I. Legislative Branch Activity

A. Congress Passes Pretexting, Two Other Bills in Lame Duck Session.

As the 109^th Congress drew to a close in December, three telecom bills managed their way through the halls of Congress. First and foremost, the Senate finally approved a ban on pretexting (HR-4709), which the House had passed in April. In addition to banning the acquisition of phone records through fraudulent means, the bill would prohibit the unauthorized sale or transfer of confidential phone records, or the receipt of such information with the knowledge that it was fraudulently obtained. 

Congress also approved a bill increasing FTC enforcement of spam and spyware (S-1068), and a bill that offers discounts on long distance phone charges for soldiers stationed abroad (originally an amendment in the defunct telecom bill HR-5252).

B. Net Neutrality Expected to be Decisive in 110th Congress.

One of the priorities of the new Congress in January will undoubtedly be net neutrality. In the Senate, Senators Snowe (R-ME), Dorgan (D-ND), and Wyden (D-OR) are all expected to reintroduce bills from last session. Sen. Wyden has been working with Rep. Markey (D-MA) to create more inclusive language. Wyden’s revised bill is thought to allow bits to be prioritized if there is no discrimination at the source. 

C. Legislative Calendar.

The House and Senate adjourned on December 20 and began the 110^th Congress on January 4.

II. Federal Communications Commission (FCC) Activity

A. FCC Meeting.

The Commission held an open meeting on December 20, 2006 and adopted four items: rules to ensure reasonable franchising process for new video market entrants; a report on 2005 cable industry prices; a NPRM seeking comment on implementing a nationwide, broadband, interoperable public safety network in the 700 MHz band; and a Declaratory Ruling regarding whether Internet Protocol captioned telephone service is a form of telecommunications relay service (TRS) compensable from the Interstate TRS Fund.

1. FCC Adopts Rules to Ensure Reasonable Franchising Process for New Video Market Entrants.

At the December public meeting, the FCC adopted a Report and Order and Further Notice of Proposed Rulemaking concerning new video entrants into the MVPD market. Referring to Section 621 (a)(1) of the Communication Act of 1934, the Order and FNPRM attempt to ensure that franchising authorities are acting in a competitive manner to new entrants. In the Order, the Commission concluded that the current state of the franchising process seems to constitute an unreasonable barrier to entry that impedes the goal of increased cable competition and accelerated broadband deployment. Action expected 1Q 2007.

Specifically in the Order, the Commission states it found that:

• Franchising negotiations that extend beyond certain time frames amount to an unreasonable refusal to award a competitive franchise within the meaning of Section 621(a)(1);
• requiring an applicant to agree to unreasonable build-out requirements constitutes an unreasonable refusal to award a competitive franchise;
• Unless certain specified costs, fees, and other compensation required by local franchising authorities are counted toward the statutory five percent cap on franchise fees, demanding them could result in an unreasonable refusal to award a competitive franchise;
• It would be an unreasonable refusal to award a competitive franchise if the local franchising authority denied an application based on a new entrant’s refusal to undertake certain unreasonable obligations relating to public, educational, and governmental and institutional networks;
• Preempting local laws, regulations, and requirements, including local level-playing-field provisions, to the extent they impose greater restrictions on market entry than the rules adopted herein;
• It does not have sufficient information to make such determinations with respect to franchising decisions made at the state level or in compliance with state statutory directives, such as statewide franchising decisions. As a result, the Order addresses only decisions made by county- or municipal-level franchising authorities.

In the Further Notice of Proposed Rulemaking, the Commission seeks to determine how the Order will affect existing video franchises. It posits that the Order should only apply to current franchises when their license expires and comes up for renewal, not sooner. The Commission should conclude this rulemaking and release an order no later than six months after the release of the Order.

2. FCC Releases Report on 2005 Cable Industry Prices.

Also at the December public meeting, the FCC released its annual report on cable industry prices. The report covers the twelve month period ending January 1, 2005 and is based on a survey of prices from cable companies in a random selection of communities. The report shows an increase of 5.2% in the monthly rate for all cable services ($40.91 to $43.04). Since the first report of this kind was commissioned by Congress in Telecommunications Act of 1996, prices have risen 93%.

Prices charged by cable operators in communities with adequate competition were 17% lower than in communities without effective competition. DBS competition, however, does not appear to constrain cable prices – average prices were the same as or slightly higher in communities where DBS was the basis for relieving a cable operator from rate regulation than in noncompetitive communities.

The report states that 96% of all cable subscribers were served by systems that offered Internet access. In addition, 42% of subscribers were offered telephone service by their cable operator.  There was very little variation between the groups (those with and without a finding of effective competition) in terms of system capacity or the percentage of subscribers offered advanced services.

3. FCC Seeks Comment on Implementation of a Nationwide, Broadband, Interoperable Public Safety.

The Commission adopted a Ninth Notice of Proposed Rulemaking that proposes to create a national, centralized approach to public safety access in the 700 MHz band. The initiative seeks to promote the deployment of advanced broadband applications, related radio technologies, and modern, IP-based system architecture. 

The proposed rules attempt to meet the following public safety objectives: (1) opportunities for broadband, national, interoperable use of 700 MHz spectrum; (2) new sources of funding for the build-out and operation of the national public safety network; (3) economies of scale and scope in production and competition in supply to maximize cost effectiveness; (4) efficient spectrum use; (5) network robustness and survivability; and (6) flexible, modern IP-based wireless system architecture.

4. Internet Protocol Captioned Telephone Service Eligible for Compensation from Interstate TRS Fund.

Finally at the December meeting, the Commission adopted a Declaratory Ruling stating that IP captioned telephone service (IP CTS) is a form of telecommunications relay service (TRS) and is therefore eligible for the Interstate TRS Fund. This ruling was in response to a petition filed by Ultratec, Inc., and received widespread support from the disability community.

IP CTS should give consumers the choice of using a computer, PDA, or wireless device to make a call, without having to purchase special telephone equipment.

B. Other FCC Activity.

1. FCC Approves Merger of AT&T Inc. and BellSouth Corp.

On December 29, the FCC finally approved the merger of AT&T and BellSouth by a 4-0 vote. In order to secure approving votes of Democratic Commissioners Copps and Adelstein, AT&T was forced to propose major concessions. Examples of these concessions include the divestiture of some wireless licenses in the 2.5 gigahertz band, and a $19.95 per month price tag for stand-alone basic high-speed Internet service. But perhaps the most important concession concerned net neutrality.  AT&T agreed, in essence, to a basic set of net neutrality principles. Specifically, AT&T promised "not to provide or to sell to Internet content, application, or service providers, including those affiliated with AT&T/BellSouth, any service that privileges, degrades or prioritizes any packet transmitted over AT&T/BellSouth’s wireline broadband Internet access service based on its source, ownership or destination." AT&T has agreed to abide by these net neutrality rules for two years. The real world implications of the net neutrality rules is yet unclear, but both Chairman Martin and Commissioner Tate argue that the principle only applies to this merger, and will not influence or apply to other FCC actions.

2. FCC Grants ACS of Anchorage, Inc. Forbearance Relief in the Anchorage, Alaska Study Area.

The FCC granted, in part, a petition for forbearance filed by ACS of Anchorage, Inc. that sought relief from unbundling obligations and pricing obligations that applied to it as the incumbent telephone company in Anchorage, Alaska. Because of the particular market characteristics of the Anchorage area, the Commission has determined to relieve ACS of certain legacy monopoly regulations.

C. Next Commission Meeting.

The next Commission meeting is currently scheduled for 9:30 AM on Wednesday, January 17, 2007. The agenda is not yet available.

D. Pending Proceedings. There are several pending proceedings that may be acted upon in the near term, including the following:

• Broadcast Ownership FNPRM: The Further Notice opens the broadcast quadrennial review of all of the media ownership rules, as required by statute. Comment Date: Oct. 23, 2006. Reply Date: Jan 17, 2006.
• DTV Second Periodic Review: Outstanding issue concerning upgrades to open v-chip. 
• Plug & Play: One-Way: FCC action on reconsideration pending; Court of Appeals held in abeyance; Two-Way: Ongoing negotiations and reporting to FCC throughout 2006; potential NPRM.
• Cable Horizontal and Vertical Ownership Limits: May 2005 further notice seeks to update stale record.  An earlier notice sought comment on how to address D.C. Circuit remand of cable ownership regulations.
• IP-Enabled Services: Will address the regulatory treatment of IP-enabled services, including video services. 
• Program Access Rules: Rules governing MVPD access to certain programming owned by cable operators will sunset in October 2007.  FCC to evaluate whether sunset date should be extended.
• Set-Top Box Waiver Proceeding: Action expected 1Q 2007.
• Digital Must-Carry: Outstanding issues include: material degradation, program-related material, DBS carriage of DTV signals. Action expected 2007 or 2008.

III. Litigation

Justice Department Defends Actions

The Justice Department in December defended its approval of the Verizon/MCI and SBC/AT&T mergers as being in the public’s interest. In a filing, redacted for public viewing, the Justice Department concluded that it need only place restrictions on outside fiber-optic access to commercial buildings where Verizon and MCI or AT&T and SBC are the only two providers. This filing represented a response to arguments from opponents in November and the latest in a series of attempts to get U.S. District Judge Emmet Sullivan to approve the mergers. Judge Sullivan stated on November 30 that he had not completed his review of the Verizon/MCI and SBC/AT&T mergers under the Tunney Act. He implied that a decision was not likely anytime soon and mentioned the possibility of holding evidentiary hearings into the way the Department of Justice handled the two mergers. 

EchoStar Wins Appeal in NPS Deal

U.S. District Court Judge William Dimitrouleas ruled on December 22 that NPS could sell distant networks from Atlanta and San Francisco to EchoStar subscribers. He argued that EchoStar should not be held in contempt, as broadcasters claimed, for the sale. Broadcasters argued that EchoStar and NPS are in concert to work around the injunction. Earlier in the month, on December 15, U.S. Magistrate Judge Barry Seltzer concurred when he ruled in favor of EchoStar and NPS. Broadcasters vowed to take the decision to the U.S. Appeals Court, but a decision there could take weeks or months.