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On June 28, the FCC released a Public Notice announcing the 220 applicants that qualified for the CAF II reverse auction.  These entities include rural rate of return carriers, electric cooperatives, wireless internet services providers, satellite providers, cable operators, and price cap ILECs (or affiliates thereof).  Several consortiums also qualified.  In one sense, the auction is already a resounding success as it elicited qualified bids from an array of existing and prospective rural broadband service providers.

One significant question that will be answered later this summer or early in the fall is the distribution of the performance tiers among the winning bids:  Gigabit–Gbps/500 Mbps, Above Baseline–100/20 Mbps, Baseline–25/3 Mbps, and Minimum–10/1 Mbps. This should inform the FCC, Congress and the public as to whether the current fixed broadband benchmark of 25/3 Mbps should be retained or increased. The winning bids will indicate what speeds are reasonably doable in many rural areas.  An answer to a related question is whether the distribution of winning bidders tracks the diversity of qualified applicants.

From a systems perspective, the reverse auction, scheduled to start on July 24, will confirm whether the bidding system can accommodate the diversity of bidding weights, package bidding and calculate the data points for individual bidders and the aggregate implied support amounts after each round.  This could encourage the use of reverse auctions in other USF contexts.

Assuming positive outcomes on these points, one criticism of the CAF II auction that will not be resolved concerns the selection of eligible bidding areas.  Census blocks having multiple high-cost locations (based on the average of low cost, high cost and extremely high cost locations) in which a single location obtained service at 10/1 Mbps were not eligible for the CAF II auction.  The result was eligible bidding areas with only one or a handful of locations included in the auction while census blocks having far more unserved locations excluded.  This unfortunate “false-positive” needs to be addressed in both the Remote Areas Fund auction and in the auction that could take place as the state-wide offers to the price cap carriers expire in 2021.

By 2021, the progress reports filed by CAF II auction winners should either validate or raise questions as to whether the reverse auction is producing the desired outcomes of higher speed, reliable fixed broadband service in rural areas at reasonable rates.  Another unknown is whether the minimum, baseline, and above baseline performance tiers for the 2018 auction will apply in 2021.  Our sense is technology advances and marketplace developments such as Charter’s network-wide gigabit deployments will drive these thresholds higher.

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Last week, the FAA finalized its rules for routine commercial use of small unmanned aircraft systems (drones).  The new rules govern the operation and certification of small drones weighing less than 55 pounds for non-hobby and non-recreational purposes.  The rules will permit UAS operations for applications such as the delivery of consumer goods, inspections of cell phone towers, bridges, pipelines, electric lines, and oil rigs, crop monitoring, search and rescue missions, research and development, and aerial photography, to name a few.  The rules will become effective 60 days after publication in the Federal Register.  For more information, please see Keller and Heckman’s Consumer Protection Connection blog post on this topic or contact Greg Kunkle (kunkle@khlaw.com; 202.434.4178).

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This is the first entry in a series on the “Industrial Internet,” focusing on the basic elements, legal issues and procurement implications, principally from the perspective of the end user. The term is used to distinguish industrial and critical infrastructure applications from consumer “Internet of Things” applications, but similar concepts apply.

The unifying characteristic is that information on attributes of physical objects (or the human body with regard to wearables and medical telemetry) is acquired by sensors that digitize, analyze (to varying degrees) and transmit this data. Based on software programmed rules, the sensors may issue commands to actuators to change or modify the operation of physical assets.  Sometimes the data is simply displayed and stored locally. An important function of the Industrial Internet is that the data is almost always subject to more in-depth analysis.

In over-simplified terms, in the Industrial Internet information is acquired from physical assets (electric generators) or local environments (refrigerated trailers (“reefers”)), by sensors affixed to or embedded in physical assets to measure specific parameters such as vibrations, pressure or temperature. Sensors often consist of software, firmware and a CPU and are connected to an RF transceiver or to a fixed wireline network (local or wide area).

As digitized, the data from sensors (different sensors measure different physical attributes) are transmitted (via wireless or wireline connectivity) to a local gateway, collection point or node (“node’) that, based on programmed rules and the information received, may issue commands to actuators (switches or valves) to shut down or modify operation of the equipment, lower the temperature, adjust the humidity, or trigger alarms for management intervention. In time-critical applications, the sensors may communicate with other sensors to take specific action.

After initial processing and commands by sensors or nodes (“at the edge”), the data is conveyed (real-time or not) to a “backend” (data processing capability (cloud-based or not)) that may either issue commands to the actuators or perform more in-depth analysis or both. This analysis may suggest changes in the prognostics or other programmed rules in the sensors or nodes, in data sampling frequency, or in the maintenance, manufacture or operation of the physical assets.

Except in enclosed facilities (such as factories or electric substations), the sensors or the nodes are often connected by one or more wireless pathways.  The wireless data are typically routed to a wireline Internet connection, a MPLS port or a private network on to the backend.  Industrial Internet communications are typically encrypted.  Advances in operating system software and miniaturization (to accommodate local processing and issuance of commands by the sensors), IP connectivity, data management software, and “big data” processing capabilities enable the Industrial Internet.

The term “Industrial Internet” is something of a misnomer.  An entity’s physical assets, its use of sensors (and nodes), and encrypted connectivity to the backend are typically a company-specific operation, not intended to be widely accessible.  Thus, these networks may better be referred to as “Industrial Intranets.”

Footnote:  This series is not focused on computer-controlled equipment, processes or technologies, such as robotics, used to produce refined products and chemicals, industrial equipment and consumer goods, collectively referred to as Industrial Control System (“ICS”) technologies.  Auto assembly plants, refineries and soft drink bottling plants utilize ICS technologies.

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Another marker passed on the FirstNet roadmap last week as Capability Statements from bidders interested in building, operating and maintaining the Nationwide Public Safety Broadband Network were submitted March 31, 2016. Final bids are due in less than two months, on or before May 13, 2016.

FirstNet has clarified that submission of a Capability Statement is not a prerequisite to submission of a bid. However, it is unlikely that any serious bidder would choose not to take advantage of the Capability Statement process, which is designed to provide feedback from FirstNet prior to the submission of a nationwide bid.

The significant interest generated by its Request For Proposal (“RFP”) prompted FirstNet to extend the initial due dates for the Capability Statements and the bid submissions. FirstNet received over 400 questions seeking clarification of various parts of the RFP.  In record speed, FirstNet provided answers to questions on a variety of topics including vendor payments, financial sustainability of the network, rural coverage requirements, priority access and state plans.

Perhaps the best indication of the interest generated by the RFP is the number of companies requesting inclusion on a partner/teaming list. This list identifies interested entities looking to be part of a nationwide bid, as suppliers of products, services, and/or facilities. Over 600 entities are listed, including integrators, cable TV companies, rural telecommunications providers, electric utilities and numerous consultants. While there is no guarantee these entities will be included in any nationwide bid, the large number of companies looking to participate underscores the high interest in the FirstNet opportunity.

Of course, the key to success is for a prime bidder to come forward with both the ability and the resources to meet all of FirstNet’s objectives for the network. From recent trade press reports it appears that FirstNet will receive a number of meaningful competing bids. Stay tuned.

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It is all-too-fitting that the annual USF report is due on April 1.  For many filers, OMB’s “Estimated Average Burden Hours Per Response” of 13.5 hours for completing the Form 499-A is laughable.  The FCC could substantially reduce USF reporting burdens by implementing a number of overdue changes.

Many process improvement proposals offered in comments filed in response to the FCC’s 2012 Further Notice of Proposed Rulemaking remain viable and doable.  These changes are independent of any FCC decision on whether, when or how to expand the base of USF-assessable revenues.  Here is a short list of USF reporting reforms the FCC should adopt.

1. Resolve appeals of USAC decisions consistent with the timelines in Section 54.724 of the FCC’s rules or revise the target dates for making decisions.

If the expert agency sits on its hands, inconsistent decisions by filers are inevitable.

2. Address USF contribution reporting questions through analogues to IRS Private Letter Rulings or      Revenue Rulings.

Determining USF contributions can be problematic because filers often must address the vexing question of whether a service is a telecommunications service or an information service.  Many of these questions remain unanswered for years. The FCC or the Wireline Competition Bureau is in the best position to answer these questions.

3. Balance the current asymmetrical periods for correcting USF reporting mistakes (5 years for underpayments and 1 year for refunds/adjustments for overpayments).

This is a no-brainer.

4. Limit adjustments to the USF contribution factor to once a year.

While USF contributions may not be “taxes,” it is noteworthy that state sales and use taxes typically are not adjusted quarterly.  This would be a “win-win” for filers and USAC.

5. Set “safe harbors” for determining interstate/international and intrastate traffic mixes for wireless and VoIP traffic that reasonably correspond to reported values.

Filers cannot be expected to remit USF contributions based on “safe harbors” that bear no relation toactual jurisdictional traffic mixes.  This would be another “win-win” for filers and USAC.

The FCC should also adopt a self-disclosure program to encourage non-filers and late-filers to register and report and remit USF contributions and all other regulatory payments.  Under this approach, the services provider would pay the amounts owed, a reasonable measure of “economic benefit” for late payment, and a realistic forfeiture amount.  Let’s maximize support for important programs and try to keep services providers in the game.  This is far better than the treble damages methodology outlined in the 2015 Forfeiture Policy Statement.

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Time is running short for schools and libraries to seek funding for eligible products and services in the 2016 E-Rate funding season. E-Rate provides funding for high speed Internet access, dedicated services, and dark fiber to schools and libraries, as well as premises-based WiFi deployments. The filing process is driven largely by schools and libraries (aka “Applicants”), many of which have already posted applications on the E-Rate Productivity Center (“EPC”) web site managed by the Universal Service Administrative Company (“USAC”). For 2016, schools and libraries have until April 29, 2016 to request discounts on eligible products and services.

Schools and libraries (“the Applicants”) initiate the bidding process by posting a Form 470 on the EPC web site, setting out entity information, services requested, technical contact information and procurement information. The filing window for Applicants to submit a Form 470 remains open until April 1. After posting a Form 470, Applicants must wait 28 days before selecting a service providers’ bid. Since the window for filing Forms 470 is now open, service providers should be accessing USAC’s Form 470 Search Tool or Form 470 Download Reports Tool to view bidding opportunities.

It is important for services providers to bid aggressively; low cost is the primary factor that Applicants must consider when selecting service providers. In addition to pricing, Applicants and prospective bidders should be mindful of the basic rules governing E-Rate bidding and funding. The FCC’s Enforcement Bureau has entered into numerous consent decrees with both service providers and Applicants, including state agencies, for alleged violations of the competitive bidding process.

When the school or library selects a winning bidder, the Applicant and winning bidder may work together to complete the filing process, which includes finalizing the FCC Form 471. Winning bidders must submit the Form 473 – the Service Provider Annual Certification (“SPAC”) Form—for the initial and subsequent funding years.  This form includes several certifications that service providers must attest to in order to participate in the program.

Prior to releasing funds, USAC must review and approve an Applicant’s Form 471. After approval, USAC will send the Applicant a Funding Commitment Decision Letter (“FCDL”) and notify the service provider that its bid has been approved. There is no set time for USAC to conclude its review of the Applicant’s filing. Some winning bids with extenuating circumstances from 2014 are just now receiving FCDLs.

Last but not least, the Applicant must file a Form 486 informing USAC that approved services have been initiated and that the Applicant is in compliance with the Children’s Internet Protection Act (“CIPA”). At this juncture, USAC will begin to pay submitted invoices.

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As widely reported, Verizon has entered into an agreement to acquire the fiber network business and assets of XO Communications from its sole shareholder Carl Icahn for $1.8 Billion, plus an option to purchase XO’s spectrum that expires at the end of 2018. Verizon is also leasing the spectrum from XO, presumably to “test drive” the spectrum until it either exercises or passes on the option.

In Verizon’s words, “[Its] ownership of XO’s fiber-based IP (Internet protocol) and Ethernet networks will help better serve enterprise and wholesale customers.  In addition, acquired fiber facilities will help Verizon continue to densify its cell network.”  The XO acquisition is reminiscent of Verizon’s acquisition of MCI that closed just over 10 years ago and delivered a global network and a sizable customer base, though Verizon had to outbid Qwest International (now CenturyLink), paying $8.5 Billion.

For enterprise customers, the merits of the transaction are mixed.  XO had become a viable competitive MPLS carrier often as a customer’s secondary MPLS provider.  This role likely ends as the transaction closes.  While not having the size or scale of the MCI network, the XO assets are substantial and XO’s network will support both Verizon’s wireless and enterprise businesses.

The remaining domestic-based “competitive carriers” of substantial scale are dwindling.  The largest by far is Level 3 which recently acquired tw telecom.  The Verizon-XO transaction triggers speculation whether Comcast or, perhaps, Charter-Time Warner, assuming that deal closes, might pursue Level 3. Such an acquisition would secure a meaningful position in the global enterprise market and a valuable IP-backbone.

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Among entertainers, the FCC is seen as the self-righteous censor that levies high profile fines against  a broadcastefor a “wardrobe malfunction,” or a radio station for playing a profane song.  It’s no wonder Eminem complained that the FCC wouldn’t let him be!

But, the times they are a-changin.  Earlier this week, a high-profile musician offered his wholehearted support for one of the FCC’s more challenging regulatory initiatives – live, on national television.

As Stevie Wonder prepared to announce the winner of the Grammy for Song of the Year, he opened the envelope and discovered the recipient’s name was written in braille.  He showed the card to the TV audience and taunted the viewers for being unable to read braille, punctuating his impromptu remarks with “nah, nah, nah, nah, nah, nah!”  He then turned serious, telling the audience, “we need to make everything accessible to every person with a disability.

In 2010, Congress passed the 21st Century Communications and Video Accessibility Act (“CVAA”) looking to make communications devices and services, as well as certain functions of video programming, more accessible to disabled individuals and directing the FCC to adopt rules to make it happen.  The FCC has spent the past few years doing just that.

The rules are broken into two parts.  The first, “Title I,” aims to ensure accessibility features are built in to certain advanced communications services (ex. texting, email, and Facebook) and devices (ex. smartphones and tablets) that rely on broadband.  The second, “Title II,” calls for the inclusion of enhanced accessibility features in devices that enable viewing of video programming (ex. an Apple TV).  The devices are required to support closed captioning and text-to-speech capabilities for on-screen menus and guides.

Under Title I, service providers and device manufacturers must understand whether their service or product meets the FCC’s definition of an advanced communication service.  If so, companies should understand the FCC’s prescribed accessibility functions and incorporate them into their service or device.  The rules also require providers and manufacturers to create and maintain records detailing these efforts, provide the FCC with a company contact person to address consumer complaints, (whose contact information will be publicly-available in a Commission database) and certify annually it has complied with these rules.

The goal of Title II, is to enable disabled individuals to enjoy video programming by imposing certain obligations to support closed captioning and requiring on-screen menus and guides to be accessible to these consumers.  The rules are focused on ensuring that the underlying device is accessible, but the agency’s expansive definition of devices includes any video-playing apps (ex. Netflix) that are preinstalled by the manufacturer.  While the FCC’s rules implementing Title I took effect a few years ago, manufacturers of devices have until December 20, 2016, to comply with the Title II accessibility obligations.

The FCC may consider reasonable waiver requests from device manufacturers under Title II, just as the agency did under Title I.  For instance, the Coalition of E-Reader Manufacturers requested the FCC exempt e-readers (ex. Kindle) from the Title I accessibility rules.  Initially, the FCC granted temporary waivers, but earlier this year made the waivers permanent.  The agency recognized that although e-readers are capable of accessing advanced communications services, they are primarily designed for reading text-based digital works, and not for emailing, texting, or surfing the web.

Notwithstanding the challenges posed by the CVAA, the FCC should do its best to reach Congress’ noble goal of ensuring access to video programming for disabled individuals.  To paraphrase Stevie Wonder:  it’d be great if everybody with a disability could enjoy his next award presentation.

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There could be two significant historical events this November. On November 8, 2016 the American people will elect the 45th President of the United States. One week earlier, on November 1st, the First Responder Network Authority, commonly referred to as FirstNet, hopes to select a winning bidder to construct, maintain and operate a nationwide public safety broadband network (“NPSBN”).

Purpose: The NPSBN is intended to bring our nation’s public safety personnel into the 21st century, giving them access to state-of-the-art broadband capabilities including high speed data and video on a hardened network designed to operate under emergency conditions. FirstNet is licensed for 20 MHz of 700 MHz “beachfront” spectrum. A successful launch of the network will enable a highly informed, coordinated response to public safety events including medical emergencies, natural disasters and acts of terrorism.

The FirstNet RFP. Almost four years after Congress established FirstNet through enactment  of the Middle Class Tax Relief and Job Creation Act of 2012, FirstNet recently released its long-awaited Request for Proposal (RFP) looking for a commercial entity to build and run the network. Although only one nationwide bid will be selected, no one entity is capable of meeting all of FirstNet’s objectives.  To achieve a truly nationwide network, prime bidders will need to form partnerships, including those with rural telecommunications service providers and other rural America infrastructure owners, such as electric cooperatives and oil and gas companies.  The selection process will be conducted over four phases with only the most competitive bids surviving to the final phase.

Focus on Capability Statements. In the first phase, interested parties must demonstrate they are capable of performing necessary work by providing a Capability Statement. These statements are due by March 17, 2016.

Capability Statements will be evaluated based on five factors:

  1. the ability to obtain public safety use and adoption of the network;
  2. the ability to provide coverage and capacity nationwide using the NPSBN and other spectrum;
  3. partnerships with rural telecommunications providers;
  4. the ability to monetize the network, which may include a secondary user customer base in addition to primary public safety users; and
  5. the financial ability to develop and sustain the network.

Once this threshold level is met FirstNet’s review of the competitors will intensify.

Submission Date for Qualified Bidders.  Following FirstNet’s analysis of the Capability Statements, those deemed best qualified will then be invited to submit a proposal. Proposals in response to the RFP are due April 29, 2016. A proposal must address numerous objectives, including nationwide coverage, financial stability, competitive pricing, cybersecurity solutions and construction milestones for both urban and rural areas.  The winning bid will be based on the proposal delivering the “overall best value” to FirstNet based on these objectives and certain defined technical requirements.

If all goes according to plan, November 2016 could be a very historical month.

The Departments of State and Commerce recently proposed rule amendments to ease export controls on satellite-related items.  Under existing export control rules, the vast majority of satellites, related components and technology cannot be exported and related assistance cannot be provided to foreign companies without obtaining a license pursuant to the restrictive International Traffic in Arms Regulations (“ITAR”).  As discussed in an earlier entry, Congress recently passed legislation to facilitate less restrictive approaches to exporting satellites and related technology. The proposed rules published by State and Commerce, respectively, implement this legislation.

Under the proposed rules, fewer satellite items would remain subject to the more onerous ITAR.  The ITAR typically impose rigorous licensing procedures on covered items and technologies.  Satellite-related items are currently controlled under Category XV of the ITAR’s U.S. Munitions List, which essentially covers most satellites and any parts, components and technology “specifically designed or modified” for covered satellites.  The “specially designed or modified” criterion is not defined, thereby extending the scope of the ITAR to an overly broad range of products, including many not related to space applications or otherwise of military significance.

The proposed rules would revise Category XV so that it controls only satellites and related components that have military significance.  This would be accomplished by listing only specific satellites under Category XV, such as satellites that mitigate the effects of nuclear detonations, track military hardware via infrared, radar or laser systems, perform designated logistics functions, such as refueling or signatures intelligence, or those having very specific remote sensing capabilities.  Satellite exporters should assess this proposed list to ensure only items having true military significance remain on the list.  There are also two other notable issues for exporters to review:

1.      Controls on certain GPS receiving equipment would continue to be defined by using the phrase “specifically designed” even though discontinuing use of this undefined and ambiguous term has been a priority of the export control reform effort.  Retaining this approach serves only to perpetuate the problems underlying ITAR reform.

2.      Many parts and components relating to spacecraft will remain controlled if categorized as “space qualified.”  This differs from the approach taken with respect to export control reform applicable to most other industries in that in those contexts parts and components remain controlled under the ITAR if they meet a detailed definition of being “specially designed” for the controlled application.  The definition of “space qualified” generally applies if a part or component is designed, manufactured or qualified through successful testing for operation at altitudes greater than 100km above the earth.  Limiting controls to parts and components that are “space qualified” should reduce regulatory uncertainty associated with the export of satellite-related equipment.

 

Many of the proposed reforms for the export of satellites and related technology likely will benefit industry, but the proposed rules should be reviewed closely to ascertain the impact on particular products and technologies.  Comments on these proposals are due on or before July 8, 2013.