Articles Posted in FCC Antitrust Highlights

On October 2, the FCC consented to the applications filed in connection with the proposed acquisition of Midwest Wireless Holdings, LLC (“Midwest Wireless”) by ALLTEL Communications, Inc. (“ALLTEL”), subject to certain conditions. ALLTEL provides wireless communications services to approximately 11 million wireless customers in 35 states. Midwest Wireless is a wireless provider with more than 400,000 customers in southern Minnesota, northern and eastern Iowa, and western Wisconsin.

Specifically, the FCC approved with conditions the transfer of control of licenses and authorizations held by Midwest Wireless and its subsidiaries to ALLTEL. These licenses and authorizations include: Cellular licenses, Broadband Personal Communications Service (“PCS”) licenses, Common Carrier Fixed Point-to-Point Microwave licenses, 39 GHz licenses, Local Multipoint Distribution Service licenses, and three international section 214 authorizations. In analyzing ALLTEL’s proposed acquisition of Midwest Wireless, the FCC examined the market for mobile telephony services and concluded that the companies demonstrated that the merger will serve the public interest, convenience, and necessity.

Further, the FCC concluded that the likely public interest benefits of the merger outweigh any potential public interest harms and that competitive harm is unlikely in most mobile telephony markets involved in the proposed transaction. In four Cellular Market Areas, however, the FCC determined that likely competitive harms exceed the likely benefits of the transaction and, in these areas, imposed conditions that will effectively remedy the potential for these particular harms. The conditions imposed with respect to the cellular systems in the markets mirror, in large part, the terms of a settlement agreement between the applicants and the Department of Justice.

On September 27, five major cable companies asked the FCC for conditions on AT&T’s merger with BellSouth to ensure that the combined phone giants cannot discriminate against cable’s competing digital-phone service. The cable companies seeking these conditions were Advance/Newhouse Communications, Charter Communications, Cablevision Systems, Cox Communications and Insight Communications.

Each introduced voice over Internet protocol (“VoIP”) to cable subscribers. The cable MSOs said in a letter to the FCC that some of the conditions they want should apply to all cable VoIP providers, meaning cable’s biggest players – Comcast and Time Warner Cable – would benefit without actually having to take a public position at the FCC. AT&T’s takeover of BellSouth would make it by far the dominant local phone company in the United States, with 70 million access lines, prompting the cable companies to call for conditions that would protect new voice entrants’ ability to compete. In March, AT&T announced the $67 billion BellSouth deal, which, if approved, would add nine states from Kentucky to Florida to AT&T’s U.S. footprint. The FCC will vote on the merger on November 3 and the Justice Department approved the merger on October 11.

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On September 25, the FCC adopted its Eleventh Annual Report to Congress on the state of competition in the mobile telephone – or Commercial Mobile Radio Services (“CMRS”) – industry. This report examines the conditions prevailing in the CMRS marketplace in 2005.

The FCC concluded that there is effective competition in the CMRS marketplace based on its analysis of various measures of competition, including: the number of competing carriers providing service in an area, market shares, pricing behavior and trends, technological upgrades and product innovations, subscriber growth, usage patterns, churn, and service quality. The report reviews competitive market conditions by grouping indicators of the status of competition into four categories: (1) market structure, (2) carrier conduct, (3) consumer behavior, and (4) market performance.

The report also examines a number of related topics, including urban-rural and international comparisons. The report shows that competition among wireless carriers continues to afford many significant benefits to consumers. Specifically, during 2005, the number of mobile telephone subscribers in the United States rose from 184.7 million to 213 million, increasing the nationwide penetration rate to approximately 71%. The amount of time mobile subscribers spend talking and texting on their mobile phones also increased and the volume of text message traffic grew to 48.7 billion messages in the second half of 2005, nearly double the 24.7 billion messages in the same period of 2004. Revenue per minute, which can be used to measure the per-minute price of mobile telephone service, fell 22% during 2005 from $0.09 in 2004 to $0.07 in 2005.

On September 19, the Senate Commerce Committee unanimously reported on the nomination of FCC Chairman Kevin Martin for a second five-year term. Martin was approved following an off-the-floor markup held after the first vote on the Senate floor. According to Commerce Committee spokesman Joe Brenckle, the only senator to miss the 21-0 vote was Sen. John McCain (R-Arizona). Martin now awaits consideration by the full Senate.
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Olev Jaakson at ojaakson@dbmlawgroup.com.

The FCC’s first auction of Advanced Wireless Service (“AWS”) spectrum licenses ended on September 18. A total of 1,122 licenses were offered in the auction, and 104 bidders won 1,087 licenses. The AWS licenses can be used to provide any of a wide array of innovative wireless services and technologies, including voice, data, video, and other wireless broadband services offered over Third Generation (“3G”) mobile networks.

The licenses offered in the auction encompassed a range of geographic area and megahertz sizes in order to accommodate the varying spectrum needs of different types of wireless providers, including those serving rural areas. Auction No. 66 began on August 9, 2006, and closed after 161 rounds of bidding, raising total gross bids of nearly $13.9 billion. The top five winning bidders based on the net amount of their winning bids include: T-Mobile License LLC; Cellco Partnership d/b/a Verizon Wireless; SpectrumCo LLC; MetroPCS AWS, LLC; and Cingular AWS, LLC.

More than half of the winning bidders in the auction certified their qualifications as small business entities, enabling them to use bidding credits. The unsold licenses remain held by the FCC and will be made available again in a future auction. In a separate press release, FCC Chairman Kevin Martin described the auction as “the biggest, most successful wireless auction in the Commission’s history.”

Newly appointed FCC member Robert McDowell supports agency involvement to ensure that phone companies can enter local cable-TV markets without having to overcome a lot of red tape. On August 8, during his first meeting with reporters at FCC headquarters, McDowell said “I do think we can do a lot to help speed the deployment of video penetration and marry it up with that broadband penetration by clearing some of that regulatory underbrush.”

Addressing a number of issues important to the cable industry, McDowell said multicast-must-carry requirements were beyond FCC authority; network-neutrality regulation of the Internet was premature; and more a la carte programming options would likely emerge as a result of consumer demand. On net neutrality, he said it was unclear what form government regulation of broadband-access providers would take because charges of misconduct have been speculative. McDowell joined the FCC on June 1 to give the GOP a 3-2 advantage at the agency for the first time since March 2005. Although he said his regulatory philosophy was market-oriented, he supports government intervention to correct market failures. On cable franchising, FCC chairman Kevin Martin supports imposing a deadline on local governments to act on applications. But the National Cable & Telecommunications Association (“NCTA”), disputing that local governments have been slow to act, has told the FCC that the courts are the proper forum to settle franchising disputes.

McDowell suggested disagreement with the NCTA by asserting that the FCC “does have that authority” over local government. However, he cautioned that the Commission should wait a few months to see whether Congress addressed the issue. According to McDowell, FCC involvement should preserve a meaningful role for local officials.

On August 7, the FCC reaffirmed its ruling that Time Warner Cable (“Time Warner”) had to carry the NFL Network for 30 days on systems just acquired from Comcast and Adelphia Communications. On August 4, Time Warner threatened to take the FCC to court if the agency did not back down and allow it to drop NFL Network. Following the release of the FCC's second decision, Time Warner did not commit to a court fight over the need to provide consumers a 30-day notice before deleting a channel. “Time Warner Cable continues to believe that the FCC has misconstrued the notice rules and has ordered a remedy that is in clear violation of the First Amendment. The FCC's action has resulted in exacerbating, not avoiding, consumer confusion,” Time Warner spokesman Mark Harrad said.

Time Warner and NFL Network have never had a carriage agreement, but the network had deals with Comcast and Adelphia systems that Time Warner obtained July 31 when the $16.9 billion Adelphia transaction closed. Time Warner dropped NFL Network on those systems on August 1. Claiming that it gave Time Warner the necessary 30 days to issue the proper consumer notices, NFL Network complained to the FCC within hours that it had been illegally removed by Time Warner. The second FCC ruling was again issued by Media Bureau chief Donna Gregg, an appointee of FCC chairman Kevin Martin. Time Warner may ask the five FCC commissioners to overturn Gregg's rulings as an alternative to an immediate court challenge, which Time Warner said would involve important First Amendment issues.

Time Warner and the NFL have been haggling over terms of carriage, with the network seeking an expanded-basic position but Time Warner hoping to start a sports tier with NFL Network as a key driver of mini-tier penetration. In her 15-page order, Gregg said Time Warner's treatment of NFL Network was “disappointing” because FCC members and outside parties “had expressed serious concern about the impact that the Adelphia transactions would have on unaffiliated programmers.”

On July 28, the FCC issued a public notice in which its Wireless Telecommunications Bureau (“Bureau”) identifies 168 applicants found to be qualified to bid in the upcoming auction of Advanced Wireless Services licenses in the 1710-1755 MHz and 2110-2155 MHz bands (“AWS-1”) (Auction No. 66). Bidding in Auction No. 66 is scheduled to begin on Wednesday, August 9, 2006.

In addition, the public notice contains bidding instructions and other important information regarding Auction No. 66. The auction will be conducted using the information disclosure procedures typically used during past FCC auctions.

The Commission determined in the Auction No. 66 Procedures Public Notice that it would use an estimate of the level of competition in the auction to determine the information disclosure procedures that would apply to Auction No. 66. In particular, the Commission concluded that if this measure of likely competition, or modified eligibility ratio, is equal to or greater than three, the likely level of competition should be sufficient to make anti-competitive outcomes difficult to sustain and therefore the benefits of publicly revealing information on bidder interests and bidder identities likely would outweigh the potential harms. Because the modified eligibility ratio for Auction No. 66 is equal to at least three, this auction will be conducted with the typical disclosure of information from this point forward, e.g., revealing bidder license selection before the auction, as well as all bids and bidder identities at the end of each round during the auction.

Canadian telemarketers settled Federal Trade Commission (“FTC”) charges on July 26 that they fraudulently marketed and sold credit card loss protection and healthcare discount plans to U.S. consumers in violation of federal law. Their telemarketing boiler rooms were shut down, and they will pay $200,000 in consumer redress as part of the settlement.

According to the FTC's complaint, six Toronto-based individuals and their companies targeted U.S. consumers, telling them that their company was affiliated with credit card issuers or banks and that consumers needed to buy “credit card loss protection” in order to avoid being held fully liable for unauthorized charges on their credit cards. In reality, under federal law consumers cannot be held liable for more than $50 of unauthorized charges on their cards – consumers do not need to pay for this protection. Operating as “National Credit Card Security,” the defendants charged consumers $249, often without authorization. The only things consumers received were useless “anti-fraud” stickers to put on their credit cards, and forms they were supposed to fill out and return to the defendants, listing all of their account numbers.

The defendants' second scheme targeted elderly U.S. consumers with promises of large discounts on prescription drugs and medical services. Their telemarketers used a variety of deceptive tactics to get consumers' money. They led consumers to believe they were calling from insurance companies or government agencies and persuaded consumers to divulge their credit card or bank account numbers by stating that they already knew the numbers but needed to “verify” them. The defendants also misrepresented that consumers would receive a free trial period before being charged the $349 enrollment fee. They also charged many consumers without authorization, and ignored most requests for refunds. The Canadians operated this scheme under a series of different names, including “Med Plan,” “Global Discount Healthcare,” and “MDI.”

On July 14, a federal judge said he wants to examine internal FCC documents regarding two large recent telephone company mergers to see if the Justice Department protected market competition in approving the buyouts. U.S. District Court Judge Emmet G. Sullivan’s review concerns the now-completed mergers of SBC Communications Inc. (“SBC”) with AT&T Corp. (“AT&T”) and Verizon Communications Inc. (“Verizon”) with MCI Inc. (“MCI”).

The court’s opinion could possibly establish tougher obstacles for future mergers such as the proposed $67 billion buyout of BellSouth Corp. by AT&T Inc. – the name SBC adopted after completing the purchase of AT&T. Required by Congress, the court review calls for a judge to approve any agreement reached between the government and a company allowing a merger to proceed. The judge needs to decide if agreed-upon conditions such as selling certain assets adequately address concerns about lost competition.

In the order signed on July 14, Sullivan wrote that the Federal Communications Commission had agreed to provide unedited versions of the agency’s merger orders and opinions. The order also said the FCC’s deputy general counsel, P. Michele Ellison, was seeking consent from all individuals and entities who provided confidential information contained in the FCC documents. The FCC and the DOJ approved the two deals late last year, requiring modest divestitures of certain overlapping assets and market commitments such as not requiring customers to buy phone service in order to get high-speed Internet access.