FCC Rulings and Regulations

Just in time for Thanksgiving, Federal Communications Commission (FCC) chairman Julius Genachowski has declared the proposed AT&T/T-Mobile merger a turkey.

The full FCC must still vote, but Genachowski said that after reviewing 200,000 pages of documents and holding more than 100 stakeholder meetings, he has concluded the deal is not in the public interest. The FCC also reviewed 50 petitions to reject the deal from companies including Cablevision, C Spire, DISH, EarthLink, and Sprint.

Technically, the FCC cannot block the deal and it's likely the affair will wind up in court, but Genachowski's finding pretty effectively sticks a fork in it and finds it over-cooked.

The FCC has the power to approve the deal but if it finds it unacceptable, it can only refer it to an administrative law judge, who is obligated to consider all of the evidence gathered during the FCC's review.

And the conclusion of the FCC's review, as Genachowski reads it, is that a combined AT&T and T-Mobile would result in unprecedented concentration and massive layoffs despite AT&T's claim that it would save jobs and speed the deployment of high-speed broadband to rural and underserved areas.

DOJ Suit

The U.S. Justice Department has reached similar conclusions and has already sued to block the merger.  That case is expected to go to trial in February, and the FCC is likely to hold off until the outcome of that case is clear. If the DOJ prevails, no further FCC action would be needed.

Just a few weeks ago, Attorney General Eric Holder made it known the Justice Department's opposition is not a token gesture.  He said litigators are "ready and eager" to go to trial.

AT&T issued a statement calling the FCC's move disappointing.

"It is yet another example of a government agency acting to prevent billions in new investment and the creation of many thousands of new jobs at a time when the US economy desperately needs both," Larry Solomon, senior vice president of corporate communications for AT&T, said. "At this time, we are reviewing all options."

Despite staunch opposition from Congress and media watchdog groups, the FCC voted 3-2 to relax its rules against businesses consolidating ownership of media outlets in a given region.

Under the new rules, broadcasters in the nation's 20 largest media markets can now also purchase newspapers for their business, not that there has been any great rush to snap up moribund print properties, with the obvious exceptions of Dow Jones and the Tribune Company.

The 3-2 vote was strictly along party lines, with FCC Chair Kevin Martin and commissioners Robert McDowell and Deborah Tate, all Republicans, supporting the rule change. Commissioners Jonathan Adelstein and Michael Copps, both Democrats, opposed it.

Critics of the vote say it will open the door to more corporate buyouts of local media and decrease quality local journalism. The Free Press media coalition blasted the decision, with executive director Josh Silver saying that FCC chair Kevin Martin was "ignoring the public will and defying the U.S. Senate."

"[Martin's] decision to gut longstanding ownership rules shows once again how the largest media companies with their campaign contributions and high-powered lobbyists are corrupting the policymaking process at the expense of local news coverage and independent voices," said Silver.

Martin's push to pass the new rule also faces opposition in Congress. Prior to the vote, 25 senators from both parties wrote Martin to demand he slow down the vote and give the public more time to comment on the issue, as is customary with most proposed government regulations.

The letter, signed by Commerce Committee chairman Daniel Inouye and all four Senate Democrats running for President -- Barack Obama, Hillary Clinton, Chris Dodd and Joe Biden -- as well as Republicans Ted Stevens and Olympia Snowe, said that Martin "shortchanged the comment process...you have not completed a full review of localism prior to forcing a vote on a rule change dealing with media ownership limits."

"When you proposed a new rule on the effects of communications towers on migratory birds, you allowed for a 90 day comment period," the Senators wrote. "How could you decide to allow 90 days for a migratory bird rule and then shortchange the public on the media ownership rule?"

Sen. Maria Cantwell (D-WA), who signed the letter, said prior to the vote that Martin's decision would have "consequences." Congress is certainly not afraid to take action against the FCC, said Cantwell. "In the Senate, were going to make sure that if we have to pass legislation stopping the FCC, we will.

Friends in high places

Martin, however, has the backing of the White House to pursue the media consolidation changes. Commerce Secretary Carlos Gutierrez wrote Senate Majority Leader Harry Reid prior to the vote, warning him that the Bush administration would fight any "attempt to delay or overturn these revised rules by legislative means."

Martin, a former Bush campaign operative whose wife Cathie has worked for both Bush and Vice-President Dick Cheney, has aggressively pursued a conservative, free-market agenda since succeeding Michael Powell to become FCC chair in 2005.

Martin oversaw the mega-merger of BellSouth and AT&T, creating -- once again -- the world's largest telecommunications company. Martin has also opposed legislation protecting the right of "net neutrality," enabling small Internet publishers equal access to the network.

Martin has been a friend indeed to the telecommunications industry, supporting video franchising rules that enable Verizon and AT&T to roll out high-speed service to communities without complying with local or state franchising regulations -- regulations that cable companies still have to abide by.

But Martin's generally hands-off attitude towards market issues comes to an end with the cable industry. Martin has continually pushed for greater regulation of cable companies and diversification of cable subscriptions in given areas, as well offering of "a la carte" channel packages that enable subscribers to only buy channels they want.

Many critics see the "a la carte" move as a back-door attempt to starve out cable channels that present adult-oriented content.

Martin recently introduced a proposal to reinstate a cap on cable companies owning more than 30 percent of the national market, a move that was supported by consumer groups and bitterly opposed by the cable industry -- and expected to be voted on at today's meeting.

Change in the weather

Martin's rush to push the media consolidation relaxation waiver may be due to several large media deals that would run into problems without it, such as Rupert Murdoch's buyout of the Dow Jones corporation and Sam Zell's desire to purchase the Tribune publishing company, though Martin has granted both deals waivers to continue.

The rush may also be attributed to Martin's tenure as FCC chair coming to an end. With a presidential election looming and the possibility of a Democrat taking the White House and the Democrats strengthening control of Congress, industry insiders speculate that Martin may be ensuring both the goals of the Bush administration and his own future political or lobbying ambitions.

Former FCC commissioners usually wind up practicing communications law on Washington's K St., offering advice and counsel to the media conglomerates they tenderly regulated during their time in office. Thus, one's actions today can lay up rewards in the next life, i.e., the private sector.

An especially vigorous House panel grilled the Federal Communications Commission (FCC) today, with Commerce Committee Chair John Dingell (D-MI) asserting that the FCC was "overstepping its authority" by imposing its video franchising rules on states and municipalities.

Referring to the FCC's recent order to states to streamline the approval of new video franchises, Dingell said that "[i]f reform of that regulatory structure is necessary, then it is Congress' prerogative to take such action as we have done before."

The FCC's rules make it easier for Verizon, At&T and other would-be competitors to get local cable TV franchises. At the same time, they limit the authority of states and municipalities to oversee the new entrants and protect consumers.

Under the new rules, local communities would have a time limit of six months to approve new entrants into a market for video, and 90 days for companies that already provide other services. The rules also free new franchises from requirements to "build out" new services to an entire community, meaning that new entrants could choose to serve only the more affluent sections of a city or region.

Critics of the rules say they were designed solely to benefit AT&T; and Verizon, with little regard for consumers or other players in the marketplace.

"[Franchise reform] is not the role of the FCC. The Commission chose to ignore the well-settled divisions of responsibilities, that is unwise," Dingell said.

At another point, FCC chairman Kevin Martin was asked by Telecommunications Subcommittee chairman Ed Markey (D-MA) why the commission did not investigate reports that the National Security Agency (NSA) had illegally acquired the phone records of Americans. Martin responded that the agency had been prevented from investigating due to "national security" concerns.

Markey said that Martin should expect to be a "frequent visitor" before the committee, and Dingell agreed, suggesting that the committee should hold oversight hearings of the FCC on a monthly basis.

Dingell's comments were typical of the increased scrutiny the Republican-led FCC is facing in a Democratic Congress, at a time when the FCC is involved in numerous issues ranging from public-interest rights for digital television to the possible reinstatement of caps on subscribers to cable companies. The FCC is planning to issue a new order codifying that cable companies cannot serve more than 30 percent of potential subscribers in the United States.

The order stems from a 1992 ruling to prevent mass consolidation of the cable industry and reduce subscriber choices. Cable companies such as Comcast and their lobbyists have challenged the 30-percent cap in recent months as unnecessary, given the proliferation of alternative entertainment services that provide video.

Cable companies also objected to the franchising decision, saying it represented a giveaway to their competitors in the telecom industry, and that they would negotiate for the streamlined rights as well.

Martin's friendliness towards telecom companies was demonstrated by his heavy push for the merger of AT&T; and BellSouth to form the country's largest telecom company. The merger was stalled over objections from Democratic Commissioners Jonathan Adelstein and Michael Copps, but was passed after AT&T; agreed to support "net neutrality" for its basic Internet services -- a concession Martin opposed and intimated he would not enforce.

That stance drew criticism from Committee member Anna Eshoo (D-CA) during the hearing. Rep. Eshoo said it was "rather extraordinary" that Martin would state his intent to not enforce the net neutrality provision of the agreement. Martin insisted that he would do so.

Eshoo was particularly critical of Martin's style of running the FCC, claiming that companies had complained to her of Martin's "heavy-handed manner."

"I continue to hear complaints that the commission is unresponsive, insular and even capricious at times," she said.

The FCC has also been criticized for burying or suppressing reports that would contradict their political objectives.

During a push by Martin to enable greater consolidation and cross-ownership of local television stations, an FCC report surfaced that claimed local news stations benefited from local ownership. The report, commissioned by Martin's predecessor, Michael Powell, was ordered destroyed. Martin claimed he had never seen the report.

The FCC recently terminated another study that found wireless emergency 911 services did not work effectively for cellphones when called from inside buildings.

The report's author, Dale Hatfield, presented his findings to the FCC, but was told the study was being discontinued. That didn't satisfy Rep. Mike Doyle (D-PA), another Telecommunications Subcommittee member. Doyle said that Martin was "strangely silent" on the matter, which he found "puzzling," and promised to pursue it further.

AT&T; has offered concessions to the FCC to sweeten the pot for approval of its mega-merger with BellSouth, but some tricky legal language may end up costing consumers more in the end.

The 20-page list of offers was delivered to the FCC late yesterday (Dec. 28) in the hope that the commission would vote on the merger before the end of the year.

The merger talks have been stonewalled between the 2 Republican and 2 Democratic members of the commission who can vote. Robert McDowell, the fifth FCC commissioner, formally recused himself on the grounds that he once represented competitors of AT&T; as a lobbyist.

Chief among the concessions was a promise to maintain standards of "net neutrality" on AT&T;'s broadband services for 30 months from the date of the merger approval.

Net neutrality, the principle of maintaining free and equal access to all Internet content, was staunchly opposed by AT&T;, which wants to offer high-speed premium services and prioritize delivery of that content at the expense of its existing service.

"[I]n the interest of facilitating the speediest possible approval of the merger by the Commission, Applicants agree to the attached merger commitments, which are significantly more extensive than those submitted on October 13," AT&T; said in its statement.

Other concessions included a promise to reestablish 3,000 jobs in America that had been outsourced to other countries, and an offer of stand-alone DSL for $19.95 a month in BellSouth's territories.

Consumer groups hailed the agreement as a victory that enables low-income neighborhoods to breach the digital divide, as well as for supporters of net neutrality overall.

"This merger endangers long-term competition," said Consumers' Union vice president Gene Kimmelman. "But by making AT&T;'s high-speed Internet service available to consumers for less than $20 a month, the FCC could open the door for consumers to connect low-cost Internet telephone service to broadband and thereby pressure the market to keep delivering lower prices for all telecom services."

Ben Scott, policy director of media watchdog Free Press, agreed.

"Making Net Neutrality a condition of the largest merger in telecommunications history would set an important precedent," he said. "For free speech, democratic participation and economic innovation to thrive online, Net Neutrality must be the law."

Bait And Switch?

However, AT&T; may have pulled a fast one.

In enumerating its net neutrality concession, AT&T; said that, "This commitment also does not apply to AT&T;/BellSouth's Internet Protocol television (IPTV) service."

AT&T;'s push for IPTV is the cornerstone of its new UVerse high-speed Internet project, and the agreement may allow its UVerse rollout to sidestep its own net neutrality guarantee.

Commenters at technology blog TechDirt noted that, "AT&T; promises not to violate network neutrality on a network they never intended to use that way, and carves out permission to use it on their new network, where they had planned all along to set up additional tollbooths."

The AT&T; peace offering comes on the heels of the FCC's decision to ease rules for telecom companies to offer video franchising in communities. The new rules eliminate requirements for companies to "build out" service to all parts of a town or region, and streamlines the approval process.

Critics charged the new rules will empower telecoms like AT&T; to "cherry pick" by selling high-speed broadband and TV services only in the most affluent neighborhoods.

AT&T; reiterated its commitment to deliver high-powered services like UVerse in the concession letter.

"AT&T; is committed to providing, and has expended substantial resources to provide, a broad array of advanced video programming services in the AT&T; in-region territory," the company said.

It remains to be seen if the concessions are enough to push the FCC to vote on the merger.

As 2006 ticked to a close, the Federal Communications Commission voted unanimously to deliver a Friday afternoon gift to mighty AT&T;, approving its $85 billion takeover of BellSouth, over the objections of consumer groups who said the merger delivered no benefits to consumers.

Story continues below video

It's a fondly-treasured Washington tradition to take actions likely to be unpopular with large segments of the electorate on a Friday afternoon, when they're least likely to be noticed. A Friday before a holiday weekend is even better.

The commission's action followed last-minute concessions by AT&T; intended, although critics said some tricky legal language may end up costing consumers more in the end.

It's the largest deal ever in U.S. telecommunications history. The new AT&T; will have a market capitalization of over $220 billion -- more than double that of Verizon. It will serve more than 70 million local phone customers in 22 states, as well as 10 million broadband users.

Among other things, the merger gives AT&T; full control of Cingular Wireless, which it had operated as a joint venture with BellSouth. The company has said it will phase out the Cingular brand name, replacing it with the AT&T; brand.

AT&T; also says it will aggressively roll out its new Internet video service in what was previously BellSouth territory. It plans to reach 19 million homes in its own 13-state region by the end of 2008.

The 20-page list of concessions was delivered to the FCC late yesterday (Dec. 28) in the hope that the commission would vote on the merger before the end of the year.

The merger talks had been stonewalled between the 2 Republican and 2 Democratic members of the commission who can vote. Robert McDowell, the fifth FCC commissioner, formally recused himself on the grounds that he once represented competitors of AT&T; as a lobbyist.

Chief among the concessions was a promise to maintain standards of "net neutrality" on AT&T;'s broadband services for 30 months from the date of the merger approval.

Net neutrality, the principle of maintaining free and equal access to all Internet content, was staunchly opposed by AT&T;, which wants to offer high-speed premium services and prioritize delivery of that content at the expense of its existing service.

"[I]n the interest of facilitating the speediest possible approval of the merger by the Commission, Applicants agree to the attached merger commitments, which are significantly more extensive than those submitted on October 13," AT&T; said in its statement.

Other concessions included a promise to reestablish 3,000 jobs in America that had been outsourced to other countries, and an offer of stand-alone DSL for $19.95 a month in BellSouth's territories.

Consumer groups hailed the agreement as a victory that enables low-income neighborhoods to breach the digital divide, as well as for supporters of net neutrality overall.

"This merger endangers long-term competition," said Consumers' Union vice president Gene Kimmelman. "But by making AT&T;'s high-speed Internet service available to consumers for less than $20 a month, the FCC could open the door for consumers to connect low-cost Internet telephone service to broadband and thereby pressure the market to keep delivering lower prices for all telecom services."

Ben Scott, policy director of media watchdog Free Press, agreed.

"Making Net Neutrality a condition of the largest merger in telecommunications history would set an important precedent," he said. "For free speech, democratic participation and economic innovation to thrive online, Net Neutrality must be the law."

Bait And Switch?

However, AT&T; may have pulled a fast one.

In enumerating its net neutrality concession, AT&T; said that, "This commitment also does not apply to AT&T;/BellSouth's Internet Protocol television (IPTV) service."

AT&T;'s push for IPTV is the cornerstone of its new UVerse high-speed Internet project, and the agreement may allow its UVerse rollout to sidestep its own net neutrality guarantee.

Commenters at technology blog TechDirt noted that, "AT&T; promises not to violate network neutrality on a network they never intended to use that way, and carves out permission to use it on their new network, where they had planned all along to set up additional tollbooths."

The AT&T; peace offering comes on the heels of the FCC's decision to ease rules for telecom companies to offer video franchising in communities. The new rules eliminate requirements for companies to "build out" service to all parts of a town or region, and streamlines the approval process.

Critics charged the new rules will empower telecoms like AT&T; to "cherry pick" by selling high-speed broadband and TV services only in the most affluent neighborhoods.

AT&T; reiterated its commitment to deliver high-powered services like UVerse in the concession letter.

"AT&T; is committed to providing, and has expended substantial resources to provide, a broad array of advanced video programming services in the AT&T; in-region territory," the company said.

Telecom giant BellSouth has agreed to drop its mysterious new service fee for broadband customers after the Federal Communications Commission (FCC) threatened to pursue an inquiry into the company's pricing policies.

BellSouth had been following fellow Verizon's lead by planning to impose a "regulatory cost recovery fee" on its high-speed Internet customers. The new fee was $2.97, exactly the same amount as the old Universal Service Fund (USF) fee which BellSouth had recently won the right to stop paying into.

Whereas the old USF fee was ostensibly designed to fund development of low-cost telecommunications services in rural areas, the new fee was designed specifically to "recover the costs of regulatory compliance."

However, the FCC, the chief telecommunications regulatory agency, was skeptical about the new fee.

The agency said it had sent an eight-page "letter of inquiry" to both BellSouth and Verizon asking whether the new fees complied with the FCC's "Truth-In-Billing" requirements for clearly explained and understandable customer charges.

BellSouth promptly backed down, stating that it would cancel the fee, and credit any customer charged. The credit would take one to six weeks to appear on customer bills, the company said.

The FCC is generally regarded as giving the big telephone companies a wide berth but this escapade went a bit too far. Several FCC commissioners, including Chairman Kevin Martin, were outraged.

"The commission takes its obligation to protect consumers very seriously," said FCC spokesman David Fiske. "Consumers must be provided with clear and nonmisleading information so they may accurately access the services for which they are being charged and the costs associated with those services."

Last year, the FCC eliminated the Universal Service Fund payments for DSL subscribers. The commissioners calculated the move would cut 10 million DSL subscribers' monthly Internet bills by a dollar or two.

Verizon said that it had received the letter from the FCC and would publicly respond, noting that it had provided reasons for its own fare hike on its Web site.

Verizon blamed its new fee on the "increased costs" of providing service to customers who only buy high-speed Internet, without buying basic telephone service.

BellSouth is currently in the process of being acquired by AT&T;, and requires FCC approval to complete the merger. AT&T; itself had not instituted any new fees on customer services after receiving relief from the USF, and was not, at last word, a target of the FCC inquiry.

"We want to do what's in the best interest of our customers," said Herschel Abbott, BellSouth's vice president of governmental affairs, attempting to explain the company's about-face.

Observers and tech analysts were skeptical that the FCC would pursue any serious action against the telcos, given FCC chairman Kevin Martin's generally business-friendly approach to the agency's agenda.

A commenter at tech news blog TechDirt remarked that " [A] couple more donations in the right places and the FCC will find that these are legitimate charges and maybe even suggest the telcos overlooked a few more that could also be tacked on."

Critics said the latest "bait and switch" sleight of hand regarding the old and new fees were evidence that "net neutrality" legislation is essential.

After years of touting their dedication to building nationwide broadband access and elbowing out would-be competitors through regulatory machinations and ferocious lobbying, the major telecom companies are showing their true colors as they ramp up their campaign for "tiered service," where the clients paying the most will have access to the fastest and highest-quality Internet service.

Proponents of net neutrality believe that if telecom and cable companies start instituting tiered pricing, it will leave lower-income customers -- Internet users and content providers alike -- in the Internet "slow lane," unable to access the best circuits and forced to put up with slower, glitch-prone access.

"The telephone companies are still in mourning for the good old days when there was something called long-distance service, with rates based on both mileage and time," said one longtime Washington public affairs executive. "The whole concept of the Internet -- unmetered access to the whole wide world -- makes them cry."

"This change amounts to a price increase, nothing more and nothing less," said Samuel A. Simon, chairman of TRAC, a Washington consumers group.