few exceptions), the possibilities for jerking requesting companies around under the new scheme are endless. And here, because CMDS is not a common carrier service, the award of damages through the complaint process is not a possibility.   So the FCC has de-fanged and de-clawed hapless roaming requesters at the outset.

We offer, in closing, two observations.   First, the concept of “interconnection” with the PSTN may one day become broad enough to make that element of the CMDS definition meaningless. Eventually all communications will be IP-based, a fact the Commission is addressing in its effort to reform the intercarrier compensation regime – and that eventuality will erase the already thin line between CMRS and CMDS. Second, the FCC carefully chose to base its jurisdiction over CMDS on its authority under Section 303 of the Act – the bit that allows it to impose conditions on radio licenses. This had the appeal of avoiding yet again the question of whether Internet access should be deemed an information service rather than a telecommunications service. However, there are many facilities-based CMDS providers who use unlicensed spectrum. They would appear to be covered by the rule even though the Commission lacks the jurisdictional underpinning necessary to impose the rule on them.   So go figure.

As with so many FCC rulings of late that try to establish a new regulatory paradigm for the Internet Age while using hopelessly outdated service categories, this one promises to keep legions of lawyers toiling for years to come.

In 2009-2010, the Department of Agriculture’s Rural Utility Service (RUS) disbursed several billion dollars in loans and grants for broadband build outs as part of the controversial spending initiative flowing from the American Recovery and Reinvestment Act. Now, hot on the heels of that spree, RUS has opened the gates for new applications for up to $700 million dollars in low-interest loans for broadband. The new funds have been made available by the Food, Conservation, and Energy Act of 2008 (a/k/a the 2008 Farm Act). Interested applicants may file as soon as they’re ready.

The purpose of the funding is similar to that of the 2009-2010 stimulus program: to subsidize the construction of broadband facilities in parts of rural America that are currently unserved or underserved in that regard.

Although RUS is accepting applications now, the actual appropriation for the program remains uncertain due to the inability of Congress to pass a final budget for 2011.   RUS finds itself in a bit of a bind since the funds, if they do become available, must be committed by the end of this fiscal year (i.e., by September 30, 2011). That leaves relatively little time for RUS to solicit, receive and process applications. While there is no guarantee that the funds will actually be in the cookie jar after applications are submitted, RUS obviously feels confident enough about the survival of the program to solicit applications. With the most recent (and likely last) Federal budget “continuing resolution” expiring on April 8, RUS should know by then whether it in fact has any money to lend.

Loans may be requested in amounts of between $100 thousand and $100 million, with interest rates set at either 4% or the government’s cost of borrowing.   Loan guarantees are also available.

Underserved areas are now defined as areas with fewer than two carriers providing broadband at a total speed of 3 Mbps (upload and download combined).   Unfortunately, prospective applicants are once again left to their own devices in trying to figure out whether any particular area has service providers that meet that definition.  

New loans are also forbidden in areas where RUS loans or grants for broadband have already been made or where an application is currently pending. Thus, if two applications come in for the same area, the second one in the door will remain in bureaucratic limbo until a decision is made on the first one. This provides incentive to act quickly. Thankfully, RUS is planning to make an online map available to prospective applicants so that this latter bit of information can be readily ascertained.

Other highlights of the program:

• Applicants must show availability of equity totaling at least 10% of the capital necessary to fund the project from sources other than the RUS loan.
• Detailed financial information for the applicant’s past three years must be provided, as well as projections of revenue over the next five years showing that the project is sustainable without further capital input.
• A detailed network design must be supplied demonstrating proposed construction adequate to provide the projected broadband service threshold, the applicant’s ability to provide these services, the costs of construction and operation, and a timetable.
• Broadband must be provided at speeds of at least 5 Mbps (total of upload and download speeds) subject to later adjustment if broadband speeds increase.
• Areas eligible for funding must:

be rural (not in either: (a) a city, town or incorporated area with population of more than 20K or more; or (b) an urbanized area contiguous and adjacent to a city or town with population of more than 50K);

be underserved (at least 25% of the service area is served by one or fewer broadband providers and no part of the service area is served by three or more broadband providers);  and

have no overlap with previous RUS beneficiaries or with a currently pending RUS loan application.

• Special consideration will be given to applications to serve Indian communities. Communities declared to be “substantially underserved trust areas” (i.e., lands held for Native Americans) qualify for waiver of many of the rules, such as reduced equity requirements and longer term loan repayment (up to 35 years).

There is no specific filing deadline for these applications, but since applications are generally processed first come, there is an advantage to filing early. Once the money is gone, it’s gone. And if someone else files for your area first, that application will be processed before yours.

A summary of the terms of the RUS program, together with links to (among other things) the application guide and related attachments, may be found here. If you would like more information about this opportunity, feel free to contact us.

A journey of a thousand miles begins with a single step. As reported here, last month the FCC began its own long, long march to the Promised Land of USF/ICC reform by issuing a massive 289-page tome that promises to revisit, reassess, restructure and revitalize virtually every aspect of universal service support and intercarrier compensation as we know it.  

The task is a daunting one. Perhaps for that reason, the Commission has been putting it off for more than a decade, tweaking this or that and putting out small brushfires as they’ve arisen, but never tackling the fundamental reform that virtually everyone agrees is desperately needed.   Complicating the task is the fact that USF reform and ICC reform are inextricably related – you can’t reform one without reforming the other.   So the FCC has correctly chosen to attack the two behemoths – each of which has proven remarkably impervious to reform – in a single charge.   This multiplies the complexity and size of the proceeding exponentially, but is the intellectually honest way to approach the matter.

In truth, just reading the Notice of Proposed Rulemaking (whose formal, if somewhat redundant, title is “Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking”) (NPRM) was a major undertaking. The document inquires into literally scores of existing policy issues, from questions as fundamental as the FCC’s jurisdiction to regulate VoIP to details as granular as benchmark rate levels. So far-reaching is the inquiry that we estimate that more than a thousand distinct questions or issues were posed for industry input.  Recognizing the logistical problem of arranging the myriad number of meetings necessary to garner the expected input from all parties, the Commission has taken the unusual step of establishing formal procedures for scheduling meetings with the staff.

In approaching the reform effort, the Commission will be guided by four prinicples: (i) modernization of the USF and ICC for broadband, (ii) fiscal responsibility, (iii) accountability, and (iv) market-driven policies.   Turning these noble principles into concrete regulations is the hard part. As we’ve indicated, the scope of the proceeding is too all-encompassing to permit detailed treatment of every aspect of it here, but the highlights are outlined below.  

Short Term/Long Term Solutions: Recognizing that billions of dollars have been invested in, and depend on, the existing regulatory regime, the FCC proposes to adopt remedial measures for the most obvious abuses and inefficiencies in the short term, while putting in place long term permanent reforms that come into play gradually over a period of years. While it is understandable that the Commission might not want to upset settled investment expectations (particularly of ILECs), the Commission demonstrated precious little solicitude to CLECs in 2008 when it abruptly capped their access to USF funds in a single stroke, leaving them well short of the support presumptively necessary to meet their ETC obligations. Be that as it may, the FCC contemplates comfortable “glidepaths” and phased transitions to ease the pain of companies accustomed to feeding at the USF and ICC troughs.

Short Term Universal Service Solutions.  In the short term, the FCC proposes to:

• circumscribe or eliminate several high-cost support programs which may have outlived or outspent their usefulness, including high-cost loop support, local switching support, interstate common line support, and interstate access support. The FCC asserts that these programs as currently structured reward inefficiency and actually discourage movement to more advanced technologies. 
• not only develop benchmarks for capital and operating expenses fundable under the high-cost programs, but also cap the amount of support per line that can be received by any one carrier at $250. (There are horror stories of carriers receiving as much as $2,000 per month per line in support!) 
• change its procedures to encourage rational consolidation of service areas eligible for support in order to reflect operational efficiencies rather than USF gaming.
• eliminate the identical support rule. This rule, which somewhat nonsensically ascribes the same high-cost reimbursement to a CLEC as to the ILEC in the same market, has been long due for change.
• stimulate broadband build-out by a one-time disbursement (between $500 million and one billion dollars) based on a reverse auction. The funds recipient in each area would be the carrier willing to build broadband facilities in unserved parts of the country at the lowest cost. Broadband service under this proposal could be provided by either wireline or wireless technology or even by satellite (on an ancillary basis) if that proved most efficient for remote areas. This program is apparently a complement to the Mobility Fund proposed last year to disburse $500 million via a reverse auction to construct mobile broadband facilities in needy areas.

Long Term Universal Service Solutions. The Commission’s long term vision for USF involves phasing out all of the existing support mechanisms entirely and replacing them with the Connect America Fund (CAF), a mechanism for supporting broadband in areas of the country where broadband is not economically sustainable without such support. Voice service would simply be a component of the larger broadband service. Support under the CAF regime would be determined in one of two ways.  

Under Plan A, there would be a reverse auction in which any carrier using any technology (wireline, wireless or satellite) could bid on the right to provide broadband (or voice only) service in given regions. A single low bidder would receive the funding and have the obligation to provide supported basic services. The Commission envisions satellite service as being a part of the mix since some areas are so remote as to be most economically servable only by satellite, while other areas are more conducive to terrestrial coverage. The most efficient plan would incorporate both technologies to reach everyone at the lowest overall price. The reverse bidding process should ensure that the level of support provided is directly related to the actual costs associated with providing service without the need for bureaucratic review of cost components to determine if the costs are justified or reasonable. This plan has immediate appeal since on its face it ensures that the basic telecom service needed by people in high-cost areas is delivered at the lowest price without redundancy.

No doubt to mollify ILECs concerned about the possible loss of support through such a process, the Commission also floated Plan B. Under this option, current carriers of last resort would have a right of first refusal to take on the obligation of providing broadband/voice service throughout their area.   While this would ensure that such carriers (invariably ILECs) continue to receive not just some but all of the subsidies available for their areas, it would also require the Commission to establish and administer a detailed cost recovery model and continuing oversight to preclude padding of expenses. In a highly competitive carrier environment, such cost recovery models seem antiquated. Moreover, this option seems like a step backward to what was essentially the monopoly subsidization system that existed prior to the introduction of competition into the USF scheme. So it’s hard to see this as a meaningful reform in any sense.  

Finally, the Commission mentions a third option for rate of return carriers only: maintaining the current system but capping elements such as ICLS in order to incentivize the carriers to reduce costs. It is unclear why this is even part of the long term reform vision since a reform like this could be imposed on rate of return carriers in the near term to good effect.

Short Term ICC Reform.  The FCC’s immediate reform of the Intercarrier Compensation regime would deal with what are recurring abuses of the system. The current regulatory scheme creates opportunities for arbitrage that have resulted in unnatural schemes of a different nature – phantom traffic, access stimulation, traffic pumping. When millions of dollars are to be had by simply structuring a phone call in one way rather than another, the human capacity for innovation and ingenuity is marvelous indeed.  The Commission proposes to forestall the access stimulation device by requiring rate of return carriers who enter into “revenue sharing” arrangements such as chat lines to modify their tariffs to account for the new traffic.  Competitive carriers would have to benchmark their rates to the largest ILEC in the state, thus ensuring a more normal rate. The problem of phantom traffic (traffic which is passed on to a connecting carrier without sufficient information to identify the party to be billed) would be addressed by requiring all calls, including VoIP calls, to carry the necessary identifying info.  

Long Term ICC Reform. The deeper problem of how to handle VoIP traffic (which now sometimes goes unbilled) is part of the FCC’s long-term solution. Clearly all traffic will eventually be IP and the current regulatory distinction between IP traffic and circuit-switched traffic will have to be erased. For more than a decade, the FCC has danced around the issue of whether VoIP should constitute a telecom service or an information service – a distinction that has enormous consequences for the regulatory treatment which it gets. The FCC has so far handled the problem by using its non-Title II authority (i.e., sources of jurisdiction not based on telecommunications carrier status) to make VoIP carriers comply with many of the same obligations as regular carriers.  This evasion of the issue continues, with the Commission concocting new ways of regulating broadband or IP traffic without actually denominating such traffic as telecommunications. 

Ultimately, this dance will have to come to an end. In the context of this overall reform effort, the Commission should certainly have teed up the issue for resolution. Its failure to do so (the Commission devotes a single paragraph out of 703 paragraphs to this fundamental question) unfortunately casts a shadow on all of its other more specific proposals to rationalize the treatment of VoIP traffic by treating such traffic the same as circuit-switched traffic.  Until the Commission bites the bullet and reclassifies VoIP, VoIP can’t be treated exactly the same as other traffic since it falls into a different regulatory peg hole.

Long term ICC reform also presents other fundamental jurisdictional problems, the foremost being the historical division of regulatory authority between interstate and intrastate traffic.   Those distinctions (which made sense back in 1934) make no sense at all today.   Without a single nationwide regulatory framework, possibilities for arbitrage and discriminatory intrastate rates continue. The FCC struggles with this problem by proposing different hooks on which it can hang a pre-emptive hat (such as its plenary authority over CMRS rates), but it also suggests ways in which it can induce states to toe the federal line by moving up subsidies or other means. Ultimately, this division of regulatory authority is an obstacle to a consistent nationwide regulatory framework that requires a fundamental change in the Act; in the meantime, the Commission can only do what its limited authority allows.

If it can find the jurisdictional ground to stand on, the FCC proposes to reduce access charges across the board by getting away from per minute charges. It could do so by simply mandating a bill-and-keep approach (where neither connecting carrier charges the other) or flat-rate connection not based on volume. It could also, either on an interim basis or permanently, establish rate benchmarks which would keep the size of access charges within reasonable bounds while also permitting carriers’ costs to be recovered. Shortfalls arising in high-cost areas would be dealt with through explicit subsidies from the CAF rather than through invisible overcharges for access.  

Given the combination of jurisdictional hurdles and billions of dollars that will move from one company’s pocket to another’s as a result of ICC reform, the likelihood of paralysis on this issue is high. Yet it is here that reform is most needed because the current market for telecommunications traffic is artificially distorted by the feudal system that still prevails.

We expect to be providing more targeted thoughts on some of the Commission’s specific proposals in the weeks ahead. In the meantime, interested parties are encouraged to weigh in at the Commission to make it aware of particular problems and abuses and to suggest possible alternatives.