Articles Posted in FCC Antitrust Highlights

Local governments will have 90 days to act on cable-franchise applications filed by AT&T Inc., Verizon Communications and other entities with existing rights to access city-owned conduits, the FCC ruled in an action on December 20 that split the agency along partisan lines. With support from major phone firms, FCC chairman Kevin Martin championed franchise reform as his proclaimed antidote for rising nominal cable rates and for spurring deployment of high-speed Internet-access facilities across the country. Because cable incumbents were not granted similar 90-day guarantees, the National Cable & Telecommunications Association (“NCTA”) called the FCC vote a rejection of a “level playing field” among cable providers.

Needing more time to evaluate the FCC’s order in full, NCTA president Kyle McSlarrow declined to promise that the trade group would take the agency to court. While fellow Republicans Deborah Taylor Tate and Robert McDowell backed Martin, Democrats Michael Copps and Jonathan Adelstein refused to go along, claiming that the Commission was on shaky legal ground in thinking that it could boss thousands of cities and towns on how to charter new cable entrants. The new franchise rules are expected to take legal effect early next year.

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To circumvent federal limits on radio ownership, investors trying to buy industry giant Clear Channel Communications Inc. (“Clear Channel”) plan to become passive owners in some radio stations they already own and divest others. According to their merger application submitted Friday, December 15, to the FCC, Thomas H. Lee Partners LP (“Lee”) and Bain Capital LLC (“Bain”) plan to insulate their interests in other radio companies in which they have a stake to avoid violating the agency’s limits on how many stations one company can own in a single market.

The FCC sets such limits by market size. A company may own no more than eight stations in the largest U.S. markets, such as Los Angeles, New York and Chicago, where at least 45 full-power radio stations operate. As markets get smaller, so do the number of stations a single owner may hold. Both Lee and Bain already have substantial radio investments that conflict with the FCC’s rules. Lee participated in a consortium of companies that acquired Univision Communications Inc. (“Univision”) for $13.7 billion in June through an entity called Broadcast Media Partners. Both Lee and Bain also have an interest in radio company Cumulus Media Inc. (“Cumulus”).

Clear Channel announced on November 16, that Lee and Bain will take a big portion of the company to help founder Lowry Mays and his family take the publicly traded company private for $26.7 billion. The Mays will invest with the buyout firms and remain involved in company operations. Clear Channel also plans to divest 448 radio stations in smaller cities and rural areas. The buyout shops do not specify what steps they will take to become passive owners in Univision and Cumulus, but telecommunications industry lawyers said one option could be stopping their participation in programming and management decisions. They are also likely to remove their representatives from the Univision and Cumulus boards and change any voting stock holdings to nonvoting.

In a November 27 filing with the FCC, Cablevision Systems (“Cablevision”) said the agency’s rule banning set-top boxes with integrated security functions should not require the operator to deploy CableCARD-based boxes because all of its digital set-tops already contain removable smart cards. In the filing, Cablevision requested a limited waiver of the July 1, 2007, integration ban because the company, “alone among the nation’s cable operators, already has deployed set-top boxes that use separable, removable security on smart cards.”

Cablevision “seeks either a clarification that navigation devices with separate security on removable smart cards are not ‘integrated devices’ for purposes of the integration ban or a waiver that will allow such devices to continue to be placed into service after July 1, 2007,” it said in the filing with the FCC. The FCC’s rule requires new set-top boxes deployed by cable operators as of July 1 to separate the functions for accessing TV services. The cable industry continues to lobby against the ban, drawing support this week from three Republican congressional leaders. The ban, enacted via the 1996 Telecommunications Act, is supposed to ensure that third-party consumer-electronics devices work within cable operators’ networks – using the Cable Television Laboratories-developed CableCARD hardware – by requiring cable operators to use the same standards themselves. Cablevision said it uses proprietary removable smart cards, developed with NDS Group (“NDS”), for security functions in all of its approximately 6 million digital set-top boxes in New York, New Jersey and Connecticut systems.

The NDS-developed smart cards, which look like credit cards, can also plug into a Cablevision-supplied CableCARD. That card can, in turn, be inserted into the CableCARD slot on any CableCARD-ready device, according to Cablevision. As of the second quarter of 2006, more than 12,000 customers were using Cablevision-supplied CableCARDs, the company claimed. Cablevision said that permitting it to meet the requirement of the integration ban by continuing to deploy smart-card-capable boxes “will not affect Cablevision’s continued support of CableCARDs for third-party, CableCARD-ready [consumer-electronics] devices and will not adversely impact customers’ experience with such CableCARDs.” The filing was signed by Michael Olsen, Cablevision’s vice president of legal and regulatory affairs, and was certified by James Blackley, the operator’s senior VP of corporate engineering and technology.

On November 16, Guidance Software Inc. agreed to settle Federal Trade Commission charges that its failure to take reasonable security measures to protect sensitive customer data contradicted security promises made on its Web site and violated federal law. According to the FTC, Guidance’s data-security failure allowed hackers to access sensitive credit card information for thousands of consumers. The settlement will require the company to implement a comprehensive information-security program and obtain audits by an independent third-party security professional every other year for 10 years.
Guidance sells software and related training, materials, and services customers use to investigate and respond to computer breaches and other security incidents. According to the FTC complaint, Guidance failed to implement simple, inexpensive and readily available security measures to protect consumers’ data. In contrast to claims about data security made on Guidance’s Web site, the company created unnecessary risks to credit card information by permanently storing it in clear readable text. In addition, the complaint alleges that Guidance failed to protect the information by:

On November 16, the Senate voted unanimously to confirm FCC chairman Kevin Martin to a second five-year term, according to the office of Senate Commerce Committee chairman Ted Stevens (R-Alaska). Martin was nominated by President George W. Bush to a Republican seat on the Commission and sworn in on July 3, 2001. Bush named him chairman on March 18, 2005.
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Olev Jaakson at ojaakson@dbmlawgroup.com.

On October 12, the FCC released a Notice of Inquiry for its Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, as required by Congress. The Notice of Inquiry, which seeks comment and information on competition in the video programming market, is designed to assist the FCC with its annual Video Competition Report.

In the annual Video Competition Report, the FCC expects to report on changes in the competitive environment over the last year. The Notice seeks information that will allow the FCC to evaluate the status of competition in the video marketplace, changes in the market since the 2005 Video Competition Report, prospects for new entrants, factors that have facilitated or impeded competition, and the effect these factors are having on consumers’ access to video programming.

The Notice solicits comment and information on video programming distributors, including cable systems, direct broadcast satellite services, large home satellite dish providers, broadband service providers, private cable operators, also called satellite master antenna television systems, open video systems, wireless cable systems using frequencies in the broadband radio and educational broadband services, local exchange carrier systems, utility-operated systems, commercial mobile radio services and other wireless providers, and over-the-air broadcast television stations. In addition, the FCC seeks information on video programming distributed over the Internet and via Internet Protocol networks, as well as that disseminated through home video sales and rentals.