Entries in AT&T/T-Mobile Merger (5)

Tuesday
Dec272011

November – December 2011: The Dawn of the Winter of our Discontent

2011 Ends with RLECs, Small Cablecos and AT&T Searching for a Bright Light

Part 4 of “2011: The Regulatory Year in Review.” When you look at everything that has happened in telecom in the last two months alone, the entire rest of the year seems almost inconsequential in comparison. The whirlwind of activity in the past six weeks was one part culmination of several longstanding regulatory-industry entanglements and one part FCC commissioners wanting to get things done before two new commissioners take their seats at the table in 2012. No matter how you mix it up, the FCC served up a smorgasbord of prime cuts and rotten left-overs for both Thanksgiving and Christmas.

November 2011: We endured most of the year with only four FCC commissioners, and the knowledge that Commissioner Michael Copps would be departing at the end of the year. I had some personal objections to a four-member commission approving something as monumental as the USF/ICC Order, but it is unlikely the outcome would have been different even with the full five. Still, one can wonder…

On November 1 President Obama nominated Jessica Rosenworcel and Ajit Pai to fill the empty seats starting in 2012. Rosenworcel will replace Copps; she hails from the Senate Commerce Committee and has served the FCC as senior legal advisor to Copps and Wireline Competition Bureau chief. Pai will fill Baker’s seat and was formerly a partner at Jenner & Block. Pai’s resume also includes the Senate Judiciary Committee’s Subcommittee on Civil rights, the Office of Legal Policy at the Justice Department and the FCC.

Pai might be a much-needed advocate for rural telecommunications as he was raised in Kansas. According to Senator Jerry Moran (R-KS), “Ajit is a humble and hard worker – just what you would expect from a Kansan. He is the type of person you would like to have as your neighbor.“ Moran’s statement continues, “The FCC also needs commissioners who are committed to the needs of all Americans, including those who live in rural America, so its innovators can compete in the marketplace along those in urban areas. A native of Parsons, Kansas, Ajit will bring an understanding of the challenges facing our part of the country at this vital time for the future of telecommunications.” One major criticism of the FCC this year has been that they simply do not understand rural America (even though Genachowski visited Diller, NE), so Pai may bring a welcome and necessary perspective to the urban-centric Commission.

On November 9, Genachowski announced “Connect to Compete,” a broadband adoption initiative focused on low-income families. Connect to Compete and its cousin Comcast Internet Essentials promise to provide broadband to qualifying low-income families for $9.95 per month as well as access to digital literacy training and low cost computers. Dozens of big-name tech companies have signed on to participate in Connect 2 Compete. As these low-income programs pick up steam in 2012, there may be some market pressure for RLECs to respond in kind. However, reports are already coming in that very few low-income families are even qualifying for Comcast’s Internet Essentials program—one requirement is that participants cannot have outstanding bills with the company. (The ILEC Advisor: The FCC’s Egalitarian Cable Broadband Initiative: What does it Mean for RLECs?).

As Thanksgiving drew closer, the entire telecom industry was watching FCC.gov like a hawk waiting for the USF/ICC Order. Rumors swirled regarding the release date, length of the document, and changes that may have been made after the October 27 Open Meeting vote. On November 19 around 6:30 PM EST, I was planning my weekend and looking forward to a relaxing evening when I received the news that the order was released, and it was a doozy at 759 pages long. The Order more closely resembled the February NPRM than the industry’s Consensus Framework, which has caused more than a few to wonder if the FCC’s insistence that the industry draft an alternative was just a smoke-and-mirrors diversion. The Order has received criticism from the Hill for being released late, extremely long, and likely modified after the vote contrary to the open and transparent principles that the Commission is supposed to abide. Criticism aside, the USF/ICC Reform Order is certainly one of the most significant events for RLECs since the 1996 Act. (The ILEC Advisor: Introducing the Connect America Fund – USF Reform Overview).

Many of us were pleased that the USF/ICC Order was released a week before Thanksgiving, thus saving the holiday (although I spent most of the holiday reading it). However, AT&T/T-Mobile merger groupies got their fill of Thanksgiving goodness when the FCC announced on November 23 that it was opposed to the merger and an administrative hearing would be held to further consider the facts—the kiss of death, according to some experts. Following this decision, things got really ugly between AT&T and the FCC for a few weeks. (The Deal Advisor: FCC Calls for Hearing on AT&T/T-Mobile Combo).

December 2011: December has seen RLECs struggling to comprehend the USF/ICC rules, AT&T battling with the FCC and DOJ, small cablecos fighting with local broadcasters over outrageous retransmission fees, and the FCC grappling with when and how to abandon the PSTN.

The best drama unfolded before my very eyes on December 1, 2011. Not 15 hours earlier, the FCC had released its staff report detailing why it was opposed to the AT&T//T-Mobile deal—including AT&T’s egregious jobs claims and questionable economic analysis and engineering models. Needless to say, the staff report was the talk of the town in DC the following morning, when AT&T’s senior executive vice president for external and legislative affairs Jim Cicconi released a sharply-worded blog post damning the staff report as “obviously one-sided” and “an advocacy piece.”

Immediately after Cicconi’s blog post was released, he was a panelist at the Phoenix Center’s 2011 Annual U.S. Telecoms Symposium, which I attended—I was surprised that he even showed up. At the Symposium, Cicconi made some strange remarks comparing consumer behavior with cell carriers to religion; and at one point he commented that he was glad there weren’t any hard questions about the merger or the FCC staff report. He also made a comment about how telecom regulation is designed to protect companies, not consumers, which sent shock-waves through the city. This initiated a day of he-said-FCC-said PR battles on Twitter and the AT&T Public Policy blog. But at the end of the day, the AT&T/T-Mobile merger was still essentially doomed…and just over two weeks later AT&T announced that the deal was, in fact, dead. (The Deal Advisor: The Deal is Dead! Now What?)

Court challenges to the USF/ICC Order predictably rolled in throughout the month, with 13 lawsuits to date from small telephone companies, NTCA, state public utility commissions, a couple wireless companies, and AT&T. A judicial panel selected the Tenth Circuit Court of Appeals in Denver, CO as the venue—apparently a good court for this particular subject matter. The issues in the lawsuits range from states’ loss of power to bill and keep. I got the impression that the FCC protected itself from legal challenges quite thoroughly in the Order, so it will definitely be interesting to see how this case unfolds next year. (The ILEC Advisor: Let the Challenges Begin! USF/ICC Order under Attack as Parties Turn to Courts).

Finally in December the FCC held two informative public workshops on transitioning the PSTN to all-IP; but the workshops left plenty of uncertainty regarding the path forward. Despite gathering over 50 experts from all corners of the industry, there was still not a clear definition on what the PSTN actually is or why it should be forcibly transitioned since it is already clearly in transition. Questions aside, the PSTN workshops were extremely informative and likely signaled the beginning of what is surely to be a high-priority initiative at the FCC in the next year. (The ILEC Advisor: The PSTN is Already in Transition… What is the PSTN, Anyway?, The PSTN: Sunset, Transition, Rebirth, or Just Leave it Alone?).  

Well, that about does it for 2011… It has been an exciting year! Coming up next, JSI Capital Advisors will speculate on several big regulatory topics for 2012.

Thursday
Dec222011

August – October 2011: FCC Yields to no Earthquake, Hurricane or Industry Consensus 

Exactly How Many New Jobs will Broadband Create?

Part 3 of “2011: The Regulatory Year in Review.” Autumn was intense—no doubt about that. From the early August release of the Public Notice on the ABC Plan to the October 27 FCC vote on the USF Order, these 3 months were chock-full of excitement. One trend I noticed during this time was the overwhelming number of job creation claims associated with government and private sector broadband initiatives. Sure, broadband helps create jobs and certainly provides new possibilities for individuals to further their educations, start businesses at home, and conduct commerce on an international scale. But will a few government decisions and one colossal merger create literally millions of new jobs? Or is “broadband = tons of jobs” just the catch phase of the year?

August 2011: August began with the Public Notice on the ABC Plan and ended with a rapid-fire comment cycle. In between these events, we saw several natural disasters and an unprecedented FCC blog post on USF/ICC reform signed by all 4 Commissioners proclaiming that the Public Notice “marks the final stage of our reform process.”

On August 4 in Jefferson, Indiana, FCC Chairman Julius Genachowski announced “jobs4america,” “a new coalition of forward-looking businesses committed to bringing thousands of new jobs in America.”  If you are keeping a tally of broadband-related job creation claims, add 100,000 to the list—primarily broadband-enabled call center jobs, including home-based call centers. Genachowski applauded a new call center in Indiana, adding “So broadband really is enabling new economic opportunities, creating jobs and revitalizing communities—including some communities that thought their best days might be behind them.” Of course, he made sure to mention his recent trip to rural Diller, Nebraska. A fact sheet about jobs4america lists 575 broadband-enabled call center jobs that have actually recently been created, and another 17,500 or so “job creation goals over the next two years.” So… 100,000? Seems like a stretch.

The job claims didn’t stop with the FCC—President Obama also pledged to bring new jobs to rural America at an August 16 Town Hall meeting in Peosta, Iowa. Obama’s visit complemented a White House Rural Economic Forum and the release of a White House Rural Council report, “Jobs and Economic Security for Rural America.” One of the primary goals of the Council is to deploy broadband to 7 million rural Americans currently unserved, which will help enable distance learning, health care, and of course—new jobs! (The ILEC Advisor: Obama Pledges Rural Jobs and Economic Growth).

Finally, who will ever forget AT&T’s preposterous claim that the merger with T-Mobile will create 96,000 jobs? Certainly not anyone who lived in DC these past few months, as AT&T blanketed the media with commercials and print ads touting this alleged benefit of the merger.  On the same day that AT&T ceo Randall Stephenson told CNBC that the company would bring 5,000 international call center jobs back to the U.S, the Department of Justice slapped AT&T with the allegedly-shocking news (to AT&T anyway) that it had filed a suit to block the deal. (The Deal Advisor: Surprise, Surprise…DOJ Says “No Way” to AT&T – T-Mobile Merger).

September 2011: DC was still shaking and drying out from the August hurri-quake in early September, and the FCC responded by holding a public safety workshop on network reliability and outage reporting. Genachowski stated, “The hurricane and earthquake also shed light on ways we can continue to enhance our work to ensure the reliability of communications during and following disasters… Our experience with these events will inform our pending rulemaking on outage reporting… [and] our separate but related inquiry on network reliability.” Meanwhile, another threat to public safety has emerged over the last couple years in the form of rural call termination problems, but the FCC has moved much slower to address this issue than they did to address two East Coast natural disasters that caused very little disruption to communications networks. A large portion of the FCC’s September agenda was dominated by public safety, disaster preparation and network reliability topics.

A significant step in developing the White Space spectrum occurred on September 14 with Genachowski’s announcement of a 45-day public trial of the Spectrum Bridge Inc. White Space database. Genachowski explained, “Unleashing white space spectrum will enable a new wave of wireless innovation. It has the potential to exceed the billions of dollars in economic benefit from Wi-Fi, the last significant release of unlicensed spectrum, and drive private investment and job creation.” No word on how many hundreds of thousands of jobs the White Spaces may create, but definitely look for more progress on White Space spectrum development in 2012.

Job fever continued with the September 12 release of the Obama Administration’s American Jobs Act legislative proposal which included a “National Wireless Initiative” to repurpose underutilized spectrum through incentive auctions, reduce the federal deficit, and of course, create jobs (The ILEC Advisor: American Jobs Act Includes Wireless Initiative, Public Safety Network). Despite all of the heavy-duty job creation claims by the FCC, White House and telecom providers; some rural stakeholders warned that the FCC’s proposal for USF/ICC reform will actually eliminate jobs. Impact studies conducted by universities in New Mexico, Kansas, Colorado and Missouri made dire predictions about RLEC jobs, state and local taxes, RLEC wages, and total economic impact in their respective states. Although I was skeptical about some of the calculations, these impact studies definitely carried an important message about the value of RLECs to local and regional economies (The ILEC Advisor: New Mexico Study Depicts Life without USF, State USF Reform Impact Studies Predict RLEC “Death Spiral”).

October 2011: As the death of Steve Jobs rocked the galaxy, Genachowski’s October 6 announcement that the USF/ICC rules would indeed be on the October open meeting agenda launched the telecom industry into one final frenzy.  Unfortunately, Genachowski’s big reveal did little to ease our anticipation as it gave very few solid clues as to what “devils” were lurking in the details of the Order. Genachowski predictably mentioned his visit to Diller, Nebraska and claimed the reforms will “spur billions of dollars in private investment and very significant job creation”— 500,000 jobs to be exact.

We expected the Order would be about 400-500 pages long, and would be released shortly after the October 27 Open Meeting, where it was approved unanimously. We were wrong… Although we had to wait a few more weeks for the rules, the Commissioners revealed enough at the Open Meeting for it to become clear that the ABC Plan/Consensus Framework/RLEC Plan were not adopted in entirety, or really at all. Thus began 3 weeks of general panic. (The ILEC Advisor: Finally – Genachowski’s Big Announcement on USF/ICC Reform).

The FCC threw the RLECs a bone on October 18 with a workshop to address rural call termination problems. The workshop was a good first step to publically bring attention to the pervasive issue, but it almost seemed “too little too late.” After all, these problems have been increasingly occurring for more than a year. Thousands upon thousands of calls have not reached their rural destinations, harming small businesses, threatening public safety and straining family relationships with great aunt Gertrude. Rural panelists urged the FCC to issue forfeitures and fines to companies found intentionally blocking or degrading calls to high-cost rural areas, but so far no actions have been taken. Expect this issue to rear its ugly head in 2012. (The ILEC Advisor: FCC Finally Gets the Message about Rural Call Termination Problems, Rural Panelists Discuss Call Termination Problems – Causes, Effects, Solutions).  

Also notable in October, the Net Neutrality rules finally stopped collecting dust in the Office of the Federal Register storage room. Political polarization over the rules became almost too much to handle. Lawsuits from the left and right popped up faster than you can say “anti-discrimination,” and we can all look forward to a 2012 court showdown between Verizon, Free Press, the FCC and others at the U.S. Appeals Court in Washington. (The ILEC Advisor: Net Neutrality Fight Intensifies – In Washington Anyway).

While not without hurricane-force excitement, the early fall months were certainly the calm before the real storm—look for the final installment of “2011: The Regulatory Year in Review” covering November and December next week!

Wednesday
Dec212011

May – July 2011: The Summer of Consensus and Questionable Reports 

Genachowski’s Potemkin Rural Visit; RLECs and ILECs Suck it up and Play Nice

Part 2 of “2011: The Regulatory Year in Review.” The summer months had a fairly slow start, with some tepid FCC activities and a short lull in the USF/ICC Reform chronicle.  Drama with AT&T/T-Mobile was ongoing, with controversies coming to light regarding AT&T’s paid-for support of the merger. Organizations completely unaffiliated with the telecommunications industry nevertheless waved the AT&T/T-Mobile flag with pride; which rose more than a few eyebrows and even led to a few shakeups and firings in said organizations.  Given the news yesterday that AT&T and T-Mobile will drop the merger completely, it is actually a little funny to look back at the year and all of the bickering and moaning that occurred over this doomed betrothal (more to come on that topic the next installment). The stand-out event of the summer was without a doubt the ILEC-RLEC “Consensus Framework” for USF/ICC Reform, which like AT&T/T-Mobile, seemed like a sure-bet to the parties involved at first but slowly dissolved largely due to the FCC’s stern agendas.

May 2011: May was a big month for USF/ICC Reform reply comments and ex parte filings, but little else. Republican FCC Commissioner Meredith Attwell Baker announced early in the month her intent to leave the Commission for a lucrative lobbying position at Comcast, just months after she voted in favor of the Comcast-NBCU merger. Naturally, watchdogs cried foul and even demanded a Congressional investigation. The “revolving door” is nothing new as prominent FCC staff circle back and forth around the DC telecom lobby scene, but Baker’s announcement definitely had a bitter taste given the large public opposition to the Comcast-NBCU deal.  In her official farewell statement, Baker explained that she had not been contacted by Comcast until mid-April, long after the deal was done, and “I have not only complied with the legal and ethical laws, but I have also gone further. I have not participated or voted any item, not just those related to Comcast or NBCUniversal, since entering discussions about an offer of potential employment.” Meanwhile, the revolving door keeps spinning…

Chairman Genachowski’s May 18 trip to Diller, Nebraska topped my Hot List for the year, but largely because I was endlessly entertained by the big kerfuffle made out of this beltway-insider visiting fly-over country for all of a couple hours. “It’s Nebraska, not the moon,” I said. In late 1700s Russia, the story goes that “Potemkin villages”—fake settlements with all the bells and whistles—were constructed for the sole purpose of impressing Empress Catherine II when she visited the rural countryside. Genachwoski’s visit was the opposite of a Potemkin village—it was a Potemkin visit. The whole ordeal seemed like the FCC’s way of satiating the rural telecom industry (and rural Americans) by saying, “Hey, we understand what you are going through every day, and your unique needs, because we visited one of your communities!” Personally, I saw right through the façade, but nonetheless it was a nice effort. Genachowski visited locally-owned businesses and an RLEC, where he even posed for photo-ops in the CO. His overall messages was that rural businesses require broadband in order to succeed, which is absolutely no surprise for the RLECs who have been providing broadband to local businesses for years.

June 2011: The month with the longest days can basically be summed up in one word: reports. In the span of a few weeks, the FCC released three “big” reports of varying significance and quality. The first, “Information Needs of Communities: The Changing Media Landscape in a Broadband Age” (by Steve Waldman), I admit I did not pay much attention to. The gist was that broadband is important for a vibrant media experience and “a free democracy comprised of important and empowered citizens.” In response to this report, resident media champion Commissioner Copps proclaimed that “it is imperative that the FCC play a vital role in helping to ensure that all Americans have access to diverse and competing news and information that provide the grist for democracy’s churning mill.” Copps zoomed in on an alleged “crisis” identified in the report that “more than one-third of our commercial broadcasters offer little to no news whatsoever to their communities of license.” Basically, we need more local news and more ways to protect local media from Big media—Copps explained, “Localism means less program homogenization, more local and less canned music, and community news actually originated in the market where it is broadcast.”

The June 22 report, “Bringing Broadband to Rural America: Update to Report on a Rural Broadband Strategy” was more relevant to RLECs but generally lacked substance.  This 29-page document from the FCC and USDA was a Congressionally-mandated update to a much more comprehensive 2009 report “describing a ‘comprehensive rural broadband strategy.’” Again, the gist of this report was fairly straightforward—all Americans should have access to broadband, and we just aren’t doing a good enough job in rural America despite making “significant progress” in the last two years. The key take-away of this report was that it provided some extra ammunition for the FCC’s USF/ICC Reform decision, as it self-served the FCC’s reform principles of accountability, fiscal responsibility, and market-driven incentives.  Genachowski proclaimed that it was “not acceptable” that 28% of rural Americans lack broadband, as found in the report.

Ending the month was the ironically-titled “Fifteenth Annual Mobile Wireless Competition Report,” where the FCC made no definitive conclusion (in 308 pages) about the state of competition in a report where the FCC was explicitly directed to make a definitive conclusion about the state of competition in the wireless market…. So much for that goal… Nevertheless, the Big 4 (and others) used the report to prop up their own agendas—be it proof that the industry is totally competitive or totally not competitive. AT&T cherry-picked certain data from the report to depict a vibrantly competitive wireless industry to boost their assertion that the merger with T-Mobile would not be anticompetitive. Lack of conclusion aside, this report did contain some interesting factoids about the wireless market in general. (The ILEC Advisor: How do You Measure Wireless Competition?).

July 2011: July was all about reaching an industry consensus for USF/ICC reform. The FCC asked for it, and RLECs/ILECs delivered, albeit too late for the FCC’s impossibly high standards of time. At the beginning of July, it still appeared as though a consensus was a million light-years away—reply comments, ex parte filings, and a series of high-profile events on the topic in DC did little to ease my mind even though a comprehensive “Consensus Framework” kept being promised. Mid-month, the Rural Associations came out swinging with a far-reaching advocacy campaign called “Save Rural Broadband,” aimed at getting consumers to contact their Congressional offices  with their concerns about being left behind in the Great Broadband Race of the 2010s. (The ILEC Advisor: Comments Show Little Consensus on USF Reform Issues, Rural Associations Launch “Save Rural Broadband”).

On July 29, the long-awaited Consensus Framework was finally released for public inspection. Called America’s Broadband Connectivity Plan (ABC Plan), this proposal was the baby of the 6 largest price cap ILECs, but “supported” by the Rural Associations.  It presented what the involved parties believed was a reasonable and appropriate framework for price cap ILECs, if used in conjunction with the RLEC Plan for rate-of-return companies. Both sides made compromises—including the Rural Associations’ reluctant acceptance of a $0.0007 access rate. The ABC Plan was widely criticized by basically any party who wasn’t directly involved in its creation. (The ILEC Advisor: Price Cap Carriers Release “ABC Plan” for USF with Rural Support).

Finally, the FCC attended one of those pesky consumer issues in July- “mystery fees,” and “cramming”—“the illegal placement of an unauthorized fee onto consumer’s monthly phone bill.” The FCC proposed rules that would require telecommunications providers to clearly notify consumers how to block third-party charges on their bills, among other measures. Between the mystery fee crackdown, July proposals to improve VoIP E911 availability and reliability, and the December rules barring uber-loud TV commercials, the FCC certainly stepped up in response to various consumer pressures throughout the year.

Coming up next in “2011: The Regulatory Year in Review,” we will reminisce about all the fun we had in that tumultuous time between when the Consensus Framework was released and the USF/ICC Order was approved—you don’t want to miss this!

Monday
Dec192011

January – April 2011: USF NPRM, AT&T/T-Mobile Merger Dominate Headlines

A Veritable "Spring Awakening" of Blockbuster Agendas

Looking back over the year, there were so many exciting telecom regulatory decisions, actions and mishaps that I just had to do a “2011: Regulatory Year in Review” series, in part to keep it light before the holidays and in part to help predict what might be on the “hot list” next year. 2011 kicked off with the FCC’s controversial late-December approval of the Net Neutrality rules still stinging for many telecom providers, and 2011 is ending on a similar controversial note with the Stop Online Piracy Act debate in Congress (which, ironically, is almost the direct antithesis of Net Neutrality). But in between these groundbreaking Internet policy and legislation bookends, there was definitely no shortage of drama in all areas of telecom regulation.

January 2011: The stage was set for the year-long flurry of merger, joint-venture and consolidation activity with the FCC’s Jan. 18 approval of the massive Comcast-NBC Universal deal. According to the FCC’s Memorandum Opinion and Order, “The proposed transaction would combine, in a single joint venture, the broadcast, cable programming, online content, movie studio, and other businesses of NBCU with some of Comcast’s cable programming and online content businesses.” For those of you who were a little uneasy about a vertical and horizontal (depending on who you talk to) merger of this magnitude, the FCC imposed a variety of conditions including the “voluntary commitment” that Comcast provide broadband for $9.95 to low income consumers—we’ll see this pop up again towards the end of the year. Commissioner Michael Copps dissented, claiming the merger “confers too much power in one company’s hands;” and “The potential for walled gardens, toll booths, content prioritization, access fees to reach end users, and a stake in the heart of independent content production is now very real.”

Also in January, Verizon and MetroPCS jumped the gun on Net Neutrality appeals… but they fired before locking in a target that could actually be appealed. Eager parties had to hold tight for 10 more months before the rules were finally published in the Federal Register.  (The ILEC Advisor: Verizon Appeals FCC’s Net Neutrality Rules, MetroPCS Joins Verizon in Suing FCC Over Net Neutrality Rules)

February 2011: I clearly recall at around this time last year expressing frustration (putting it nicely) that the USF/ICC Reform NPRM was pushed back when Net Neutrality took center stage. Well, we didn’t have to wait very long in 2011 for the 350-plus page NPRM that set in motion an entire year’s worth of anxiety and insomnia for the RLEC industry. Once the NPRM was released, the FCC pressed forward with the reforms at lightning speed (well, for the FCC anyway), and it almost seems surreal that we are now ending the year still trying to make sense of all changes to USF and ICC. Anyway, FCC Chairman Julius Genachowski demanded that USF/ICC reforms conform to four guiding principles: modernized to support broadband networks, fiscal accountability, accountability, and market-driven incentive-based policies. When the NPRM was revealed, Genachowski made sure to emphasis how the current USF/ICC system is fraught with waste, fraud and abuse; and he arguably made RLECs seem like Public Enemy #1. The FCC essentially insisted that the industry develop a consensus proposal in response to the NPRM, but as we will see, that didn’t work out so well… (The ILEC Advisor: Wireless Excess Highlights Needs for Universal Service Reform).  

Not ten days later, we got another zinger- the NTIA’s National Broadband Map was released. RLECs scurried to check the data and make sure speeds and coverage were accurately portrayed in their service areas, only to find… A LOT of mistakes. My initial response to the map was “For $200m, why couldn’t they get it right?” JSICA’s Richelle Elberg wrote that the map was “disappointing, buggy, and the data incomplete;” and “it was a year in the making, it cost an awful lot of money, and it doesn’t seem to be fully baked just yet.” The biggest disappointment was that wireless providers like Verizon seemed to blanket extremely rural areas with 3-6 Mbps broadband, even though I know from experience in at least one such area that this is not an accurate representation—you see, it only takes one household in a census block to be served at that level for the entire block to be reported “served” on the map. Unfortunately, this is only one of the problems with the map, and nearly a year later it hasn’t improved much. (The ILEC Advisor: National Broadband Map Not All it’s Cracked Up to Be).

March 2011: Early in the year, there were a lot of rumors swirling that T-Mobile might be up for grabs—possibly by Sprint, which seemed like a long shot—would Sprint really want to repeat the technology incompatibility mess it had with its Nextel merger (The Deal Advisor: Sprint and T-Mobile in Talks (Again))? The telecom world shuddered on Sunday evening of March 20 when AT&T announced its intentions to abolish T-Mobile from the wireless market for a cool $39b—I was walking home from dinner and getting ready for the NTCA Legislative Conference when I got the news, and it is not an exaggeration to say that I nearly fell over. Anyway, there’s nothing like talks of ol’ Ma Bell reclaiming its monopoly to incite gut reactions from everyone—and I mean everyone. When the FCC comment cycle began, tens of thousands of consumers chimed in with very colorful opinions, one even likening the merger to rape (a comment that has literally haunted me all year…and don’t even get me started on the bizarre “interest groups” like the International Rice Festival who wrote in with questionable favor of the merger). Although many analysts initially assumed that the deal would fly through, JSICA was skeptical from the get-go, warning that the antitrust and FCC reviews would be harsh—and we were right. (The ILEC Advisor: AT&T to Acquire T-Mobile for $39b, Sprint Says it Will Vigorously Oppose AT&T Buy of T-Mobile, What’s Really Behind AT&T’s Acquisition of T-Mobile).

April 2011: USF/ICC Reform started heating up in April, with the first round of comments in response to the NPRM due on April 1 (ICC) and April 18 (USF), and two corresponding public FCC workshops held on April 6 and 27. On the ICC front, rural carriers were fairly unified in insisting that the FCC immediately adopt rules to curb arbitrage and classify VoIP as functionally equivalent to PSTN traffic. One highlight from the April 6 ICC workshop was when the panelist from AT&T (of course), asked sarcastically, “Does Iowa really need 200 small carriers?” The RLEC panelists expressed concern that ICC uncertainty contributes to low valuations for RLECs looking to sell or consolidate, which is contrary to the FCC hopes that the little guys will just consolidate once and for all.

The Rural Associations (NTCA, OPASTCO, WTA, NECA and state associations) released the RLEC Plan for USF/ICC reform, which many expected would be adopted by the FCC in the final rules—maybe not entirely, but at least in some capacity. The RLEC Plan focused on careful, “surgical” transitions for rural carriers to ensure reasonable cost recovery as well as continued broadband deployment, but without back-peddling the tremendous progress that rural carriers have made as a result of the original USF/ICC regime. Hundreds of other rural telecom stakeholders weighed in on the NPRM, many calling for Rate-of-Return stability, keeping the High-Cost Fund (now Connect America Fund) uncapped, and ensuring sufficient and predictable cost recovery. (The ILEC Advisor: Universal Service Reform – Their Two Cents: Nebraska Rural Independent Companies, Universal Service Reform – Their Two Cents: CoBank).

Finally, April also brought a sensible, well-received FCC Order on data roaming that “requires facilities-based providers of commercial mobile data services to offer data roaming arrangements to other such providers on commercially reasonable terms and conditions, subject to certain limitations.”  Naturally, Verizon argued that the FCC overstepped its authority, but overall this Order signaled an important step forward for the FCC’s realization that voice and data are well on the road to becoming one and the same. Smaller rural wireless carriers applauded the decision, arguing that it will help reduce barriers to competition with the large wireless carriers. (The ILEC Advisor: FCC Adopts Order on Automatic Data Roaming).

As the mercury started rising in DC, so did the tension in the USF/ICC Reform proceeding. Stay tuned for more “2011: The Regulatory Year in Review” posts throughout the week!

Thursday
Nov172011

NARUC Committed to Broadband-Boosting Merger Commitments 

Resolution Stirs up Thoughts on USF-Related Merger Conditions

Are recently-merged Internet service providers meeting their various public interest commitments to deploy broadband and increase adoption? We know that Comcast is certainly working hard, with great fanfare, to offer broadband to low-income households for $10 per month—this was indeed a merger commitment, not a “warm fuzzy” gift to the public. Comcast’s required move into affordable broadband for low-income households has been applauded by FCC Chairman Genachowski, who also recently unveiled the FCC’s low-income broadband initiative Connect to Compete. Now, many other large cable providers are jumping on the $10 per month broadband bandwagon—including companies who are not obliged to do so due to a merger condition.

Comcast’s slightly fulsome, PR-friendly efforts aside; are other recently merged telecom providers (large and small, cable and DSL, wireless and wired) meeting their merger conditions to deploy broadband to rural, low-income and other unserved populations? The National Association of Regulatory Utility Commissioners (NARUC) is concerned that “some commitments to deploy additional broadband infrastructure made to secure merger approvals are not being fully met.”

On November 16, 2011, NARUC approved a resolution to “Request that the [FCC] undertake a public inquiry to assess the extent to which public interest broadband deployment and adoption obligations imposed on previously approved merger applicants are being met.” NARUC’s Resolution on Accountability for FCC Imposed Merger Public Interest Commitments to Deploy Broadband Infrastructure and Adoption Programs recognizes that the FCC can (and often does) impose obligations that merged companies increase broadband adoption and deployment, sometimes with an aggressive deadline. The resolution also recognizes that the FCC can require merged companies to use private capital to meet these obligations, “without reliance on federal Universal Service Fund (USF) financial support.”

This resolution stirs up some interesting, and slightly touchy, ideas about whether the FCC should prevent merged companies from receiving USF post-merger to meet public interest requirements. According to the NARUC resolution, “Some carriers have made voluntary public interest commitments to deploy broadband infrastructure on the basis that USF financial support would enable them to satisfy the FCC approved merger obligation and the FCC has approved those commitments.”

NARUC resolved “That the FCC consider, on a case-by-case basis whether to approve the use of federal financial support from the Connect America Fund or the Mobility Fund for expenses related to supplementing an applicant’s public interest obligations in the FCC order approving such applicant’s merger to deploy broadband infrastructure and/or to implement broadband adoption and usage programs.”

On one hand, two companies’ demonstrated need for USF to deploy broadband in rural areas is not likely to change significantly just by a merger. Their service area’s geography and demographics certainly don’t change due to a merger, and the reasons that small companies decide to merge are diverse and not always just because one company has a stockpile of cash. The addition of a lofty build-out commitment may make the case for needing USF even stronger, especially for capital-strapped rural carriers. On the other hand, one can’t help but think that if companies have enough money to afford a merger, then perhaps they should use that money to pay for broadband deployment. This argument may apply more strongly to large companies, for example AT&T. It would be hard to argue that AT&T should be allowed to receive Mobility Fund support if the T-Mobile merger is approved—which will quite likely include major rural deployment conditions (if it is approved by the FCC, that is—a big if!).

Whether companies should receive CAF or Mobility Fund support to help finance merger commitments is probably best determined on a case-by-case basis, like NARUC recommends. A blanket restriction on support may serve as a significant deterrent for small companies who wish to merge—which might be the exact opposite of what the FCC wants. The FCC has repeatedly dropped hints throughout the USF Reform proceeding that it wishes to encourage RLEC consolidation, so tactically speaking the FCC probably would consider taking a cautious approach to restricting support. Furthermore, the FCC is strongly committed to improving rural and low-income broadband deployment and adoption, so a merger obligation to extend services in low ROI areas without any federal support seems contradictory.

Then there is Connect to Compete, which adds a layer of complexity to the USF-or-no-USF merger condition debate. National Cable and Telecommunications Association (NCTA) members will offer eligible, school-lunch program families two years of cable broadband service for $9.95 per month with no installation, activation or modem rental fees. This program apparently will enable 15-25 million Americans to have high-speed broadband, but keep in mind this is in large cable company territory. Whether Connect to Compete will extend into RLEC territory is unknown at this point, but it is definitely an issue to watch. RLECs competing with Connect to Compete cable participants might encounter some challenges with retaining their low-income consumers.  

Going forward, it will be interesting to see if the FCC takes up the NARUC-approved challenge to conduct on inquiry into how well companies are meeting merger commitments and if they should be using CAF/Mobility Fund support to meet said merger commitments. Are these various market and regulatory forces a deterrent for RLEC mergers? What do you think about merged companies using CAF or Mobility Fund support to help finance broadband deployment and adoption requirements?

The NARUC resolution is available here, on pages 7-8.