Communications Law Bulletin, October 2007 - Part 1

This issue of our Bulletin was delayed slightly so that we could include the items taken up at the Federal Communications Commission ("FCC" or "Commission") open meeting held on October 31, 2007. With the meeting now behind us, we present our summary of developments in October, along with our usual list of deadlines for your calendar.

Two FCC Orders Facilitate Bells' Video Offerings; AT&T's Battle With The Connecticut PUC Rages On

FCC Shuts Down Exclusive Video Deals For MDUs

On October 31, the FCC adopted an order banning exclusive deals for cable service to multiple dwelling units ("MDUs"), which the Commission determined injured competition in the video market. The order is controversial because it prohibits the enforcement of existing exclusivity clauses, as well as the creation of new exclusive arrangements. Cable companies have argued that the ban would deprive MDU residents of the lower costs associated with negotiated agreements covering an entire building. The Bell telephone companies, which stand to benefit from the ban when MDUs are opened up as potential subscriber bases for new Internet Protocol Television ("IPTV") offerings, argue that the residents of MDUs will benefit from increased competition in the video marketplace.

The next several weeks and months likely will bring lawsuits challenging the order, for several reasons. Some cable operators could challenge the FCC's authority to abrogate existing contracts. Affected parties also may challenge the order because the FCC, just four years ago, encouraged exclusive deals of the kind now prohibited, reasoning that such arrangements would encourage installation of wiring for broadband services in MDUs. The order also may be challenged as conflicting with the states' authority, given that 20 states already have passed legislation similar to the FCC's action. The FCC, however, has taken the position that the order merely extends the prohibition to states that have yet to pass legislation.

The ban currently applies only to some cable operators, including those using public rights-of-way and/or operating under franchise agreements. The Commission has opened a rulemaking to consider extending the exclusivity ban to other video services providers, such as private cable operators and direct broadcast satellite ("DBS") providers.

FCC Adopts Rules To Ensure Reasonable Franchising Process For Incumbent Video Providers

At the October 31 open meeting, the FCC extended to incumbent video providers rules that prohibit local franchising authorities from unreasonably refusing to award competitive video franchises. The Commission's first report and order on the issue, adopted in December of 2006, had provided such protections only to new video entrants.

AT&T's Battle With Connecticut PUC Continues

In mid-October, AT&T Connecticut sought an emergency declaratory ruling from the state superior court that the Department of Public Utility Control ("DPUC") erred in its order that required AT&T to obtain a cable license rather than a video franchise in order to offer IPTV. Granting the video franchise as requested rather than the cable license would have placed AT&T's U-verse video offering under less stringent regulation. The DPUC's decision was based on its finding that AT&T had been illegally offering cable TV for nearly a year without a cable franchise, and also was based on a July 2007 federal court ruling that U-verse is a cable TV service rather than an interactive Internet application. AT&T plans to exit the video market in the state if the DPUC's decision is not reversed, leaving behind more than 7,000 U-verse subscribers. The Connecticut Office of Consumer Counsel ("OCC") stepped into the fray in late October, urging the superior court to dismiss AT&T's petition.

AT&T has had better luck offering U-verse in other states. In late October, the Illinois Commerce Commission granted AT&T a statewide video franchise to offer U-verse anywhere in the state where it provides telephone service. The franchise was the first granted under a new state law passed over the summer.

Broadcast Developments

Media Ownership Rules Ignite Controversy

Perhaps this media ownership outtake, courtesy of Senator Byron Dorgan (D-N.D.), most accurately illustrates the challenges FCC Chairman Kevin Martin faces as he attempts to get the 32-year-old media ownership rules overhauled: Senator Dorgan stated that if the FCC issues a rulemaking on media ownership rules, there's going to be a "firestorm and I'm going to be carrying the wood."

Senator Dorgan directed his comment to Commissioner Jonathan Adelstein during a Senate Commerce Committee digital television ("DTV") hearing October 17. The Senator, however, was preaching to the choir; Commissioner Adelstein and Commissioner Michael Copps are both refusing to vote on the ownership-rule, public notice draft, currently circulating among the commissioners, until the FCC establishes an independent panel to review several minority ownership proposals and a vote is taken on the recommendations. The public notice draft includes an announcement that the last of six media ownership hearings would take place November 2 in Seattle. The meeting would be followed by a further rulemaking November 13, giving the public a chance to provide comments before the commissioners vote on the order December 18.

Chairman Martin's push to wrap up the comprehensive media ownership rules review by the end of the year, however, has spawned a firestorm of opposition from within and outside the Commission. Approximately 40 House Democrats appealed to Chairman Martin to extend the public comment period, stating that a full round of public commentary is essential given the amount of controversy surrounding the rule revamp. Several members of the Senate Commerce Committee said they want additional time to scrutinize media ownership, and Senator Bill Nelson (D-Fla.) and Senator Olympia Snowe (R-Maine) issued a joint letter asking Chairman Martin to finish the localism proceeding, which began in 2004, before tackling the ownership rules. Both Senators see the localism proceeding, which they believe should include a 2-3 month public comment period, as a key tool the Commission needs to move forward with the ownership review. Senator Dorgan and Senator Trent Lott (R-Miss.) threatened to use a rare legislative veto to block ownership deregulation if Chairman Martin succeeds in getting the commissioners to vote on the rewrite by December 18. Senator Dorgan and Senator Lott's warning that they will co-sponsor a resolution of disapproval reinforces the fact that concerns over the impact of changes to the media ownership rules transcend party lines. A more covert bipartisanship appears to be permeating the Commission as well. Although Republican Commissioners Robert McDowell and Deborah Tate do not necessarily oppose Chairman Martin's proposal, they are apparently withholding their votes while the talks between Chairman Martin and Democratic Commissioners Adelstein and Copps progress.

Opponents cite two major reasons for their concern: first, they contend that Chairman Martin is trying to force the review to a premature conclusion; and second, they believe that Chairman Martin's anticipated removal of the ban on companies from owning both a TV station and a newspaper in the same city, as well as letting companies own more radio or TV stations in the same town, will result in additional consolidation. Although the media ownership review commenced in June 2006, critics assert that the process, which included commissioning 10 media ownership studies costing the FCC a total of $300,000, was flawed from the beginning and premised on a bias in favor of deregulation. The result, they contend, is that the Commission is rushing to rewrite the rules without understanding the impact additional consolidation will have on minority and diversity ownership. They question why the Commission is looking to deregulation when the continuing trend of decreasing ownership diversity and increasing media outlet consolidation points to the need for tightening regulations.

Proponents of revamping the media ownership rules, such as Free State Foundation President Randolph May, give Chairman Martin credit for pushing for more relaxed media ownership rules in spite of the intense political pressure, calling the assertion that interested parties have not had enough time or...