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On August 4, 2016, the Federal Communications Commission (FCC) released a Declaratory Ruling granting in part two separate petitions that were filed last year – one by the Edison Electric Institute and American Gas Association, and another by Blackboard, Inc. – regarding application of the Telephone Consumer Protection Act of 1991 (TCPA) to certain types of non-telemarketing, informational “robocalls” placed by energy utilities and schools, respectively.  The TCPA prohibits, among other things, robocalls (calls and texts that are placed using an autodialer or a prerecorded or artificial voice) to mobile numbers unless they are made for an “emergency purpose” or with “prior express consent.”

The Declaratory Ruling confirms that:

(1) Energy utilities are deemed to have the requisite “prior express consent” to place robocalls regarding matters “closely related to the utility service” (namely, calls regarding planned or unplanned service outages or service restoration, calls regarding meter work, tree trimming, or other field work, calls regarding payment or other problems that threaten service curtailment, and calls about potential brown-outs due to heavy energy use) if placed to numbers provided by customers; and

(2) Schools can lawfully place certain types of robocalls to members of the school communities pursuant to the “emergency purpose” exception in the TCPA (namely, calls concerning weather closures, incidents of threats and/or imminent danger due to fires, dangerous persons, or health risks, and unexcused absences), and schools are deemed to have the requisite “prior express consent” to place other types of robocalls that are “closely related to the school’s mission” (namely, notifications of upcoming teacher conferences and general school activities) if placed to numbers provided by the recipients.

For a more detailed summary of the Declaratory Ruling, click here.

While the FCC largely granted the relief requested by the petitioners regarding the type of consent that is required to place “robocalls,” the agency reminded businesses of their obligation to comply with other TCPA requirements when placing robocalls, such as the opt-out requirements and ceasing robocalls to numbers that have been reassigned to new subscribers.  TCPA litigation is on the rise, and the FCC has adopted stringent requirements for automated calls and texts, so all businesses should ensure that they understand their obligations when using these technologies to communicate with current and former customers, employees, and others.

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On July 14, 2016, the Federal Communications Commission released a Report Order and Further Notice of Proposed Rulemaking issuing service rules for four spectrum bands above 24 GHz. These bands are intended to be the future home for 5G wireless services and technologies currently being developed. The FCC’s new rules authorize mobile operations on a licensed basis in the 27.5-28.35 GHz, 38.6-40 GHz, and 37-38.6 GHz bands. The FCC also allocated the 64-71 GHz band for Part 15 use, which, when combined with the Part 15 57-64 GHz band will result in 14 GHz of spectrum for unlicensed operations such as WiGig service – approximately 15 times the amount of unlicensed spectrum available in all of the lower bands combined.

The massive amount of spectrum the FCC made available is newsworthy by itself. But perhaps just as important is the speed with which the FCC moved on its 5G spectrum item. Only 21 months ago the FCC commenced the 5G regulatory process by releasing a Notice of Inquiry seeking initial feedback on the future of 5G services. A year later, it issued a Notice of Proposed Rulemaking proposing to allocate spectrum and followed that in nine months with last week’s Report and Order. It was a very quick conclusion to a proceeding many initially projected would take several years. Because of its speed, the FCC established the United States as a world leader in spectrum availability for 5G services. To top it off, initial reactions to the Report and Order are overwhelmingly positive with both the wireless industry and consumer-focused public interest groups praising the FCC’s mix of licensed and unlicensed service rules.

In the Further Notice, the FCC sought comment on authorizing fixed and mobile service in several additional bands: 24.25-24.45 GHz, 24.75-25.25 GHz, 31.8-33 GHz, 42-42.5 GHz, the 47.2-50.2 GHz, 50.4-52.6 GHz, and the 71-76 GHz band together with the 81-86 GHz bands (70/80 GHz bands) and the bands above 95 GHz. The FCC proposed a three-tiered approach to licensing in the 70/80 GHz band similar to the rules recently adopted for the 3.5 GHz band. The proposed tiers are (1) Incumbent Access users, which would receive the highest level of protection; (2) Priority Access Licensees (PALs); and (3) General Authorized Access (GAA) users. Comments are due September 30 and Reply Comments are due October 31.

Commercial 5G services are not yet available. And, for its part, the FCC did not define what will constitute 5G. But the FCC has now established a sandbox within which industry can innovate. We’ll see what the future will bring.

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For better or worse, you decide, the FCC is challenged when adopting policies or making decisions that impact enterprise customers.  This is the second of two entries on enterprise customers and the FCC.

IP Transition.  Responding to persistent calls from AT&T, Verizon and CenturyLink, the FCC is in the midst of setting the ground rules for telecom carriers to migrate from copper networks and TDM services to fiber networks and all-IP services, consistent with Section 214 of the Act which requires the FCC to balance carriers’ and end-users’ (residential, SMB and enterprise) interests as carriers seek to discontinue existing services and facilities.

These rules may impact enterprise discretion on planned migrations to Ethernet private line, VoIP offerings and Ethernet special access service, shifting the timing and extent of migrations to the wireline carriers.  There are three major aspects to the FCC’s IP-transition rules.

1.   Wireline telcos retiring copper loops must provide at least six months’-notice to business customers by mail or e-mail (under certain circumstances) when retiring copper loops to the premises, unless the customer previously consented to copper retirements.

2.  The FCC is requiring the rates, terms and conditions for the replacement Ethernet special access services be “reasonably comparable” to the discontinued DS-1 and DS-3 access services.

3.  The FCC is developing principles to govern the discontinuance of TDM voice and private line services.

Recommendation.  Retailers, railroads, financial institutions and other enterprises with several hundred or even several thousand domestic locations should develop IP migration plans, mindful that carriers are not required to implement their IP transitions over a defined period or uniformly throughout their service territories.

USF Contribution Reform Lags—Badly.  The FCC’s most recent effort to implement USF contribution reform started and stalled in 2012.  Despite the numerous thoughtful comments and recommendations, inertia prevailed.  In its 2015 Open Internet Order, the FCC stated that contribution reform is being assessed in a separate proceeding.  Unfortunately, agency action is not eminent even though the USF Contribution Factor has now hit 18.2%.

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For better or worse, you decide, the FCC is challenged when adopting policies or making decisions that impact enterprise customers.  This is the first of two entries on enterprise customers and the FCC.

Open Internet Order
.  With no explanation, the FCC excluded high speed Internet access service sold to enterprise customers from the rules adopted last year in its Open Internet Order.  These customers do not benefit from the bright line rules, principally the rule that ISPs not block publication of or access to lawful Internet content, and the broadband Customer Proprietary Network Information (“CPNI”) rules.  By including mobile broadband service in the definition of regulated, mass market Broadband Internet Access Service (“BIAS”), the FCC appears to be saying that the Open Internet rules apply only when employees purchase wireless service directly, but not when purchased under enterprise wireless agreements.Assuming the Open Internet Order survives judicial review, the merits of two regulatory regimes for the same service will be determined in the marketplace.

Special Access Service Investigations.  Since at least 2002, the FCC has been investigating—with varying degrees of focus—whether the rates charged by the price cap ILECs for special access services (principally DS-1 and DS-3) are or are not “just and reasonable”  under Title II of the Communications Act.  (In other words, are special access rates too high?)  The high water mark came in 2012 when the FCC suspended its rules granting price cap ILECs special access pricing flexibility because the FCC determined that the “collocation triggers [for pricing flexibility] are a poor proxy for the presence of competition sufficient to constrain special access prices.”  To assess the extent of competition, the FCC sought data on both TDM and Ethernet-based dedicated access services.  With data collection now complete, the FCC and services providers are engaged in a lengthy data review process.

Concerns raised by competing carriers prompted the FCC in 2015 to open another proceeding to investigate price cap carrier special access tariff pricing plans.  The FCC noted that the competing carriers allege these pricing plans “incorporate a complicated web of all-or-nothing bundling, loyalty and term commitments, complex enforcing penalties, circuit migration rules and other provisions.”

That the FCC recognizes special access pricing is problematic is positive.  The remaining questions are whether, when and how the FCC will respond.

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2016 looks to be the year the Federal Communications Commission (FCC) will place its biggest bet on the value of spectrum and begin to see whether two novel approaches to spectrum management are hits or misses.

Later this year, the FCC will conduct its Broadcast Incentive Auction, whereby it will seek to transition a large amount of wireless spectrum from television broadcasters to wireless providers.  In a nutshell, the objective of the Incentive Auction is to incent TV broadcasters to sell their spectrum back to the FCC, which in turn will auction the spectrum to wireless carriers.  It’s a “never-been-done-before” type of endeavor with a big upside.   But it could also be an embarrassment if it doesn’t go as planned leaving one FCC Commissioner to state, he is “praying it is not a failure.”  The FCC’s willingness to go out on a limb shows the Commission sees a bigger risk in not addressing the Country’s increasing demand for spectrum by continuing to maintain the status quo.

The Broadcast Incentive Auction isn’t the only spectrum policy innovation that will play out this year. The FCC’s plan to implement a Citizen’s Broadband Radio Service (CBRS) in the 3.55-3.7 GHz band has garnered less attention from the press, but, if it works, it could prove valuable to multiple segments of the wireless industry.

Under its new CBRS rules, the Commission will largely turn management of the 150 MHz of spectrum at 3.55-3.7 GHz over to one or more yet-to-be-named third party database managers.  Those database managers would be responsible for dynamic assignment of operating parameters to users and licensees in real-time.  The band would be a mix of Federal incumbents, auctioned license winners, and unlicensed secondary users.

For their part, wireless carriers view the CBRS as providing access to a very large amount of spectrum that could be used for small cell and in-building coverage.  CBRS compatible chips in wireless devices would enable carriers to offload very high capacity applications from their wide area LTE networks in certain areas.  In theory, the dynamic channel assignment would allow more intensive use of the band than otherwise achievable through the conventional approach of exclusive licensing.

One criticism of the CBRS is that it replaces what had been a successful spectrum allocation at 3.65-3.7 GHz.  This band, which was allocated only less than ten years ago, was used by hundreds of licensees including wireless Internet Services Providers, electric utilities, oil and gas companies, and other industrial users for high-bandwidth services. It remains to be seen to what extent the CBRS will be suitable for these users.  One potential hurdle – if accessing the dynamic spectrum database requires critical infrastructure companies to connect sensitive control systems to the Internet, expect many of those entities to take their wireless applications to other bands due to cybersecurity concerns.

The CBRS is an experiment in spectrum policy.  As one Commissioner states, “Will it work? […] We will see.

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This year’s mergers-and-acquisitions boom is re-shaping industries and contributing handsomely to the bottom lines of leading investment banks.  One statutory provision triggered in many transactions—not just those involving major wireless or satellite broadcasting companies—is Section 310(d) of the Communications Act of 1934, as amended. This provision requires that the FCC grant its prior consent to the assignment of radio station licenses or the transfer of control of a radio station licensee.

Radio licenses issued by the FCC are essential assets of commercial wireless carriers such as Verizon or AT&T, TV and radio broadcast licensees, and satellite broadcasting companies.  These are among the prized assets in transactions involving these companies. Section 310(d) is the principal lever available to the FCC and interested parties for assessing whether major transactions involving communications and media companies are in the public interest.

Section 310(d) is sometimes overlooked in transactions involving entities that are not telecommunications companies, but have obtained FCC licenses to operate mobile, fixed or satellite radio systems to support the target company’s internal wireless voice and data communications requirements.

These are often referred to as “private wireless systems” and are widely deployed by operators of oil and gas pipelines, refineries, exploration and production fields; electric distribution and transmission networks and power generation facilities; chemical plants; and railroads. Large retailers, some logistics companies, and many manufacturing companies also operate private wireless systems.

Investments in private wireless systems by a critical infrastructure company are often measured in millions of dollars.  Apart from the technology, these licenses are valuable in and of themselves because in many areas of the country the spectrum allocated for private wireless systems is exhausted or the company paid several million dollars to obtain area-wide licenses at an FCC auction or acquired the spectrum from auction winners—consistent with the FCC’s secondary markets rule.

Assignment and transfer of control applications pertaining to private wireless systems do not raise major public policy or competitiveness issues and almost always are reviewed and acted upon by the FCC’s Wireless Telecommunications Bureau or the Satellite Division of the International Bureau.  Timeliness is essential to avoid the possibility of an enforcement action as the FCC’s consent must be obtained prior to closing.

Generally, these applications should be filed no later than 60 days prior to the anticipated closing date.  The principal due diligence task is developing the inventory of the target company’s FCC licenses and confirming the licenses are in good order, as discussed below.

In reviewing applications for transfers of control or the assignment of licenses, the FCC focuses on whether the licenses subject to the transaction are in effect (not expired) and are “constructed,” or, as applicable, the geographic coverage requirement has been met;  the assignee or transferee (or an affiliate of the assignee or transferee) meets the FCC’s “eligibility requirements” for each license; direct and indirect foreign ownership questions regarding the assignee/transferee are addressed;  the required certifications are made, including whether the transferee or the assignee, or any controlling entity, has been convicted of a felony in state or federal court; and whether  the applicants are delinquent in fees owed the FCC.  In certain instances, the FCC license-holding entities of the acquiring company must be disclosed.

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Updated on 6/12

The appeals of the Open Internet Order have been consolidated in United States Telecom Assoc. v. FCC, No. 15-1063 (and consolidated cases) (D.C. Cir. filed Mar. 23, 2015).  Thus, the court that decided Verizon v. FCC will rule on the FCC’s second attempt to extend its jurisdiction over the Internet.

As expected, the FCC denied several motions for stay on May 8, 2015.  In light of the alleged adverse impact on their industries and companies, petitioners filed a Motion for Stay or Expedition on May 14, 2015 with the D.C. Circuit (“Respondents’ Stay Motion”).  Absent a stay, the rules adopted in the Open Internet Order, with the exception of new reporting obligations which are subject to OMB approval, will become effective on June 12, 2015.

On June 11, 2015, the D.C. Circuit denied Petitioners’ motion for stay, but granted the request for expeditious consideration of their appeals.  A summary of reactions to the court’s order by interested parties and members of Congress is provided in an excellent piece by Lynn Stanton of TR Daily.

The Petitioners’ Stay Motion is an excellent exposition of their legal arguments and the breadth of services providers’ opposition to the FCC’s imposition of Title II regulation on ISPs and the reclassification of Broadband Internet Access Service as a “telecommunications service.” Petitioners separately addressed the FCC’s decision to extend the Open Internet Order rules to mobile broadband service.  Petitioners also addressed the FCC’s assertion of jurisdiction over Internet peering and transit agreements.  As reported this week in Fierce Telecom, since adoption of the Open Internet Order, AT&T and Verizon have entered into interconnection agreements with Cogent and Level 3 for improved Internet connectivity.

The Respondents’(Department of Justice and FCC) Opposition emphasizes that the FCC has ample authority to classify broadband as a telecommunications service:  The Supreme Court’s decision in Brand X, relying on Chevron,  provides the FCC authority, to re-interpret on a continuing basis in light of changes in the industry and technology, ambiguous terms, including the statutory definitions of “telecommunications service” and “information service.”

Petitioners’ Reply zeroes in on the most compelling argument (from the author’s perspective) that broadband internet access service squarely fails within the statutory definition of “information services” that is distinct from and mutually exclusive with the definition of  “telecommunications service” and, therefore, the FCC is foreclosed from “interpreting” how broadband Internet access service should be classified.

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The entry summarizes the major elements of the Open Internet Order.  An analysis of the FCC’s policy determinations and reasoning for regulating broadband internet access service as a Title II telecommunications service will be provided in a later entry.   

Broadband Internet Access Service Defined.  The Open Internet rules apply to “broadband Internet access service” (BIAS) which is defined, in principal part, as a “mass-market retail service by wire or radio that provides the capability to transmit data to and receive data from all or substantially all Internet endpoints.”

Internet access services sold to enterprise customers are excluded, as are specialized services that may utilize BIAS providers’ last mile connectivity.  The latter (referred to as “non-BIAS data services”) include connectivity supporting heart monitors, e-readers, and telematics applications.  Non-BIAS services share several qualities:  they are application-specific, not intended to reach “all Internet endpoints,” and rely on network management to isolate capacity (for these services) from BIAS.

Bright Line Rules:

  1. BIAS providers cannot block lawful content, applications, services, or restrict the use of non-harmful devices to access broadband internet access service, subject to reasonable network management practices.  Unlawful content includes, but is not necessarily limited to, child pornography and copyright-infringing works.
  2. BIAS providers cannot throttle lawful content, applications, or services nor restrict the attachment and use of non-harmful devices except as required for reasonable network management.
  3. BIAS providers cannot engage in paid prioritization that includes direct or indirect favoring of some Internet traffic over other traffic for consideration.  A waiver of this rule may be granted in exceptional cases.

No Unreasonable Interference or Disadvantage to Consumers or Edge Providers. 
This is the FCC’s “free speech” rule for the Internet.  BIAS providers cannot interfere with end users’ access to lawful content, applications, services or devices of their choice and cannot impair the ability of edge providers to make lawful content, applications, services, or devices available to end users.

Enhanced Transparency.  The FCC expands the enhanced transparency rules adopted in 2010 and affirmed in Verizon v. FCC, requiring BIAS providers to disclose promotional rates, all fees and/or surcharges, and all data caps or data allowances; add packet loss as a measure of network performance that must be disclosed; and include specific notifications to consumers that a “network practice” is likely to significantly affect their use of the service.  The level of specificity is noteworthy as is the FCC’s decision to defer the effectiveness of enhanced transparency for BIAS providers having up to 100,000 customers until a rulemaking is concluded by mid-December.

BIAS Classified as a Telecommunications Service.  The FCC’s decision to classify BIAS as a telecommunications service subject to regulation under Title II of the Communications Act will remain a lightning rod of controversy.  While the FCC exercised its forbearance authority under Section 10 of the Communications Act to limit the applicability of many Title II statutory provisions and regulations and is declining to set or review BIAS service rates, the agency is retaining the authority to review and assess any practice, charge or rule of a BIAS provider under the “just and reasonable” and “nondiscriminatory” standards of Sections 201 and 202 of the Act.  End users, other providers, and edge users, among others, may file a complaint against a BIAS provider under Section 208 of the Act.

Mobile Broadband is BIAS, as Well.  Unlike the 2010 Order, the Open Internet Order imposes the same rules on mobile broadband providers as wireline/fixed wireless providers, noting that it will take into account the network management practices associated with mobile broadband technology.  The FCC reassessed prior agency decisions, concluding that mobile broadband service is a commercial mobile service subject to Title II.

Transit and Peering Arrangements.  Leveraging its authority under Title II and to ensure end users and edge providers can reach “all or substantially all Internet endpoints,” the FCC asserts jurisdiction to review and assess Internet peering and transit agreements on a case-by-case basis under Sections 201 and 202 of the Act, but is not imposing the Open Internet rules on these arrangements.  It also emphasizes its jurisdiction is complementary to the antitrust enforcement authority by the Department of Justice.

Advisory Opinions.  Breaking from longstanding practice, the FCC established a process for persons to obtain advisory opinions on questions regarding the Order and rules.  The FCC’s Enforcement Bureau will act on requests for these opinions, but the FCC declined to set a response time.

Deferred Issues.  In addition to the network transparency rules for small BIAS providers, the FCC defers action on two matters triggered by classifying BIAS as a telecommunications service.  First, as a telecommunications service, BIAS revenues are subject to USF contribution requirements under Section 254(d) of the Act.  The FCC “partially forbears” from applying this requirement to BIAS at this time, noting the issue of USF contribution reform is being addressed in an ongoing proceeding.  Second, the FCC committed to initiating a proceeding to establish customer proprietary network information (CPNI) rules for BIAS.

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The FCC’s Monthly Meeting scheduled for 26 February 2015 is both widely-anticipated and one in series of continuing events.  The FCC will likely adopt its net neutrality order and order preempting certain state restrictions on municipal broadband by 3-2 votes.  Both decisions will be appealed.

The immediate questions are whether the net neutrality rules will be stayed pending appeal (unlikely) and whether the U.S. Court of Appeals for the D.C Circuit will rule on both decisions.  In handicapping judicial review of the two orders, the odds for affirming the net neutrality order are noticeably better than those for the order pre-empting state laws limiting municipal broadband deployments.

The oral arguments on the net neutrality order may be the most interesting as the judges question the FCC’s counsel on how high speed Internet access service should now be regulated as a regulated Title II telecommunications service even though the Commission has told the court on numerous occasions that it is an information service.   To prevail, the FCC may have to push the limits on judicial deference to agency decisions under Chevron.  Whatever the outcome, the Supreme Court likely will address the net neutrality order.  The wild card is whether the Republican-controlled Congress can pass net neutrality legislation that the President will sign.

The FCC Chairman’s perspective is that net neutrality rules are essential to the “virtuous cycle” of innovation and investment (by edge providers) associated with the Internet; Title II “lite” is the best regulatory approach (with Section 706 as a back-up); and the extent of Title II regulation will be less onerous than the impact of Title II regulation on commercial mobile service.  Parties opposing Title II-based net neutrality raise a number of objections, including one variously offered by Members of Congress, Commissioner Pai, NCTA, Verizon and AT&T that Title II-based net neutrality rules will discourage investment in the broadband facilities.

In the author’s view, the adverse impact on broadband investment is among the weakest arguments raised against the FCC Chairman’s net neutrality approach.  The Chairman’s opponents cannot establish the cause and effect relationship between the proposed regulations and broadband investment.  AT&T and Verizon are not going to slow investments in their wireless broadband networks, particularly after committing $$ Billions in the AWS -3 Auction and prior spectrum auctions.

As explained in a macro-economic perspective on net neutrality by Steven Pearlstein, a contributor to The Washington Post, factors other than net neutrality regulation drive broadband infrastructure investment decisions by the major ISPs.

Pearlstein views the net neutrality debate as a disagreement over cost allocation and recovery:  the major ISPs do not want to have an open-ended obligation to accommodate increasing bandwidth demands of video streaming and gaming providers, among others, without additional charges.

The important point lost in the net neutrality debate is, according to Pearlstein, that ISP (fixed) last-mile service is neither competitive nor, when compared to other investments available to the major ISPs, sufficiently lucrative.  He notes that the major ISPs can secure better returns by buying content companies, buying competing cable companies, or investing in faster growing wireless businesses.  He singled out the per-subscriber build-out costs and modest take-rates for Verizon FiOS fiber as explaining the FiOS build-out freeze that we highlighted in a recent entry on this blog.  He also notes that even if paid prioritization were allowed, there is no guarantee that the major ISPs would use revenues to expand their wireline broadband networks.

He concludes net neutrality is an academic/regulatory debate among stakeholders that does not advance the objective of a more robust, widely-accessible Internet, and notes that the debate can be waged indefinitely by the major ISPs.  He recommends that the net neutrality debates be abandoned and policy makers/legislators  look at the issue from an antitrust law perspective and treat (regulate)  last mile Internet access service as a true public utility service, the same as retail electricity, subject to net neutrality obligations.

While it is doubtful the FCC would ever adopt and execute a true “public utility” model for regulating broadband access, Pearlstein’s article provides a compelling argument that business objectives, not neutrality rules, drive broadband infrastructure investments by the major ISPs.