Antitrust Lawyer Blog Commentary on Current Developments

Articles Posted in FCC Antitrust Highlights

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On July 13, the FCC approved the sale of substantially all of the cable systems and assets of Adelphia Communications Corporation (“Adelphia”) to Time Warner Inc. (“Time Warner”) and Comcast Corporation (“Comcast”), the exchange of certain cable systems and assets between affiliates or subsidiaries of Time Warner and Comcast, and the redemption of Comcast's interests in Time Warner Cable and Time Warner Entertainment Company.

In reaching its decision, the FCC found that the transactions, as conditioned, serve the public interest and comply with all applicable statutes and Commission rules. The Commission also found that the potential public interest harms of the transactions, as conditioned, are outweighed by the potential public interest benefits. With respect to benefits, the Commission determined that subscribers would benefit from the resolution of the Adelphia bankruptcy proceeding in the form of new investment and upgrades to the network.

Additionally, the transactions would accelerate deployment of VoIP and other advanced video services, such as local VOD programming, to subscribers. With respect to the potential harms, the Commission found that the proposed transactions may increase the likelihood of harm in markets in which Time Warner or Comcast has, or may in the future have, an ownership interest in Regional Sports Networks (“RSNs”). The Commission imposed remedial conditions, the same as those imposed in the News Corp.-Hughes order to address its concerns.

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On June 21, Federal Communications Commission chairman Kevin Martin said that the agency would likely act on the acquisition of Adelphia Communications Corp. (“Adelphia”) by Time Warner Inc. (“Time Warner”) and Comcast Corp. (“Comcast”) in mid-July. Martin indicated the mid-July action in comments to reporters following the agency's public meeting, stating “I think the commission will try to address it by the middle of July.” Time Warner and Comcast have agreed to buy bankrupt Adelphia's 5 million cable subscribers in a $16.9 billion transaction. The Federal Trade Commission approved the deal without conditions in January. The FCC has had the merger under review for 382 days, but only since June 1 has Martin had a 3-2 Republican majority. Opponents of the deal have called on the FCC to impose a host of conditions, including access to regional sports programming owned or controlled by Time Warner and Comcast.

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On June 20, the FCC approved without conditions Sprint Nextel Corp.'s (“Sprint Nextel”) acquisition of affiliate Nextel Partners, Inc., which sells Nextel services in 58 mid-sized and rural markets, in a deal worth $6.5 billion. The transaction gives Sprint Nextel the two-thirds stake in Nextel Partners it didn't already own. It is one of seven such transactions where Sprint Nextel is acquiring affiliates. Five of the remaining transactions have closed, while the acquisition of UbiquiTel, Inc., which has already gotten DOJ clearance, is still pending.

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On June 19, the FCC approved Intelsat Ltd. (“Intelsat”) and PanAmSat Holding Corp.'s (“PanAmSat”) $6.4 billion cash-and-debt deal, concluding the transaction is unlikely to have an adverse effect on Fixed Satellite Services (“FSS”) price, quantity or transponder availability for customers from broadcasters to the U.S. government. The FCC's five commissioners approved the deal unanimously.
According to Intelsat CEO David McGlade, the merger will “open a new chapter” in the satellite industry, with increased capacity for key services, more reliability and wider geographic service. Commissioners Copps and Adelstein were skeptical, voicing concern over telecom consolidation in general and North American FSS consolidation in particular. The transaction was unopposed in the record. The FCC decided no economic conditions were needed due to the unique nature of the satellite industry and its customers. According to the FCC's memorandum opinion and order, prices in satellite services markets are set “somewhat differently” than in other, more homogeneous telecom markets. Satellite services vary by frequency band, transponder power and geographic coverage, and satellite contracts often involve a long-term, ongoing business relationship, the order said. Given FSS service specialization and the extensive negotiations usually seen between FSS carriers and buyers, a large merger's effects “are neither as direct nor as straightforward as such effects are” in other markets. Buyers' bargaining power should go largely unaffected by the reduction in FSS carriers, it said. While Copps concurred, he expressed “serious doubts” about the competitive effects of a merger between 2 of the 3 leading FSS providers in North America. In addition, the Commissioner cited general concern over “an unprecedented trend towards consolidation in every sector of the communications industry.” Intelsat and PanAmSat don't provide the exact same services, but do compete for the same customers in some markets, Copps said. Similarly, Adelstein said he “remains troubled by the significant consolidation in the FSS market that will result from this transaction.” Post-merger, the combined firms will control 80% of the North American satellite transponder market and possibly more in the United States alone, he said. According to Adelstein, the item relied disproportionately on larger customers' bargaining power “to explain away the obvious public interest harm that stems from the loss of competition with the merger of two of the three largest providers of FSS video, network, and government services.”

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On June 16, a U.S. appeals court affirmed the FCC's most recent stab at spelling out local phone monopolies' obligation to lease their networks to startup competitors at discounted prices. “The FCC is pleased that the court has upheld its pro-competitive rules governing network unbundling,” an FCC spokesman said in a statement. “The court's decision provides long-awaited certainty for the telecommunications industry and consumers.” The rules required the local giants to provide transport and access to local loops at wholesale rates, except in certain big cities and business centers where sufficient competition exists. To many industry watchers, however, the June 16 decision was a case of too little, too late for the startup rivals, many of them VC-backed, known as competitive local exchange carriers (“CLECs”).
At issue is an FCC rule, approved in a 3-2 vote along party lines in December 2004 that limits the extent to which competitors can use the networks and switches of local Bell phone companies to reach customers. The FCC said Bells are not required to lease their switches to rivals. Similarly, the FCC provided the Bells with some relief on other parts of the network, including transport and high-capacity loops that connect the Bell's central office to each customer's home. The U.S. Court of Appeals for the District of Columbia Circuit, in a 2-1 decision, also denied any additional petitions for review. As a result, most regulatory experts contend that this is the end of a long legal battle over access to the Bell companies' lines. Three previous attempts by the FCC to set phone competition rules, in litigation that began roughly a decade ago, were all struck down by the court. Bell companies, such as Verizon Communications Inc. and SBC Communications Inc., (now AT&T Inc.), began their latest round of appeals last year. They contend that Bells should not be required to lease any of their networks to rivals at discounted rates. The CLECs appealed the FCC's subsequent court-ordered rewrite, hoping to restore access to Bell network switches and separate requirements that had enabled them to use the Bell company lines to offer local and broadband service without building their own local networks.

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The Federal Trade Commission today told the Senate Judiciary Committee that as the Committee considers legislation to amend the Communications Act, it should preserve the FTC's existing authority to protect consumers and maintain competition in the broadband services industry.

Delivering the FTC testimony, Commissioner William E. Kovacic said the agency believes it has jurisdiction over most broadband Internet access services. “For nearly a decade, the FTC has investigated and brought enforcement actions against Internet service providers for allegedly deceptive marketing, advertising, and billing of Internet access services.”

“For example, in 1997, the FTC separately sued America Online, Compuserve, and Prodigy, alleging that each company had offered 'free' trial periods that resulted in unexpected charges to consumers,” the testimony states. More recently the FTC filed a complaint charging Cyberspace.com with mailing supposed “rebate” or “refund” checks for $3.50 without disclosing that by cashing the checks, consumers were agreeing to monthly charges on their phone bills for Internet access services. “Following a trial . . . the court ordered the defendants to pay more than $17 million to remedy the injury caused by their fraudulent conduct.” The case is currently on appeal.

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On May 26, the Senate approved by unanimous consent Robert McDowell's appointment as an FCC commissioner. The vote came after a tussle over a series of holds placed on his nomination in the past couple of months. McDowell's arrival will bring the Commission to a full slate of 5 members for the first time in more than year and give FCC Chairman Kevin Martin a Republican majority.
A former telecommunications lawyer, McDowell joins Republicans Martin and Deborah Taylor Tate on the Commission. The two Democrats are Commissioners Michael Copps and Jonathan Adelstein. Martin welcomed the nomination, saying in a written statement that McDowell “has a wealth of knowledge and expertise in the communications arena… I am anxious to have him onboard and look forward to working with a full complement of Commissioners.” McDowell fills out a term that ends June 30, 2009.

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On May 17, the DOJ's Antitrust Division granted early termination to Sprint Nextel's acquisition of UbiquiTel, the exclusive provider of Sprint digital wireless mobility communications network products and services under the Sprint brand name to midsize markets in the Western and Midwestern United States. UbiquiTel and Sprint Nextel announced on April 20th that Sprint Nextel would acquire UbiquiTel for approximately $1.3 billion, including the assumption of approximately $300 million of net debt.

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On May 9, a judge with the U.S. Court of Appeals for the D.C. Circuit raised questions about EarthLink, Inc.'s (“EarthLink”) assertion that the FCC erred when it stopped requiring the Bell operating companies (“BOCs”) to make available unbundled network elements for the broadband market because there isn't any competition in the sector. The judge noted that telcos are not the leading provider of high-speed Internet services nationally. Judge David B. Sentelle asked EarthLink attorney Mark O'Connor how the Bells could be the dominant player in the market, as the Internet service provider charged, when they have less of the market than cable modem service providers.
The debate took place during the oral arguments for EarthLink v. FCC (case 05-1087). O'Connor called the FCC's October 2004 ruling that triggered EarthLink's appeal “an attempt by the FCC to rewrite competition law.” However, FCC attorney Nandan Joshi defended the Commission's action, saying the broadband service market “shows every sign” of being competitive. He noted that prices are coming down, more companies are investing in new technology, and that more people can now sign up for service. He also said statistics clearly show that telcos do not have a corner on the high-speed Internet marketplace. According to Joshi, “The FCC found broadband markets are emerging … and that the BOCs are playing catch-up. The question for the FCC here was, was it necessary to saddle the number two provider with an unbundling requirement.”

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Speaking to the Tennessee Telecommunications Association on May 2, FCC Commissioner Deborah T. Tate said that any revamping of the 1996 Telecommunications Act should include language that permits the government to play a limited role in creating fair rules, while allowing the marketplace to drive industry development and innovation in such areas as broadband and advanced services. According to Tate, ensuring competition is an important goal for any telecom bill passed by Congress this year. While some regulation is necessary, it has to let companies “take into account their business plans and the economic realities they face” so they can operate their business, she said. “A light regulatory touch is particularly critical to encouraging the deployment and use of broadband.”
Tate said such a policy must be followed if there is going to be progress made in deploying broadband service nationwide. The ubiquitous availability of broadband service across the country will not only benefit businesses, but families and children as well. Commissioner Tate said it will allow for the continued growth of telemedicine and safety uses so that people be able to work in case a possible pandemic strikes the U.S. and forces people to work from home.

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