FCC Releases Universal Service Reform Order and Notice

On Tuesday, June 27, the Federal Communications Commission ("FCC" or "Commission") released an Order and a Notice of Proposed Rulemaking related to Universal Service Fund ("USF") contribution mechanisms. The Commission styled its Order as "interim," noting that it expects to take further action on its USF contribution methodology, pursuant to the Notice or otherwise.

With regard to wireless providers, the FCC increased the interstate "safe harbor" percentage from 28.5% to 37.1%. Accordingly, wireless providers electing to utilize the safe harbor going forward will need to base their USF contributions on the assumption that 37.1% of their traffic is interstate, and thus subject to USF contribution. Alternatively, wireless providers may remit payment based on actual interstate usage or on a traffic study estimating interstate usage. Providers electing to utilize actual a traffic study, however, must submit the study to the Commission and to the Universal Service Administration Corporation for review. The Commission expressed concern that carriers may be under-reporting interstate calling in traffic studies, and stated that requiring providers to submit traffic studies for review would minimize any such under-reporting.

Interconnected VoIP providers - which essentially includes any voice application over a broadband connection that allows for calling to the traditional phone network - must contribute to USF under the existing revenue-based methodology used for landline voice services. The FCC established a 64.9% safe harbor for interconnected VoIP providers. The Commission also concluded that interconnected VoIP providers may utilize traffic studies to estimate actual interstate usage, however, any such traffic studies must be approved by the Commission before implementation.

Interconnected VoIP providers will need to register with the Commission using FCC Form 499-A to obtain an FCC Registration Number and file an FCC Form 499-Q beginning on August 1, 2006. Finally, interconnected VoIP providers are required to begin filing FCC Form 400-A on April 1, 2007.

In the Notice, the Commission requests comment on a number of items related to the safe harbors established, as well as on the appropriate means of establishing the jurisdiction of calls for traffic study purposes. For example, some parties utilize the originating and terminating telephone numbers as a proxy for determining the jurisdiction of a call. Because of the "nomadic" nature of mobile wireless services and interconnected VoIP services, others have asserted that merely comparing originating and terminating telephone numbers is insufficient to establish the jurisdiction of a call. The Commission also seeks comment on whether and to what extent it can (and should) adopt a revised methodology for interconnected VoIP providers to contribute to USF. Comments are due 30 days after the Notice is published in the Federal Register, and reply comments are due 60 days after publication of the Notice.

Post Story on Martin Details Magazine Photo "Flap": Headline in Search of a Story?

We are amused by today's cover of the the Washington Post Business section, which carries the ridiculous "story" about the June/July Details magazine article on the "21 media mavericks who are "quietly shaping your world" and "determining what you'll be watching and listening to in the near future."

According to the Post, certain quarters are scandalized by the picture accompanying the Details story, which shows Chairman Martin being standing on edge of a bed in a room at the Mandarin Oriental hotel in DC in a kind of crouch looking down at Alex Vogel, a partner at the high-tech lobbying firm Mehlman Vogel Castagnetti, who is sitting next to Eric Logan, an executive at XM Satellite Radio. We've seen the picture and its actually pretty funny. If you've met Chairman Martin you know he has a good sense of humor and any suggestion that the picture confirms that he is "in bed" with lobbyists is ludicrous. Details magazine is not exactly The Economist. Instead it's basically the men's version of of the women's magazine Cosmo. We suggest the Post and those quoted in the story lighten up!

XO pulling the plug on its forbearance petition? Say it isn't so, please.

The word on the street is that XO may be pulling the plug on its pending forbearance petition, which seeks the elimination on some of the unbundling restrictions related to EELs (loop and transport combos) and DS1 loops.

We hope this isn't true, and if it is, we're sorely disappointed. Withdrawing gives the FCC a free pass. Forcing the FCC to decide would make the individual Commissioners culpable for their action or in-action, as the case may be. Plus, whenever the Commission is forced to act on a timeline other than its own, anything is possible.

Some would suggest (and we know who you are) that withdrawal is better than a bad forbearance decision. We disagree. It's best know where you stand, and to make people that are hostile to your business reveal themselves publicly. In this case, there is no "other day" to save the fight.

Summer of love? Perhaps not ...

Back on June 1, we suggested that Chairman Martin would be able to utilize his newly-constituted majority (with Commissioner McDowell coming on board) to begin pushing through a number of controversial items.

Today, however, the Commission officially withdrew from consideration a controversial "multi-cast must carry" order that Chairman Martin supported. Apparently Commissioner McDowell could not support the order as drafted, and accordingly the item was pulled from the agenda of today's Open Meeting.

Vonage: Verizon's latest target of "fear uncertainty and doubt"?

Verizon apparently has sued Vonage for patent infringement related to certain Verizon patents on VoIP-related services.

We suspect this move is as much about Verizon creating "fear, uncertainty, and doubt" for Vonage and its shareholders as anything. This blog has been no great friend to Vonage, but come on, Vonage has been doing business basically the same way for years. We find it curious to say the least the Verizon held its lawsuit until now.

We'll be interested to see if Verizon goes after other providers, like SunRocket, 8X8, Comcast, Level3, Net2Phone, and AT&T for that matter. If Vonage is really infringing, countless other service providers and possibly equipment manufacturers must be too.

Verizon has a history of using the legal and regulatory process to disrupt its competitors, and that may be what's going on here. Remember when Verizon scared the FCC into sticking Nextel with an extra BILLION DOLLARS in fees as part of its spectrum reallocation? Bummer.

If you get in Verizon's crosshairs, watch out. They have a ton of money, and huge number of underutilized lawyers ... a poisonous synergy, to say the least.

DC Circuit upholds FCC's Triennial Review Remand Order

Earlier this morning the US Court of appeals for the DC Circuit upheld the FCC's Triennial Review Remand Order, in which the FCC set forth its standard for evaluating whether and to what extent BOCs and other ILECs need to make unbundled network elements available to competitors.

The opinion in Covad Communications Co. v. FCC was written by Judge Sentelle, who noted that the FCC "has thrice attempted -- unsuccessfully -- to implement the 'unbundling' provision of the Telecommunications Act of 1996 ... [and] we conclude the Commission's fourth time is a charm."

XO's forbearance petition ... the forbearance shoe is on the other foot

Coming up quick in the FCC queue is an XO forbearance petition, which will be "deemed granted" on June 23 unless the FCC otherwise issues an order resolving it.

More interesting than the substance of the petition is the political dynamic emerging among the Commissioners.

With Commissioner McDowell recusing himself (due to his role at Comptel), our sources tell us that a 2-2 tie exists, with Chairman Martin and Commissioner Tate opposing XO's petition, and Commissioners Copps and Adelstein prepared to let the petition take effect through the "deemed granted" provision of the statute.

Back in March, Chairman Martin used the "deemed granted" provision of the statute to let a Verizon forbearance petition take effect by operation of law. This outraged the Commissioners Copps and Adelstein. But in a reversal of fortune, Commissioners Copps and Adelstein are now in the "deemed granted" driver's seat on the XO petition.

In Washington, where you stand often times depends on where you sit.

To the extent the XO petition is "deemed granted," we'll be watching for a couple of things:

-- Statements by Commissioners Copps and Adelstein explaining why "deemed granted" is appropriate in this case, but not in the Verizon case

-- Statements by Chairman Martin and Commissioner Tate explaining the opposite

-- Any changes in positions in court filings at the DC Circuit, where CLECs have opposed use of "deemed granted" and Verizon has supported it

As usual, we're in the land of "things that make you go 'hmmmm'...."

Wall Street Journal on Pulver

Today's Wall Street Journal has a nice piece on Jeff Pulver, the founder of Pulver.com and organizer of the well known VON conferences. If you're a reader of Jeff's blog you already know that he's been talking lots about how IP is revolutionizing video. In fact, if you attended VON San Jose in March you likely scored yourself a Slingbox, which allows you to control and watch your Tivo/DVR real-time over any broadband connection. It's a fantastic technology, but will no doubt be set upon by industries with a vested interest in keeping content confined to a specific time and place. Get one now and enjoy it while you can.

FCC Result-Oriented Decision Upheld Again...

We finally had a chance to review the decision that was released by the D.C. Circuit on Friday in American Council on Education v. FCC , which upheld the FCC’s ruling that VoIP providers and broadband service providers can be subjected to the lawful intercept provisions Communications Assistance for Law Enforcement Act (CALEA).

The American Council on Education challenged the FCC ruling on three grounds: (1) its application of CALEA to VoIP; (2) its application of CALEA to broadband services; and (3) its application of CALEA to "private networks." The court shot down ACE's challenges on all counts and agreed with the FCC's decision to treat broadband Internet access services as an "information service" for the purposes of relieving Bells and cable companies of traditional telecom regulation in the Brand X case, but treating the same broadband Internet access services as"telecom services" for the purposes of the CALEA statute. It seems like the D.C. Circuit is more than willing to endorse whatever results oriented decision the FCC slops together to get where it wants to go.

No Net Neutrality and Vonage Short Sellers...Oh My!

The Bells dodged a Freaky Friday upset on the net neutrality vote when the House passed the Barton bill late last night on a 321-101 vote. The Markey amendment, which sought to add some teeth to the bill's "network neutrality" provisions, failed 269-152. See you see, Wednesday's vote to allow the floor consideration of the amendment was all a short bad dream for the Bells.

In the continuing saga that is the fall-out from the Vonage IPO, the Wall Street Journal is reporting this morning that "Securities regulators have launched an investigation into how short sellers may have played a role in the steep decline in the stock price" of Vonage. The article says that for now the investigation is being conducted by the regulatory unit of the New York Stock Exchange, which sent a letter to trading houses yesterday "asking questions about how the dealers may have facilitated short sales." If the news on Vonage continues in this vein we could have enough for a beach read by the end of the summer.

Interesting Twist in Net Neutrality Fight on the Hill

Maybe it was because it was the day after 6/6/06, or maybe some other supernatural phenomenon was occurring, but yesterday the Bells suffered a minor set-back when the House Rules Committee approved a rule allowing full House consideration of the net neutrality amendment sponsored by Ed Markey of Massachusetts, the ranking Democrat on the Energy and Commerce Telecommunications and the Internet Subcommittee.

The Markey amendment (supported by Microsoft Corp., Google Inc. and public interest groups who count Moby and Pat Robertson as members) would prevent broadband network providers from prioritizing traffic and essentially impose common carriage obligations on them. That is, under the Markey broadband network providers could not favor their own online traffic or make business deals with some Internet companies to guarantee faster access to consumers. The Barton bill, as written, would allow such deals.

The full House vote on the Barton bill is scheduled for tomorrow. Stay tuned to see if the Bells have a Freaky Friday or if things return to normal...

AT&T/BellSouth Merger Comments Are In and...

We've reviewed the comments filed Monday in the FCC's AT&T/BellSouth merger docket. The sparse number of comments filed by carriers one would typically expect to see reflects not only how much the industry has consolidated in the last 5 years, but also reflects the feeling of inevitability that the merger will be approved, as well as exhaustion among players.

The more interesting comments, filed by Clearwire and Sprint Nextel and other wireless players, discuss the combined company's warehousing of spectrum and the significant weight that the new post-merger AT&T Wireless (the company is dumping the Cingular brand) will carry in the marketplace. We're betting that any conditions placed on the merger by the FCC will be focused more on wireless concerns and less on issues of the traditional wireline carriers.

Chairman Martin at Globalcomm ...

Yesterday, FCC Chairman Martin spoke at Globalcomm, and he offered a pretty clear summary of where he wants to go (or not go) in the short term. Here are a few quick take aways

-- Adelphia, Comcast, Time Warner ... don't expect any merger conditions
-- Net neutrality ... don't expect anything in addition to the FCC actions in the SBC/AT&T and Verizon/MCI mergers ... BellSouth could be brought into the mix as part of the SBC transactions
-- Video franchising relief for the Bells will continue to pick up steam

Assessing USF on VoIP ... Questions, Questions, Questions...

As reported by a number of folks, the FCC is poised to assess federal universal service charges on interconnected VoIP providers, like Vonage, Sunrocket, and cable operators.

We haven't seen any reports on the FCC's legal theory for doing so, but we expect an interesting read once the order comes out.

Here are few things to think about ....

In the FCC's 2004 Vonage Order (appeal pending at the 8th Circuit), the FCC stated that Vonage's service is interstate and that it is either a telecommunications service or an information service.

If VoIP is an interstate telecommunications service, then it would seem that 100% of revenues would be subject to USF, rather than 65% as reported in the press. If it's an information service, then it's hard to see how any USF gets assessed at all (numbers-based flow through aside).

A "telecommunication service" finding on VoIP would be interesting for a number of other reasons too.

For example, "telecommunications service" finding would seem to resolve in Time Warner's favor its interconnection dispute with the South Carolina Public Service Commission (which denied Time Warner a CLEC license), which is pending at the FCC.

As another example, this would be the first time that the FCC has established a software application as a "telecommunications service." What's ironic is that this software-based "telecommunications service" can only be utilized over an unregulated "information service" -- cable modem or DSL (neither of which are subject to USF).

Software = telecom service; physical network facilities = information service?

Fascinating stuff ... either way, the FCC is sure to be heading to some court of appeals to defend this one. And given the kluge of results-oriented decisions leading up to this point, our money is on the appellants.

2006: The FCC's Summer of Love?

With the confirmation of Rob McDowell, Chairman Martin now has a full complement of Commissioners (and a Republican majority for the first time since assuming the Chairmanship) and it appears that the Chairman plans to use Commissioner McDowell's honeymoon period to move several very high profile and controversial items that have been simmering on the back burner for a long while.

Among the items rumored to be on what promises to be a very full agenda for the FCC's June 15 meeting are: Media ownership rules (altering the longstanding rules that prohibited a company from owning a television station and a daily newspaper in the same market); Must-carry rules (imposing rules requiring cable operators to carry broadcaster's digital programming signals); and Universal Service rules that mandate that VoIP providers pay USF on 65% of their traffic and increasing the wireless safe harbor from 28.5% to 37.1% of revenues.

Each of these items is independently controversial, but Chairman Martin appears to have calculated that there will never be a better time to address these issues than while Commissioner McDowell is fresh and unscathed by back and forth that would have taken place during even a few months on the Commission.