FTC Releases New Rule Provisions That Expand Company Responsibilities Under The CAN-SPAM Act

On Monday, May 12, 2008, the Federal Trade Commission (“FTC”) released a several new rules under the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (“CAN-SPAM Act” or “Act”). The Act and the implementing rules establish standards for sending commercial email messages.

The new rules stem from two rulemaking proceedings and are intended to clarify the existing requirements as follows: :

(1) add a definition of the term “person” to clarify that CAN-SPAM’s obligations are not limited to natural persons;
(2) modify the definition of the term “sender” such that when multiple parties’ products and services are promoted, it is easier to determine which entity is responsible for CAN-SPAM compliance;
(3) clarify that a sender may satisfy the “valid physical postal address” by using a registered post office box or private mail box established under U.S. Postal Service regulations; and
(4) clarify that email recipients who wish to opt-out from receiving future email messages cannot be required to pay a fee, provide any information in addition to their email address and opt-out preferences, or otherwise be required to take any steps other than sending a reply email or visiting a single webpage.

The FTC also released a Statement of Business and Purpose (SBP), which addresses several topics that were addressed in the rulemaking proceeding but that are not subject to new rules. For example, the FTC declined to alter the length of time in which a sender may honor an opt-out request. The FTC also declined to expand the statutory definition beyond the five categories of “transactional” or “relationship” services it exempts from the CAN-SPAM Act’s requirements, as codified at 16 C.F.R. § 316.2(o).

These rules have the potential to promote greater marketing flexibility as they preserve the ability of entities to jointly and efficiently market products and services through commercial and promotional email. However, entities must be careful to understand the responsibilities that ensue from classification as a “sender” when such marketing endeavors are pursued.

Leased Access Order Imposes Significant Regulatory Burdens on Cable Providers

On November 27, 2007, the Federal Communications Commission (“Commission” or “FCC”) released an Order and Further Notice of Proposed Rulemaking in its Leased Access Proceeding (“FNPRM”). The Order was released on February 1, 2008.

In the Report and Order, the Commission modified its leased access rules which require cable operators to set aside channel capacity for commercial use by unaffiliated video programmers. Specifically, § 612 of the Communications Act authorizes the Commission to promulgate leased access rules to promote diversity of programming at reasonable terms and conditions. In its Notice of Proposed Rulemaking sought comment on a number of provisions relating to enforcement, rates and procedural issues. The Commission adopted a plethora of cumbersome new rules in all of these area that all cable operators must fully comply with, in addition to the already existing regulatory standards. The Commission attempts to justify the rule modifications by claiming that they are necessary in order to create uniformity in customer service standards, negotiation standards, rates, reporting requirements. However, these rules significantly limit the ability of cable operators to carry out their business plans in a manner that is tailored to their specific business needs. These rules become effective 90 days after publication in the Federal Register.

The Commission tried to take a preemptive strike against any challenge by cable operators, claiming that the rules, as adopted withstand constitutional scrutiny. While the DC Circuit has already held that the leased access provisions of the 1992 Cable Act are not content-based, further regulation may not survive the intermediate scrutiny standard of review due to the elimination of public access obligations in the broadcast context and the great possibility of a negative impact on revenue impact may be a taking. Further, robust growth in access to the Internet and increasing consumer preference for web-based and other alternative forms of content diminishes the need for access through traditional cable service.

FCC Releases Proposals to Reform USF

On Tuesday, January 29, 2008, the Federal Communications Commission ("Commission") released three Notices of Proposed Rulemaking ("NPRM") to examine the deficiencies in the high-cost Universal Service Fund ("USF"). The Commission asks for comment in three areas: (1) changes to the identical support rule for wireless providers; (2) use of reverse auctions to distribute subsidies; and (3) recommendations of the Federal-State Joint Board on Universal Service including making broadband services eligible to receive subsidies.

These reform proposals are long overdue as the stability of the fund, in terms of both contribution base and distributions has waned in recent years. Whether the reform efforts announced will actually go through is yet to be determined. Commission Democrats have already expressed dissenting views on the use of reverse auctions, demonstrating a lack of unity on the proposals. And, industry backlash is highly likely.

NCTA Appeals Commission’s MDU Order

On January 22, 2008, the National Cable & Telecommunications Association (“NCTA”) filed a Petition to Stay a Federal Communications Commission (“Commission”) Order, prohibiting exclusive contracts between multichannel video programming distributors (“MVPDs”) subject to section 628 of the Communications Act and owners of multiple dwelling units (“MDUs”). NCTA petitioned the D.C. Court of Appeals for review of the Order on January 16, 2008. Prior to the Commission’s ruling, exclusive contracts were not regulated by the Commission. NCTA takes issue with the fact that the Order not only bans exclusive deals on a prospective basis, but also renders all previously exclusive deals void, stripping MVPD providers of their contractual rights and jeopardizing their ability to provide video, voice and data services.

NCTA’s petition rests on the premise that the Commission has no statutory authority to prohibit exclusive deals, and even if it did, the Commission can not abrogate existing deals. Further, NCTA argues that the Commission’s decision is arbitrary and capricious as it dramatically changed its position and analysis from just four years ago and, failed to state why meddling with existing contracts results in any tangible benefit for consumers.

Given the wide range of parties involved and the nature of the issues, the Court will certainly have its hands full trying to balance the interests of all parties involved to reach a fair and workable outcome.

Recent Forbearance Petitions Demonstrate Need for Meaningful Intercarrier Compensation Reform

On January 11, 2008, Embarq filed a forbearance petition with the Commission to eliminate the “Enhanced Service Provider” (“ESP”) Exemption to interstate access charges. Embarq claims that grant of its petition would make ESPs telecommunications carriers, thus subject to regulation. ESPs would no longer be considered “customers” of telecommunications carriers.

The Embarq petition makes clear that it is targeting specific types of companies for new regulation. Foremost, Embarq seeks to create additional regulatory obligations for interconnected VoIP providers, such as cable operators and Vonage. In addition, the proposed regulation would extend to purely Internet-based calling services like Skype. Most damaging is that the petition appears to treat all ESPs, including conference calling companies, voicemail providers, and others, as telecommunications carriers, subject to full Commission regulation, including reporting requirements and access charges.

Meanwhile, late last year, Feature Group IP also filed a forbearance petition requesting that the Commission affirm the ESP Exemption, as applicable to advanced IP communication systems.

Both petitions emphasize the greater need of a comprehensive reform effort to treat like services with regulatory parity under a unified rate scheme. Rather than perpetuating the interim regime, which is built upon discriminatory regulations, sponsored by industry giants, the Commission should seize the opportunity as a means toward obtaining equal treatment for all telecommunications traffic by eliminating disparate intercarrier compensation rate structures for otherwise identical functionality to even the playing field among providers and enhance consumer benefit.

FCC Seeks Comment in MDU Exclusivity Proceeding

On Monday, January 7, 2008 an FCC order which voids exclusive contracts between multichannel video programming distributors (“MVPDs”) subject to section 628 of the Communications Act and owners of multiple dwelling units (“MDUs”) was published in the Federal Register. The FCC also released a notice of proposed rulemaking (“NPRM”) seeking comment on whether providers of Direct Broadcast Satellite (“DBS”) and Private Cable Operators (“PCOs”) should be permitted to have exclusive access to MDUs. The notice also considers prohibiting exclusive marketing arrangements and bulk billing. The purpose of the NPRM is to determine whether these practices benefits or harms video consumers in MDUs. Comments are due on or before February 6, 2008 and reply comments are due on or before March 7, 2008.

Martin in the Hot Seat (Again)

Today, the Federal Communications Commission (“Commission” or “FCC”) voted to overturn its 32-year old media ownership prohibition. Under the ban, broadcasters in the nation’s 20 largest markets are prohibited from also owning a newspaper. Today’s vote is somewhat surprising due to the intense criticism that Chairman Kevin Martin & Co. have received in recent weeks from members of the House and Senate on media ownership, Commission oversight and operations, as well as a host of other issues. Legislators have questioned Martin’s self-imposed “KGB-like atmosphere,” lack of accessibility and a slew of decisions based on little evidence or notice. Although Martin promised lawmakers more transparency, Martin appears to have ignored his own recommendations by continuing his pattern of making last minute changes to the proposal prior to the Commission vote. Again, significant backlash is expected due to Martin’s rush to bring the item to agenda and a vote.

Cable companies are most affected by Martin’s erratic regulatory agenda. It is expected that the Commission will pass a rule prohibiting cable companies from serving no more than 30% of the nation’s subscribers in the near future. Martin also has hopes of reincarnating his a-la-carte pricing plan and extending indecency rules to apply to cable. Hopefully Martin will raise these, and all other issues, in an open forum, where such contentious issues are subject to the appropriate level the rhetoric and debate warranted.