Selected portions of the BloostonLaw Telecom Update, and/or the BloostonLaw Private Users Update —newsletters from the Law Offices of Blooston, Mordkofsky, Dickens, Duffy & Prendergast, LLP are reproduced in this section with the firm's permission.
|BloostonLaw Telecom Update||Vol. 17, No. 31||August 6, 2014|
The BloostonLaw Telecom Update newsletter will be on our traditional August recess, in light of the usual slowdown in the news cycle. We will resume publication on September 3. Meanwhile, we will keep clients apprised of significant developments via memos and special supplements.
FCC Seeks to Update Designated Entity Program in Advance of 600 MHz Incentive Auction; Proposals May Throw Wrench in Sprint, T-Mobile Joint Bidding Plans
FCC Chairman Tom Wheeler is said to be circulating a Notice of Proposed Rulemaking (NPRM) designed to “reinvigorate” the FCC’s Designated Entity (“DE”) program with the aim of facilitating broad participation in the 600 MHz broadcast incentive auction by small businesses, many of which are women- and/or minority-owned businesses, and by rural telephone companies. The item will also reportedly propose changes to the Commission’s joint bidding rules that could prevent Sprint and T-Mobile from creating a joint venture to bid for 600 MHz spectrum in next year’s planned incentive auction.
BloostonLaw clients should pay close attention to the FCC’s DE proceeding because it provides an opportunity to enhance bidding credits available to small businesses and rural telephone companies for purposes of the 600 MHz incentive auction, and to increase the flexibility/utility of spectrum leasing and resale arrangements for all types of spectrum going forward.
According to FCC staff speaking on background, the DE NPRM will include a proposal to eliminate the Attributable Material Relationship (or “AMR”) rule, which was adopted in the lead-up to the AWS-1 auction in 2006. Under the rule, a lessee’s gross revenues are attributed to a DE license holder if the DE leases or resells more than 25% of the spectrum capacity associated with any of its licenses to that party. The rule is designed to prevent unjust enrichment to ineligible entities and to ensure that DEs have opportunities to become independent facilities-based service providers. However, critics have argued that it has chilled DE participation in auctions and the rule restricts business arrangements that don’t pose a threat to bid credits.
The AMR rule was the subject of a recent FCC waiver grant to Grain Management LLC, a minority-owned private equity firm controlled by David Grain. Grain had previously leased 100% of the capacity of certain non-DE licenses to AT&T and Verizon and attribution of Verizon and AT&T gross revenues as called for under the AMR rule would have precluded Grain from seeking small business eligibility in the upcoming AWS-3 auction. The FCC granted the waiver after public comment because the licenses being leased were not subject to DE benefits and because Grain held no DE licenses at the time the leases came effective. House Republicans have since launched an investigation into alleged favorable treatment to Grain, who is an Obama campaign donor.
The NPRM is also said to include a proposal to increase the small business size thresholds to account for inflation over the past 15 years. Under current DE rules, a business that has gross revenues of $40 million or less (including affiliates) is entitled to a small business bid credit of 15% and a business that has gross revenues of $15 million or less is entitled to a very small business bid credit of 15%.
Of interest to many of our law firm’s clients, the NPRM will also reportedly seek comment on the idea of adopting a rural telephone company bidding credit. No specific details are known at this point, but the Blooston Law Firm has proposed rural telco bid credits in the context of the numerous FCC proceedings in the past.
With respect to joint bidding arrangements, a FCC Blog post from Wireless Bureau Chief Roger Sherman says that the item will tentatively conclude that joint bidding arrangements between nationwide providers should not be allowed. If adopted, this proposal would put the brakes on Sprint and T-Mobile’s plans for a $10 billion joint venture to bid in next year’s incentive auction, as well as complicate the picture for a potential Sprint/T-Mobile merger. The companies have indicated that the JV would only be needed if the transaction is still pending before regulators when short-form applications for the incentive auction are due, but no formal agreement between the carriers has been announced, and there would seem to be little time for the FCC to complete its review of a transaction before next summer. Moreover, there are indications that the Sprint/T-Mobile merger proposal is being abandoned (see related story below).
“The Chairman’s goal is to have common sense rules in place before the Incentive Auction, and we hope all stakeholders will offer constructive suggestions so we can work together to empower small businesses and entrepreneurs to participate in the spectrum economy,” wrote Sherman.
Sprint Ends Pursuit of T-Mobile Merger, Names New CEO
A number of sources report that, in the face of regulatory concerns, Sprint and its parent company, Japan’s Softbank, are abandoning their pursuit of a potential merger with T-Mobile. The decision ends an almost year-long effort by Softbank CEO Masayoshi Son to forge a deal with the German-owned carrier and create a third nationwide behemoth to compete with AT&T and Verizon Wireless.
“Sprint is the clear loser here,” wrote MoffettNathanson analyst Craig Moffett in a note to clients today. “Son and Sprint will need to refocus squarely on improving results internally, and that won’t be easy.”
At the same time, Sprint has named a new CEO to replace Dan Hesse, who took over the company in 2007. Bloomberg reports that Sprint has named Marcelo Claure, founder of mobile phone distributor Brightstar, as its new CEO. Softbank acquired a majority stake in Brightstar last year and Claure is a current member of Sprint’s board of directors.
FCC Chairman Tom Wheeler reaction to Sprint’s retreat from a possible T-Mobile deal focused on benefits to mobile competition. “Four national wireless providers is good for American consumers. Sprint now has an opportunity to focus their efforts on robust competition.”
The FCC recently sent T-Mobile and Sprint a clear signal that it wasn’t going to look favorably on a merger of the nation’s 3rd and 4th largest carriers prior to next year’s planned 600 MHz incentive auction. The companies were reportedly planning to create a $10 billion joint venture for purposes of bidding in the incentive auction. However, discussion of a forthcoming Designated Entity NPRM in an August 1 FCC Blog post by WTB Chief Roger Sherman (entitled “ Empowering Small Business ”) gave a clear indication of what the Commission thought about a potential T-Mobile-Sprint merger, at least in the near term.
“Our goal is to promote the participation of as many parties as possible in the auction,” wrote Sherman. “If two of the largest companies are able to bid as one combined entity in the auction, their combined resources may have the effect of suppressing meaningful competition. Therefore, the item tentatively concludes that joint bidding arrangements between nationwide providers should not be allowed. It also asks questions about such arrangements between providers of different sizes.”
While the idea of meaningful competition in the wireless industry is a fluid concept at the FCC, one of Chairman Wheeler’s biggest priorities is ensuring the success of the incentive auction. Convincing broadcasters that a lot of cash will be on the table should encourage broadcasters that are on the fence to make their spectrum available for bidding. Sprint and T-Mobile each lack significant low-band (sub-1 GHz) spectrum holdings when compared to AT&T and Verizon. Preventing the companies from entering into a joint bidding arrangement is one way to ensure that bidding is robust, and that prices for the coveted 600 MHz spectrum are high.
And it is tantamount to telling Sprint and T-Mobile that now’s not the time to propose a merger. The companies would not need a joint bidding agreement if a merger deal could be hammered out, applications filed, approvals received, and the deal closed before the incentive auction application deadline. But given that we’re already in August now, and the fact that regulatory approvals would likely take at least 12 months, that’s not likely to happen. After the incentive auction is behind us, and assuming it is a success, the Commission could very well change its mind.
Word of the collapsed Sprint/T-Mobile deal re-ignited speculation about a possible bid for T-Mobile by France’s Iliad. A rumored $15 billion offer late last week from the French upstart to buy a majority stake in T-Mobile US was reportedly turned down by Deutsche Telekom’s board of directors. Analysts believe Iliad may seek additional partners to sweeten its bid. Others speculate that Dish Network could re-emerge as s suitor for T-Mobile.
FCC Issues Tenth Broadband Progress Report Notice of Inquiry
On August 5, the FCC released a Notice of Inquiry seeking comment on how it should measure broadband deployment for the purposes of its next annual report to Congress on the deployment of advanced telecommunications. Comments are due September 4, and reply comments are due September 19.
Topics on which comment is sought include new benchmarks for speed, latency, usage, and other characteristics; the relationship among fixed, mobile, and satellite services; how broadband deployment should be measured for fixed, mobile, satellite, and in elementary and secondary classrooms; whether broadband is being deployed in a “reasonable and timely fashion;” and what actions the FCC can take to accelerate broadband deployment.
Clients interested in finding out more about the Notice and potentially participating in the proceeding should contact the firm.
Bureau Reaffirms Internet Protocol Captioned Telephone Service (IP CTS) Rule
In the wake of the United States Court of Appeals for the District of Columbia Circuit vacating the FCC’s interim rules governing Internet Protocol Captioned Telephone Service (IP CTS) and two of the Commission’s final rules governing IP CTS, the FCC’s Consumer and Governmental Affairs Bureau (CGB) released a Public Notice clarifying the current state of affairs.
Specifically, the FCC distinguishes among four classes of IP CTS users, for purposes of determining the application of the Commission’s final rule on user registration and certification:
Pre-March 7, 2013 Enrollees. The final rule, once effective, will require IP CTS providers to take the following actions regarding their users who enrolled prior to March 7, 2013: (1) register each consumer prior to requesting compensation from the TRS Fund for service provided to the consumer by obtaining the consumer’s full name, date of birth, last four digits of the consumer’s social security number, address and telephone number; (2) obtain a self-certification from the consumer; and (3) obtain an independent, third party certification attesting to the consumer’s need for IP CTS, if the consumer accepted IP CTS equipment free of charge or at a price below $75 from any source other than a governmental program.
Interim Rule Period Enrollees. Under the final rule, an IP CTS provider must take the following actions regarding IP CTS users who enrolled while the now-vacated interim rules were in effect with 180 days of the effective date of the final rule: (1) register each consumer prior to requesting compensation from the TRS Fund for service provided to the consumer by obtaining the consumer’s full name, date of birth, last four digits of the consumer’s social security number, address and telephone number; and (2) obtain a self-certification from the consumer.
Post-Court Mandate / Pre-Final Rule Effective Date Enrollees. IP CTS users who enroll with a provider during this time period are not subject to any registration or certification requirements before the final rule becomes effective. Once the final rule becomes effective, IP CTS providers will be required to: (1) register each consumer prior to requesting compensation from the TRS Fund for service provided to the consumer by obtaining the consumer’s full name, date of birth, last four digits of the consumer’s social security number, address and telephone number; and (2) obtain a self-certification from the consumer that complies with the final rule. IP CTS providers must complete these steps within 180 days after the effective date of the final rule.
New Enrollees. IP CTS users who enroll with their current IP CTS provider on or after the effective date of the final rule will be subject to the registration and self-certification requirements of the final rule. Accordingly, IP CTS providers must take the following actions regarding such users: (1) register each consumer prior to requesting compensation from the TRS Fund for service provided to the consumer by obtaining the consumer’s full name, date of birth, last four digits of the consumer’s social security number, address and telephone number; (2) obtain a self-certification from each user.
FCC Sets Agenda for August 8 Open Meeting
On August 1, the FCC released the official agenda for its upcoming August 8 Open Meeting, which is scheduled to commence at 10:30 a.m. at the FCC’s D.C. office.
At the meeting, the FCC will consider:
- a Report and Order to streamline and update the rules governing the construction, marking, and lighting of antenna structures, which are intended to improve efficiency, reduce regulatory burdens, and enhance compliance with tower painting and lighting requirements, while continuing to ensure the safety of pilots and aircraft passengers nationwide;
- a Second Report and Order and Third Further Notice of Proposed Rulemaking that establishes deadlines for covered text providers to be capable of delivering texts to appropriate 911 public safety answering points, and seeks comment on proposals to improve text-to-911 service, such as through the provision of better location information and roaming support; and
- five broadcast items presented as consent agenda items.