Congratulations to Commissioner McDowell!

Our Congratulations go out to Rob McDowell, who recieved Senate confirmation as an FCC Commissioner last Friday.

AOL and Microsoft making moves into the online ad space...

Internet-based advertising has been on the upswing for a while, and we're seeing some big companies take different approaches to entering the space.

A week ago, AOL announced its acquisition of Lightningcast, a pioneer of on-line streaming video advertising and software that targets advertising to consumers on-line. On-line ad revenue has been a bright spot for many web portals, and it seems to make sense for AOL to expand into this line of business.

Today, the WSJ reports that Microsoft is looking at acquiring Third Screen Media, one of the first companies to develop web-like advertising over mobile phones. Your phone either has (or will have) Microsoft software riding on it, so why not have advertiser use Microsoft software to reach mobile users? Maybe a good way to avoid "do not call" regs.

In the scheme of things, each of these deals is small but they highlight the on-going evolution of both companies and the revenue opportunity of wired advertising.

Upside-downside ... Vonage completes first day of trading

After being pummeled in the press for weeks, Vonage (VG) completed its first day of public trading today.

On the upside, Vongage raised nearly $500 million.

On the downside, the stock priced at $17 per share, but closed at $14.85, down nearly 13% -- the weakest first day performance of any IPO this year.

Given the substantial negative press from Businessweek Online and other BOC-centric publications, we're not surprised by this one day result (see our May 5 post, for example).

That said, the past is the past, and VG has $500m to prove-in its business plan. The proof is in the profit!

FCC extends AWS Auction 66 deadlines

Late Friday, the FCC issued a Public Notice extending the AWS Auction 66 deadlines. The new schedule is as follows ....

June 5, 2006; 12:00 p.m. ET -- Short-Form Application Filing Window Opens
June 19, 2006; 6:00 p.m. ET -- Short-Form Application Filing Window Deadline
July 17, 2006; 6:00 p.m. ET -- Upfront Payments (via wire transfer)
August 7, 2006 -- Mock Auction
August 9, 2006 -- Auction Begins

A lot of folks filed their Short-Forms a couple of weeks ago to comply with the FCC's previous schedule. If you didn't file but would like to, you now have a second bite at the apple. Plus, with a little research, you can get a pretty good sense of who is looking for licenses where.

Pat Robertson and Moby Walk Into a Bar....

What do Michael Stipe of R.E.M, Gun Owners of America and the Feminist Majority have in common? There's no punch line. R.E.M., Gun Owners of America, the United Church of Christ and the Feminist Majority are all members of the Save the Internet Coalition and they had a big press conference here in DC yesterday.

Yesterday's Coalition press event was aimed at AT&T, Verizon, and other supporters of H.R. 5252, the Barton bill, which would allow broadband companies like AT&T and cable modem providers to provide "priority access" to the the sites of companies willing to pay for it; in effect tiered classes internet service for a fee. Barton's bill does not include the FCC's statement of net freedoms, but says the FCC can investigate charges of discriminatory pricing only on a case-by-case basis.

Net neutrality advocates were likely pleased yesterday when Rep. James Sensenbrenner, R-Wis., who chairs the House Judiciary Committee, introduced H.R. 5417, which would make it an antitrust violation to set preferential rates for Internet services. As National Cable & Telecommunications Association President Kyle McSlarrow said yesterday, "This [net neutrality] is now the number one issue." In fact, people on the Hill who didn't know how to turn on a computer six months ago are now passionately arguing the pros and cons of net neutrality. Stay tuned, the crowd is likely to get bigger and even more diverse...

Our Client Advisory on the FCC's new CALEA order

Bottom line, the FCC has greatly expanded the reach of CALEA, but hasn't exactly said what companies need to do to comply....

AOL enters the Voice fray with AOL Phoneline

Today, AOL (LLC) announced the launch of voice integrated with instant messaging. The free service appears to give users a NANP telephone number, voicemail, and unlimited in-bound calling. For a fee, you can make outbound calls as well.

It looks like Broadwing is the carrier that is handling PSTN mediation as well as 911 and other carrier-type obligations.

Looks like an interesting VoIP application. Among other things, however, we wonder whether a "numbers"-based Universal Service contribution requirement would kill this fledgling service, not that the powers that be would mind, or anything.

WSJ Editorial Board: FCC In Exile?

It is clear to us that some members of the Wall Street Journal editorial board are harboring secret fantasies of becoming FCC commissioners. How else to explain the page's almost monthly pontification on some aspect FCC policy? Remember when they went after Chairman Martin for voting with the Democrats against then Chairman Powell's triennial review Bell give away?

Today's nugget of wisdom, entitled "More Spectrum, Please," blames the FCC's spectrum management policies for the poor showing of the United States in rankings of world-wide broadband deployment (an April report ranked the U.S. 12th in world behind Korea, Canada, Germany, Sweden, Belgium, Italy and a host of other nations).

The editorial is ironic for a couple of reasons. First, the report cited by the editorial is from none other than the Progress & Freedom Foundation, a Washington "think tank" that is usually more than happy to shill for the Bell companies. Second, FCC decisions over the past 6 years--all of which have made it harder for competitors to provide broadband services to compete with the Bells--are the single largest reason why the U.S. is in the cellar in broadband deployment and the Wall Street Journal was one of the biggest cheerleaders of those FCC actions.

If the Journal's editorial board members don't realize their FCC dreams I have every confidence they can put their propaganda skills to work elsewhere. Ed or Ivan, are you hiring?

Privacy benchmarks ... a new line of merger attack?

By now, you all know that AT&T, BellSouth, and Verizon have been secretly handing over billions of call records to the federal government.

Only Qwest asked for DOJ or FISA court confirmation that providing this data would be lawful. Kudos to Qwest, as it shows that the house cleaning it went through actually resulted in some pretty effective controls.

In the late 90s, FCC merger analysis considered the "comparative benchmark" affect of mergers. As an industry segment consolidates, there are fewer companies (benchmarks) that policy makers can compare to determine what's reasonable for the industry. With multiple players in a segment, it's easier for the FCC to get a sense of what's what.

Yesterday's revelation that the country's biggest phone companies are routinely handing over massive amount of customer data should spur privacy rights advocates and consumer groups to bring comparative benchmark issues to the forefront of the FCC's analysis of the proposed AT&T/BellSouth merger.

Hey Wonks, It's About Enforcement, Not Regulation...

Yesterday Verizon's Tom Tauke threatened to do for any net neutrality legislation what Verizon and the other Bells did for the 1996 Telecom Act: destroy it through endless litigation. Verizon and AT&T loooove competition! Just ask them, or check out the 2 full page ad in today's Washington Post. But competition with an effective enforcement mechanism?! Gasp!

In the current net neutrality debate, the one item missing is enforcement. Our Hill "idea guys" apparently don't care much for "implementation." If there's one lesson to be learned from the 1996 Telecom Act it's that enforcement matters. And lack of enforcement will kill an industry.

The old AT&T and MCI failed colossally by focusing on policy, not enforcement.

Case in point ... interconnection agreements. Even though the Communications Act (and Telecom Act) make it clear that parties can go directly to federal court for violations of the Act and federal contracts made under the Act, the BOCs pretty successfully bogged competitors down into an endless mire of state public service commission proceeding.

Name one case, just one case in the last 10 years where a federal district court awarded damages to a competitor under an interconnection agreement?

Right, we don't know of one either, and it's not because the BOC is so nice.

The closest we know of is case filed at a state commission 1999 that is STILL on-going. There the competitor obtained a bad faith finding against the BOC. The best hopes is that the competitor will be able to pursue a damages claim in federal court by the end of this year - over seven years after the initial filing.

WAKE UP WONKS ... it's about enforcement. Tom Tauke will filibuster you to death in policy debates, and haul you to the D.C. Circuit at the drop of a hat. Even if you win a round or two of the fight, you'll have nothing without a real means of enforcement.

Newsflash ... Universal Service and Intercarrier Compensation reform top the FCC's wireline agenda ...

Top FCC folk yesterday reiterated that universal service and intercarrier compensation reform are at the top of their wireline agenda.

As some of you no doubt know, these same two items topped the FCC's wireline agenda a year ago, and we doubt very much that we will see any significant reform steps taken by the FCC this year. Not to get ahead of ourselves, but our first prediction for 2007 is that USF and Intercarrier Comp reform will top FCC's wireline agenda. Maybe the third time will be the charm.

Here's our back of the cocktail napkin math:

The NARUC GXX (used to be 11, but a bunch have dropped out) is trying to put together a legal analysis for its PIMP plan (Promote Incumbent Monopoly Payments plan -- thanks, J.S.!). In all likelihood, the PIMP plan will need to get vetted by NARUC at the summer meetings in mid-July. Even if it obtains unanimous NARUC approval, the earliest we see anything going to FCC is August, and no one is around DC in August. Maybe the FCC puts out a request for an additional round of comments in September, but maybe not. Either way, cable, wireless, CLECs, and consumer groups will all chime in against the PIMP throughout the fall, and we see little if any chance for any kind of comprehensive reform order this year.

USF reform strikes us as harder to pin down with precision. The bottom line is that the Hill is way out in front on this one. We see no upside for the Commission to take any action while there are so many bills floating around, especially right before an election. That said, it's conceivable that we could see an order after the 2006 elections, but we lay odds on 2007.

VoIP Price War or Rhetorical Point?

Earlier this week, Verizon cut the price of its "VoiceWing" VoIP product to $24.95 in an ostensible effort to "compete" with Vonage and others.

In our personal view, however, Verizon's move is as much about creating uncertainty for Vonage's upcoming IPO as anything else.

Sounds petty? Are we just conspiracy theorists? Nah.

Take a look at Verizon's history. Remember back in the day when Verizon publicy accused MCI/WorldCom of being a vast criminal conspiracy to get favorable terms in the bankruptcy proceeding? That was before Verizon bought them. Remember when Verizon threatened to have the FCC Commissioners criminally prosecuted during NexTel's spectrum reallocation proceeding? That one cost NexTel $1 billion.

Verizon plays hardball, and no one should forget it. As for VoiceWing? Verizon has only about 50,000 customers and does basically nothing to market the service -- why cannibalize your own base? Moreover, the new price ain't all that. SunRocket, to name one competitor, offers a similar VoIP product for $17 per month.

Listen for the drumbeat of Verizon and others as the Vonage IPO approaches, and watch for planted articles.

FCC Applies CALEA Obligations to Facilities-Based VoIP and Broadband Carriers

At its meeting today the FCC took another step toward applying traditional wireline regulatory obligations to facilities-based interconnected VoIP and broadband providers as it adopted its Second Report and Order and Memorandum Opinon & Order (Order) relating to the implementation of the Communications Assistance for Law Enforcement Act (CALEA). CALEA, which was adopted in 1994, is designed to ensure that communications equipment is compatible with the ability of law enforcement agencies to utilize wiretaps and electronic surveillance.

The full order has not yet been released, but the FCC's press release gives a broad summary of the actions taken by the Commission today:

1. The Order held that all facilities-based VoIP and broadband carriers must be in compliance with CALEA requirements by May 14, 2007;
2. The Order requires all facilities-based VoIP and broadband carriers to sumbit interim reports to the FCC to ensure that they will be in compliance by the May 14, 2007 deadline and orders carriers implicatedin the first CALEA order to be in comliance with those rules within 90 days of the effective date of today's Order;
3. The FCC held that it would leave standards-setting to other standards setting bodies and not promulgate its own;
4. The FCC restricted the ability of manufacturers to obtain additional compliance deadline extensions (which to date have been routinely applied for and granted), and clarifies how carriers may obtain reimbursement for CALEA compliance costs;
5. The Order clarifies that the FCC may take independent enforcement action to ensure compliance with its CALEA rules;
6. The FCC declined to adopt a CALEA surcharge to allow carriers to defray implementation costs (in light of the plethora of federal state, local and other surcharges, including, no doubt, USF).

Contact us if you have any questions about the order or need any help putting together compliance reports.

Put Another Log on the Fire: Another Telecom Act Rewrite Bill

Yesterday Senate Commerce Committee Chairman Stevens circulated a wide ranging draft telecom overhaul bill. It joins several other measures under consideration on Capitol Hill, all of which are primarily aimed at giving the Bell companies video franchising relief (because, you know, the Bells are all about competing these days). In addition to streamlining Bell video entry by forcing local franchising authorities to act upon franchise applications within 30 days, the bill addresses a host of other thorny issues:

• universal service: the bill expands the fund by subjecting for the first time cable, VoIP, intrastate, and broadband to USF obligations; creates a $500M rural broadband fund; prevents the FCC from limiting USF support to a single line
• VoIP interconnection: provides VoIP providers with a right to 251 type interconnection right;
• net neutrality: the bill essentially punts and requires the FCC to "study" the issue for 5 years and come up with legislative proposals for Congressional consideration;
• municipal broadband: the bill precludes state legislatures and cities from adopting measures to prevent cities from deploying their own broadband networks;
• white spaces: requires the FCC to complete its rulemaking and allow unlicensed devices to use available spectrum not used by broadcasters;
• digital tv: requires the FCC and the industry conduct consumer outreach and education, including labeling sets that are not digital and permits cable operators to transmit analog signal for any broadcast station requesting to ensure that broadcast signals are available to cable subscribers with analog TVs.

Given the competing proposals on the Hill and the truncated session this election year, the odds of this bill passing in anything approaching this form are very uncertain.

Who needs 251(g) and 254(g), anyway?

On Thursday April 27, 2006, Core Communications, Inc. filed a petition with the FCC seeking forbearance from rate regulation under section 251(g) (ILEC access charge preservation) and 254(g) (IXC rate averaging and integration). Grant of Core's petition would place all FCC-regulated traffic under section 251(b)(5) for rate regulation purposes. It would also eliminate implicit subsidies to rural LECs by enabling interexchange carriers to recover access charges from their end users, which is now prohibited by the Commission's rate averaging and integration rules. Click here for a copy of Core's petition.

For all you intercarrier compensation aficionados, April 27 was the fifth anniversary of the FCC's ISP Remand Order.