tatoa fcc threats and opportunities

Telecommunications Law

November 7, 2014

PRESENTED TO TEXAS ASSOCIATION OF TELECOMMUNICATIONS OFFICERS AND ADVISORS

Joseph Van Eaton, Partner, Best Best & Krieger

FCC Developments: Threats and Opportunities for Texas Cities

©2014 Best Best & Krieger LLP


Topics

• Wireless rulemaking• Mega-mergers and abandonment of the public

switched telephone network• Net neutrality/FCC Muni petitions• FirstNet - public safety issues• Section 621 reconsideration and “hidden”

proceedings• Defining “multichannel video service” and “cable

service” in an IP world


Wireless Rulemaking• Commission has adopted rules interpreting Section 6409 (collocation

and modification) and 332(c)(7)• Key takeaways

Reconsideration petitions must be filed in 30 days of publication Appeal must be filed within 60 days of publication Likely deadlines – mid-December for the former, mid-January for the latter

• Proprietary v. regulatory distinction – but what about RoW? Are franchising standards different than zoning decisions

• Rules not clear – stealth (concealment elements) are protected, but rules that allow placement so long as a facility does not exceed a certain height or width are not – a real problem for small cell and DAS

• Applies to DAS and small cells on ground that they are small, but allows small facilities to grow 10 feet in height and six feet in width


Wireless Rulemaking • Rules effective with respect to 6409 in 90 days – may

require major ordinance re-writes because decision on complete 6409 application required in 60 days

• May require different approaches to DAS, and careful drafting of leases

• Decision does raise significant 10th amendment issues, and longer term, significant property rights issues for localities

• For complete description of order, see presentation at http://www.bbklaw.com/?t=40&an=34267&format=xml

http://www.bbklaw.com/?t=40&an=34267&format=xml

http://www.bbklaw.com/?t=40&an=34267&format=xml


Wireless Rulemaking – Threats and Opportunities

• Most immediate risk: applications deemed granted because locality can’t adopt procedures to respond to new rules

• Opportunities: may provide some certainty as to what is permitted under Section 6409, and remove problems created by staff guidance issued in January 2013

• There will be opportunities to appeal and to seek reconsideration – but localities must be in a position to take those steps within two-three months


Mergers – What’s Going On• Comcast-Time Warner – Charter (merger of 1st

and 2d largest providers of cable and broadband; spin-offs and consolidations to Charter to create regionally concentrated dominance for Charter-Comcast)

• AT&T Acquisition of DIRECTV• Both pending federal approval


FCCCommunications Act

• Jurisdiction -- Communications Act poses a separate and some feel higher standard for approval of the transfer of the hundreds of licenses (e.g. microwave, satellite and other licenses,) from Time Warner to Comcast.

• Standard: Comcast bears the burden of proving that the deal is in the “public interest, convenience and necessity.”

Public interest standard offers FCC greater latitude than the DOJ has.

FCC can base its actions on a determination of what the deal’s approval might do to affect the diversity in the marketplace of ideas, competition or localism.

Commission decision is afforded considerable deference.


FCC• MB 14-90 is docket for AT&T – DIRECTV merger

Application materials available for public review on FCC website http://www.fcc.gov/transaction/att-directv

• Initial comments/petitions filed September 16, response Oct. 16, replies ?

http://www.fcc.gov/transaction/att-directv

http://www.fcc.gov/transaction/att-directv


FCC• MB 14-57 is docket for Comcast-TWC-Charter

merger. Application materials available for public review on FCC website http://apps.fcc.gov/ecfs/proceeding/view?name=14-57

• Initial comments/petitions were due August 25. Nearly 12,000 comments/petitions filed

• Responses to comments/petitions filed Sept. 23; Reply comments due ?

http://apps.fcc.gov/ecfs/proceeding/view?name=14-57

http://apps.fcc.gov/ecfs/proceeding/view?name=14-57


FCC• Seeking conditions if approved: Cities of New York, Boston,

Dallas, Chicago, Los Angeles, Montgomery County, Maryland, Portland, NATOA, SEATOA, Public Telecomm Institute (PTI), and others, including groups supporting public, educational and government access (Alliance for Community Media and Alliance for Community Democracy (ACD). Several technology groups and “edge providers” including Netflix are in this category

• Seeking approval: Coalition of 50 mayors in support of the merger, Philadelphia, amongst others.

• Full Denials: Consumers Union, Public Knowledge, Open

Technology Institute, Free Press


FCC• Major conditions proposed by local gov/PEG

Conditions to close digital divide• Enhance Internet Essentials program• System expansions to underserved areas

Conditions to preserve “open Internet” Conditions to protect consumers/availability of alternative

end user equipment Conditions to protect local programming

• Allow use of PEG support for PEG operations• Ensure PEG providers (and local governments) are able to take

advantage of capabilities of cable system Conditions to maximize competitive entry potential Extension of conditions to Charter/GreatLand


Post-Merger – National Picture

48.96%

13.45%

9.22%

8.66%

4.56%1.93%

1.53%

0.85%10.84% Comcast

CharterU-VerseVerizonCablevisionSuddenlinkMediacomCable ONEAll others


Description of the Merger

• Effectively consolidates systems and clusters: Comcast gains in California, New England,

Tennessee, Georgia, North Carolina, Texas, Oregon, Washington and Virginia.

Charter gains in Ohio, Kentucky, Wisconsin, Indiana, and Alabama

GreatLand in Michigan, Minnesota, Indiana, Alabama, Eastern Tennessee, Kentucky and Wisconsin


Mergers – In the Context Of: • Court decision striking down net neutrality rules;

FCC considering rule to allow providers to create Internet “fast lanes”

• FCC allows VZ Wireless to sell Comcast services outside FiOS footprint, and Comcast to sell VZ Wireless across its territories

• Announcement of possible order classifying linear OTT as MVPDs (???)


What Does Comcast Say In Response?• No one submitted an economic study that rebutted our

submittal that the merger is good• There is no impact on video competition, because there

is none, and there is no impact on broadband competition

• We deal on a case by case basis with franchise issues, so no need to establish any federal standards to address franchising issues

• No conditions should be extended to Charter/GreatLand (Internet Essentials dead in Midwest)


What Does Comcast Say In Response?• No improvements to Internet Essentials required or

appropriate – unrelated to merger• No additional PEG requirements – public interest is

satisfied by extension of PEG conditions in NBC/Universal to TWC systems; PEG conditions unrelated to transaction

• No broadband/net neutrality conditions• No customer service conditions because no showing

customer service will get worse because of merger• No local enforcement of federal conditions


Mergers – Threats and Opportunities• Threat: wireline video service competition that

justified elimination of local franchising will substantially diminish; Comcast will have substantially increased market power

• Opportunity: if conditions are imposed, conditions may address some shortcomings of state video franchising law – but don’t be surprised if the merger is approved without locally important conditions if localities are silent


Open Internet – Threats and Opportunities

• Reclassification may have significant tax implications, implications for RoW use by provider, and implications for municipal entry into market (see, e.g. Texas Utilities Code Sec. 54.202)(but see petitions by Wilson, N.C. and Chattanooga re: preemption of certain state laws regarding muni entry)

• Internet fast lane may create challenges for local govs, schools, health care facilities seeking to communicate cost-effectively with public; may affect ability of new content providers to attract users; may affect deployment and investment and may be particularly problematical if control of pathways to homes and businesses is concentrated in a few providers


Public Safety • FirstNet is issuing a series of public notices and requests for information that will

result in defining capabilities, uses, and limitations on uses of proposed national, interoperable public safety network – and relationship of that network to state networks

• Most immediately – comments are due on 10/27 on “certain proposed interpretations of its enabling legislation that will inform, among other things, forthcoming requests for proposals, interpretive rules, and network policies. With the benefit of the comments received from this Notice, FirstNet may proceed to implement these or other interpretations with or without further administrative procedure Issue for localities”

• FirstNet is seeking (for example) definition of term “rural” and also seeks to define permissible public safety uses of network (beyond traditional first responders)

• Localities may have an interest in participating rather than relying on states to address key policy issues, NTIA Docket Number 140821696-4696-01, 79 Fed. Reg. 57058

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Section 621 Orders • FCC – in response to complaints localities delaying new entrants –

decides to interpret Section 621 of Cable Act, authorizing issuance of one or more franchises, but prohibiting exclusivity

• First Order – already upheld on appeal – applies to new entrants but not in states with uniform franchising. Holds, among other things:

Can’t require build-out faster than build-out first required for cable system Must act on application within a certain period, or application deemed granted Can’t use cable regulatory authority to regulate telephone side of business

(multi-use facilities) Franchise fees

• Can’t recover attorney/consultant costs

• In-kind requirements unrelated to cable count against franchise fee

• PEG = capital for facilities only with important exceptions

Can’t enforce most favored nations clauses against a new entrant

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Section 621 – Order 2 • Second Order applies most of first order to incumbents.

Problems: Order allows incumbents to apply MFN against localities Requires localities to finance renewal process which may

require expert studies Operators (TW) decide to interpret “in-kind” to allow an

offset against franchise fees based on “value” of free services Operators decide order writes I-Nets out of Act except to the

extent used for PEG, and argues that it limits ability to regulate portions of system used for other services (wi-fi)

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Section 621 – Order 2

• Second Order was appealed, and localities asked FCC to reconsider almost every one of the points discussed above

• Recon has been pending since 2007, and appeal has been on hold for that period

• FCC now about to rule – press reports say recon will be denied generally - but extend orders to states with uniform franchises

• May be opportunity if localities act now

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Other proceedings

• PEG-ATT proceeding/accessibility proceeding (access to guides)

• IP-Enabled services • RoW management/fees (to speed deployment

of broadband)

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Rethinking regulatory Rules in an IP World

• FCC asked to classify OTT providers as “multichannel video service providers” to enable them to obtain access to video content on same basis as cable operators Interpretation of the Terms “Multichannel Video Programming Distributor” and “Channel,” MB Docket No. 12-83; Aereo ex parte http://apps.fcc.gov/ecfs/document/view?id=60000972464

• Providers likely to roll out their own OTT products as part of Internet package, separate from video services

• What happens to franchise fees and to bundling allocations as OTT services roll out? Are they subject to fees? Or not? What triggers obligation to obtain a video service franchise?

• How do we deal with competitive equity (and should we?)

• Threat: localities will see revenues drop without developing response to changing regulatory landscape. Opportunity: localities can begin to shape a response to a world where services are provided via the public Internet and private Intranets


Can Congress Harmonize Electronic Taxation?

Possible On-Line Tax Reform

Marketplace

Fairness

Internet Tax

Freedom

Digital Goods

Cell Tax Morat’m


The Permanent Internet Tax Freedom Act Internet Tax Freedom Forever Act (“ITFFA”)•ITFA has been in effect since 1998, currently scheduled to expire in November, 2014

•ITFA “walls off” from state and local taxation broadband communications

•PITFA passed House on voice vote – Senate will only extend for a short term.

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ITFA• As what was formerly telecom is supplanted by

broadband, states and locals are left with a shrinking communications service tax base

• Left in place, the ITFA will eventually “tax exempt” all, or almost all, of the entire telecommunications industry’s services [except where tied to RoW authorization]

• Unless telecom tax “reform” is coupled with ITFA repeal, industry will have no incentive to ever let ITFA expire.


Wireless Tax Fairness Act

• Last Congress passed the House, went nowhere in the Senate• Would impose a 5-year moratorium on any new

“discriminatory”, or any increase in existing, state or local taxes on wireless services; would grandfather existing taxes and exclude taxes imposed by vote of community

• Returned in 2013, but no action

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The Digital Goods and Services Tax Fairness Act of 2013 -- S.1364

• Legislation creates a nationwide “tax preference” for online goods and services over competing brick-and-mortar sales by limiting state and local taxes on “digital goods and services.” • Downloaded music and videos; • Pay-per-View (PPV) and video-on-demand (VoD)

revenue removed from the cable franchise fee revenue base

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Main Street Fairness Act (S. 743 and H.R. 684)

• Passed Senate on a strong bi-partisan basis• Pending in House Judiciary• Allows states and local governments to collect sales

and use taxes on remote (typically online) sales to their residents

• Aims to eliminate the current disadvantage suffered by brick-and-mortar retailers vis-à-vis online retailers

• Generate funds ($23B)

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Threats and Opportunities • There has been significant recognition that existing tax

structure is unsustainable • Issue for localities – is there a solution that protects, as

opposed to diminishing local revenues? • Can any solution pass both Houses of Congress in any

reasonable time frame?• Will result be driven by moderates – or by a “Tea Party”

approach? • ITFA expires December 11 – along with other key tax provisions

– so something will happen. Only question is what – municipal engagement is critical now

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Questions?

Joseph Van EatonBest Best & Krieger LLP2000 Pennsylvania Avenue N.W.Suite 4300Washington, DC 20006(202) [email protected]

tatoa fcc threats and opportunities

Documents

best best krieger2014

wireless rulemaking

days of publication

widthtelecommunications

amendment issues

zoning decisions rules

small cells

higher standard