Archive for the ‘telecommunications’ tag

Japanese Company to Acquire 70% of Sprint

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On October 15, Japanese tech titan SoftBank announced that it will acquire 70% of Sprint Nextel. The $20.1 billion deal will allow Sprint to compete with the two largest American wireless companies, Verizon and AT&T, by providing Sprint with $8 billion in new capital. Of the $8 billion, $3.1 billion will come in the form of a bond, to be issued by Sprint shortly after the announcement, convertible at $5.25 per share; this gives Sprint some immediate access to capital that could be used to retire some debt, improve its wireless network, and possibly to buy additional spectrum if airwaves are auctioned in the near future. The closing of the transaction is scheduled for mid 2013 and the advisers to this transaction stand to earn up to $200 million.

Of course, it’s hard not to compare this deal to AT&T’s failed attempt to buy T-Mobile for $36 billion. However, the main reason that regulators opposed the AT&T deal was because it would reduce the number of national wireless choices from four to three. SoftBank’s acquisition of Sprint will likely make regulators happy, as it would strengthen one of the four national wireless competitors. Furthermore, both Verizon and T-Mobile are at least partly owned by foreign companies (45% and 100%, respectively).

This acquisition could provide some much needed cash and spark innovative ideas in a company that has constantly been lagging behind AT&T and Verizon. The rise of Sprint as a reliable alternative to those companies would increase nationwide competition, which could not only incentivize the development of more advanced wireless network technologies, but also reduce the price of wireless services for consumers.


Are the FCC’s Indecency Regulations Constitutional?

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Five nonprofit groups recently filed an amicus brief (PDF) in FCC v. Fox urging the Supreme Court to strike down the FCC’s policy of fining broadcast television stations for airing indecent content. The groups argue that the FCC’s policy violates the First Amendment’s free speech protections.

During two Fox broadcasts of the Billboard Music Awards in 2002 and 2003, presenters used fleeting expletives. Following the broadcasts, the FCC prohibited “single uses of vulgar words” and issued notices of liability to Fox. Prior to this broadcast, the FCC had taken the position that fleeting and isolated expletives did not violate its indecency policy.

In 2009, the Supreme Court ruled that the FCC’s rule change was not arbitrary or capricious, but sent the case back to a lower court to decide the policy’s constitutionality.

In 2010, the Second Circuit held that the FCC’s indecency policy was impermissibly vague in violation of free speech. The Second Circuit reasoned that the First Amendment places a special burden on the government to ensure that restrictions on speech are not impermissibly vague. The FCC’s guidelines, however, were unclear, depended too much on context, and therefore promoted wide self-censorship by networks.

Although the Second Circuit overturned the FCC’s policy, it refused to reach a critical issue—whether the FCC may place greater restrictions on broadcast radio and television than on other forms of media. This distinction was first articulated in Pacifica.

In Pacifica, decided in 1978, the Supreme Court noted that radio and television broadcasts occupy a “uniquely pervasive presence in the lives of all Americans.” The court held that broadcast media is so pervasive and accessible to children that restrictions against it will be subject to less scrutiny.

Over the summer, the Supreme Court agreed to rehear F.C.C. v. Fox to decide whether the FCC’s indecency-enforcement regime is constitutional.

The recently-filed amicus brief argues that the Supreme Court should reverse its 1978 Pacifica decision. When Pacifica was decided, neither the internet nor cable television were widely available. Today, cable television and the internet are almost as pervasive as broadcast television. As the Second Circuit noted, “we face a media landscape that would have been almost unrecognizable in 1978.” Over three-quarters of Americans use the internet and 87% of households subscribe to cable or satellite. Broadcast television should receive the same First Amendment protections as newspapers, cable television, and the Internet.

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November 17th, 2011 at 6:50 pm

The BART Cell Phone Shutdown: Are Mobile Phones A Necessary Part of Free Speech?

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Back in August, the Bay Area Rapid Transit (BART) garnered national attention when it shut down cell phone service to limit a political protest over the shooting death of a homeless man by BART police. BART released a statement the following day stating that “a civil disturbance during commute times at busy downtown San Francisco stations could lead to platform overcrowding and unsafe conditions.” It stated that the service was purposefully interrupted after reports from protest organizers that they would use mobile phones to coordinate their protest and communicate about BART police.

BART justified its actions by stating that cell phone service was available outside of every station, and courtesy phones were available for customers requiring assistance. Despite protests to the contrary, BART insisted that it was still accommodating demonstrations under the First Amendment, and that its actions fell in line with previous restrictions of demonstrators to certain areas of the stations.

The resulting public outcry was so great, with comparisons made to similar actions in the UK, Egypt, and, perhaps most ominously, Iran, that BART officials have since backed down and recently released their proposed new cell phone policy. The new policy recognizes the importance of mobile service to passengers, and states that “[it] should be interrupted only in the most extraordinary circumstances that threaten the safety of District passengers, employees, and other members of the public,” and that BART will impose temporary service interruptions when there is strong evidence of imminent unlawful activity. In a troubling move, however, BART defines extraordinary circumstances to include instances in which there are attempts to “substantially disrupt public transit services,” which sounds eerily similar to its justification for its earlier actions. After pressure from the Electronic Frontier Foundation (EFF), the general manager of BART explicitly stated that the new policy would not authorize a cell phone shutdown for scenarios similar to the August protest.

The BART protest may have marked the first time in the United States where government shut off a communication system to stop a perceived threat. However, events like these emphasize the increased importance of determining whether the government has the right to limit access to mobile service in public stations, and whether limiting such access violates free speech. It’s important to note that no entity, whether a coffee shop, transit system, or hotel, is required to offer wireless access. But once such access is granted, does it become a right? Groups like the ACLU and the EFF argue that wireless services are a necessary part of free speech, and the FCC is now evaluating BART’s actions to see whether it violated federal telecommunications rules. Even if the FCC finds that BART did not, the California Supreme Court previously held that a city cannot prohibit nondisruptive political activity inside of a railroad station. With wireless access becoming commonplace in public places, expect to see this issue pop up again in the future.

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November 3rd, 2011 at 10:07 pm

The FCC v. ISPs: Net Neutrality and the Battle for Internet Freedom

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In December 2010, the FCC announced its new ‘net neutrality’ rules, in efforts to promote “freedom and openness” of the Internet and to prevent service providers from limiting which Internet sites and services their customers can access and controlling access speed.  Proponents view this as a noble effort to maintain Internet values, but critics believe the FCC is overstepping its boundaries and that such limitations will cause broadband investment to suffer.  Verizon Communications and MetroPCS Communications filed suit against the FCC in early 2011, alleging the agency had overstepped its regulatory power.  Their complaints were speedily dismissed, not on merits, but because the two had brought suit too quickly, before the new rules had even been published in the Federal Register.

The new rules are now officially published, and Verizon is again challenging the FCC’s authority in regulating Internet traffic.  The telecommunications giant is bringing this suit (like the previous one) in the D.C. Circuit — the same court that held in April 2010 that the FCC could not prohibit Comcast from slowing access to certain Interest sites, likely in hopes that the court will similarly limit the agency’s authority this time around.  The ruling called into question the Commission’s regulatory power over Internet services and prompted analyst predictions that the FCC or Congress would adopt new rules to clearly define the agency’s power, and it looks like they were right.

Published in the Federal Register on September 23, The Commission’s new rules codify three protection principles:

“First, transparency:  fixed and mobile broadband providers must disclose the network management practices, performance characteristics, and commercial terms of their broadband services.  Second, no blocking:  fixed broadband providers may not block lawful content, applications, services, or non-harmful devices; mobile broadband providers may not block lawful websites, or block applications that compete with their voice or video telephony services.  Third, no unreasonable discrimination:  fixed broadband providers may not unreasonably discriminate in transmitting lawful network traffic.”

While the rules aim to provide equal access to Internet sites and services, they also establish different standards for wired (such as Comcast) and wireless (such as AT&T) service providers, giving a little more flexibility to the latter to limit access (due to the challenges of managing data traffic on the more easily overwhelmed wireless networks).  The next lawsuit comes in here — Free Press, a media advocacy organization, has filed a lawsuit against the FCC claiming the wired and wireless distinction is nothing more than arbitrary.  There is much criticism for the rules in general, not only for the wired/wireless distinction, but there are also accusations that the FCC has only provided vague policy still full of loopholes.

Congress itself isn’t entirely on board either.  Back in April, the House voted to repeal the rules, questioning the need to further regulate the Internet and highlighting fears that limitations on broadband systems would discourage investors.  Without Senate support however, the rules are still on track to go into effect on November 20.

The biggest question and concern, however, is how these new rules will effect the consumer and the Internet landscape for future innovators of Internet sites and services.  It’s pretty to clear to see how prohibition on access limitation is a plus for the average web browser.  But regulation could come at a price for everyone.  Problems faced by services providers are legitimate from a business model perspective, and could ultimately negatively affect the consumer if there is no leeway in controlling access.  Given the volume of data transfer and finite capacity of broadband systems, some connection is going to slow down somewhere for someone, providing more ground for usage-based pricing models and tiered-access packages.

Can the regulators and providers keep speeds up and prices down? There is much to be seen as the rules become effective and the lawsuits roll in.

Threats and Technology

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Norman Leboon was sentenced Thursday to 24 more months of jail, plus three years’ supervised release. His crime? Threatening Congressman Eric Cantor. What makes the case slightly relevant for this blog is the nature of the threat—a Youtube video. Unfortunately his account’s been terminated, so the video in question is no longer available on Youtube (although if you dig around you can find clips of him).

Now, Leboon’s a little crazy. Take his threats against Cantor:

You are a liar, you’re a Lucifer, you’re a pig, a greedy f—— pig, you’re an abomination, you receive my bullets in your office, remember they will be placed in your heads. You and your children are Lucifer’s abominations.

But should this be punishable? Recall Watts. Guy who’s been drafted speaks out at an anti-draft rally: “I am not going. If they ever make me carry a rifle the first man I want to get in my sights is L. B. J.” The Supreme Court overturned Watts’ conviction for threatening the President without even a hearing, noting the conditional nature of Watts’ threat and the reaction of his listeners (laughter, as opposed to, say, storming the White House).

The facts of Leboon’s case aren’t so different from Watts’. Both were part of a political debate; both involved speakers far removed from their supposed targets; and both, in my opinion, merited an amused response.

The distance between speaker and target is a common aspect of online threats. Combine that with the Internet’s tendency to bring out the worst in people and you run into a whole mess of First Amendment problems. Should courts be stepping in to protect individuals from vague online threats?

Of course, some cases allow for easier bridging of threatener-threatened distance than others. One recalls Brandenburg’s imminence test—if a coworker posts on your Facebook wall “I’m going to stab you at your desk tomorrow,” that’s different than that same coworker posting “I’m going to stab President Obama at his desk tomorrow.” (As long as you don’t work in the Oval Office.)

Leboon did plead guilty, so his particular case isn’t as interesting as it could have been. But online threats aren’t going away any time soon, and without a clear framework to work from, it’s hard to say where courts will go on the issue. Hopefully the Supreme Court will have something to say soon. (Ha!)

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April 13th, 2011 at 2:10 pm

AT&T and T-Mobile Merger Confronts the Horizontal Merger Guidelines

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Last week’s announcement that AT&T is buying T-Mobile from Deutsche Telekom for $39 billion should raise serious antitrust concerns with regulators analyzing the deal under the horizontal merger guidelines of the Department of Justice and Federal Trade Commission. The Wall Street Journal reported that antitrust specialist Herbert Hovencamp thinks the deal will face difficulty with the merger guidelines.  Hovencamp stated that “it’s a pretty highly concentrated market” and “the guidelines would say this is a highly questionable merger unless there is a significant provable efficiency.”

Guideline Factors

Many of the factors which make a merger questionable under the guidelines are present in this deal.  First, the deal would eliminate substantial head-to-head competition between AT&T and T-Mobile, the 2nd and 4th largest wireless carriers nationally.  Second, it would eliminate T-Mobile’s arguable “maverick” or disruptive role in the market caused by its cheaper wireless plans.

Third, it would dramatically increase AT&T’s market shares in the relevant market and increase market concentration.  The merger would give AT&T approximately 129.2 million subscribers compared to Verizon’s 94.1 million subscribers and Sprint’s 49.9 million subscribers.  AT&T and Verizon would together hold more than 70 percent of the “U.S. mobile service provider market” with Sprint and other competitors far behind.

A calculation of the deal’s Herfindahl-Hirschman Index (“HHI”), a tool used by regulators to analyze market concentration, in the national market for mobile services demonstrates the intense market concentration.   This analysis gives a pre-merger HHI of 1990, post-merger HHI of 2406, and change in HHI of 416.  A mere change in HHI greater than 100 can raise the eyebrows of federal regulators.  Here, we have an significant change in HHI of 416 in a market that is near highly concentrated (anything greater than 2500 is highly concentrated).

AT&T Counter-Arguments

AT&T will challenge federal antitrust regulators with at least three potent counter arguments.  First, the numbers used to calculate market concentration above are incorrect because the relevant geographic market is not the United States.  AT&T wants to calculate market concentration on a city-by-city basis in order to demonstrate that the largest markets, which may have more market players, are more competitive than the United States as a whole.  Second, Hovencamp’s “significant provable efficiency” exists in the efficiency gains created by combining the wireless spectrums of AT&T and T-Mobile.  Indeed, the merger guidelines contemplate that efficiencies matter in antitrust analysis.  Third, when all else fails, AT&T might be willing to divest itself of a “substantial” number of subscribers to satisfy regulators.

Still, the guidelines will be a significant hurdle in the months ahead.  But AT&T is confident, given that the company has committed to pay Deutsche Telekom $3 billion if the merger does not close. After all, it seems unfathomable that AT&T would attempt this purchase if the company’s highly-sophisticated team of lawyers did not believe the deal could overcome antitrust concerns raised by the elimination of a head-to-head competitor, the elimination of a disruptive market player, and the significant increase in market concentration and market power.

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April 3rd, 2011 at 10:04 pm

“Premature” lawsuits challenge FCC’s net neutrality rules

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Now that a month has passed since the Federal Communications Commission issued their long-awaited order on net neutrality, the lawsuits have begun.  Two companies, Verizon Communications and MetroPCS, have already filed suit in federal court, arguing that the FCC lacks statutory authority to issue rules enforcing net neutrality.

Interestingly, MetroPCS is the only major wireless service provider to charge customers for different levels of bandwidth access.  In particular, their $40/month plan that blocks all video streaming other than YouTube has raised eyebrows among open internet advocacy groups, who argue that the plan lacks transparency and “stifles competition, consumer choice, and innovation.”

These lawsuits do not come as a surprise to those in the industry.  The FCC argues that these suits, however, are “premature” because the net neutrality order of December 21 has not even been published in the Federal Register yet.  Because the net neutrality order modifies an entire class of licenses, the FCC argues that companies must wait until after publication to file appeals, and that these suits should be dismissed.  Verizon promptly countered that because the issues are so important, it was obligated to play it safe by filing within 30 days of the FCC’s release of the order, rather than waiting until after publication and potentially missing the deadline.

Even if the court finds these initial suits “premature,” Verizon and other companies are expected to promptly refile after the FCC publishes the order.  The FCC will be ready; in December, FCC Chairman Julius Genachowski said the agency was prepared to go to court to defend its statutory authority.

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February 2nd, 2011 at 1:16 pm

Mystery Solved: Verizon Settles With FCC Over “Mystery Fees”

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The Federal Communications Commission announced on Thursday, October 28, 2010 that it had reached a record settlement with Verizon Wireless over the telecommunications giant’s so-called “mystery fees.”  Verizon has agreed to pay a staggering $25 million to the U.S. Treasury and will refund $52.8 million to approximately 15 million customers for wrongfully charging customers over the last three years.  This is the largest settlement payment in FCC history.

The FCC’s Enforcement Bureau began its investigation of the mystery fees in January 2010.  The focus of the investigation was on unexplained “pay-as-you-go” data fees charged to Verizon Wireless customers that are not subscribed to a data package or plan.  Beginning in November 2007, Verizon erroneously charged $1.99 per megabyte for data sessions that customers did not intend to initiate.  For example, customers not signed up for data service were charged when they accidentally pushed buttons that opened the web browser capabilities on their phones.  Data sessions were also initiated by phone applications that automatically accessed the Internet without the customer’s knowledge.

In addition to paying the settlement fees, Verizon has promised to provide greater consumer protections in the future.  The company has promised to cease charging the contested fees and has vowed that no more “mystery fees” will be charged in the future.  Verizon will also allow customers to set up data blocks on their phones so that they will not be charged for any unintended access to the Internet.   Finally, Verizon must improve its customer services by explaining the pay-as-you-go option in plain language and offering tutorials that help customers understand their bills.

Verizon must begin its repayment to customers immediately.  The FCC notes that the repayment is not capped at $52.8 million.  Customers that do not receive a refund but believe that they were wrongfully charged for data services have a right to appeal to Verizon.

The FCC is now investigating other complaints relating to Verizon as well as looking into the practices of other mobile providers.  This is a big step forward for consumer protection in the mobile phone industry.  With the increased capabilities offered by mobile devices, service providers will have the burden of explaining the fees and billing related to these new services.  Consumers will also have an incentive to check their bills for other “mystery fees” now that they know refunds are possible.

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November 3rd, 2010 at 9:04 pm

The Big Test – Proposed Comcast and NBC Universal Merger

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The proposed merger between Comcast and NBC Universal is a major test for the Obama administration’s positions on vertical mergers and media consolidation.  Comcast has already made some commitments to aid it during the review process, which is likely to take at least a year.  These commitments include continuing free over-the-air broadcast of NBC and Telemundo as well as enhancing availability of children’s programming and Hispanic-focused content through on demand capabilities and some use of the digital spectrum available to various channels.

The big questions left are how the Obama administration will react to the proposed merger and what conditions might be placed on the merger once its terms become more concrete.  The merger would see a significant combination of internet service provision, television programming distribution, television programming production, and news gathering into one entity.  At the very least, Comcast’s position as “one of the nation’s leading providers of cable, entertainment and communications products and services” is certain to raise a lot of questions during the review process.

An interesting effect of entering the review process is how Comcast’s need to enhance its image to aid in regulatory agency approval, and how this might affect the ability of other television networks to demand better retransmission terms from Comcast.  It is entirely possible that Comcast may have to take a softer line in its negotiations and pay more for local broadcasts than it has in the past, in order to help convince regulatory agencies that the merger will not have anticompetitive effects.

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December 31st, 2009 at 4:03 pm

European Union (EU) regulators drop Qualcomm investigation

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European Union (EU) regulators closed their investigation of  Qualcomm Inc. after all of the companies accusing Qualcomm of charging excessive royalties on technology patents withdrew their complaints. In 2005, six technology companies filed complaints alleging that the royalties Qualcomm has charged since its patented technology became part of Europe’s 3G standard are unreasonably high. Two of the companies, Nokia and Broadcom, withdrew their complaints after reaching separate outside settlements. Ericsson said in a statement that it is withdrawing the complaint and continuing “its ongoing dialogue with competition authorities around the world in relation to Qualcomm’s licensing practices.” Since all complaints have now been withdrawn, the EU dropped its investigation and is focusing its resources elsewhere. Qualcomm still faces antitrust scrutiny elsewhere in the world. Japan’s Fair Trade Commission said in September that Qualcomm coerced Japanese mobile-phone makers into agreements that prevented them from asserting their intellectual property rights, impeding fair competition and ordered Qualcomm to rescind the restrictive provisions. Earlier this year Qualcomm was fined 260 billion Won ($220 million USD) by South Korea’s antitrust agency for deterring competition through unfair fees and is currently appealing the fine. While the EU closed its four-year old antitrust investigation without levying a fine, Qualcomm was not absolved of wronging and the investigation could be restarted if another complaint is filed.