October 22, 2010
Lawmakers Urge FCC Scrutiny Of Wireless Network Contracts With Chinese Equipment Firms
Echoing concerns raised two months ago by eight Senate colleagues in a letter to officials of the Obama Administration, four Senate lawmakers are urging FCC Chairman Julius Genachowski to review the national security implications of equipment contracts between domestic U.S. wireless carriers and Chinese network equipment firms. In a letter delivered on Wednesday, Senators John Kyl (R-AZ), Joseph Lieberman (I-CT), Susan Collins (R-ME) and Sue Myrick (R-NC) warn specifically against a proposed equipment deal between Huawei Technologies—one of the world’s fastest growing suppliers of telecom network gear—and Sprint Nextel, which is currently considering Huawei’s offer as one of six Sprint has received for a multibillion-dollar network upgrade. A second Lawmakers Urge FCC Chinese equipment firm, ZTE Corp., is included among the six bidders for the Sprint Scrutiny Of Wireless Network contract, and observers say that Sprint is likely to announce its selection in about two Contracts With Chinese weeks. As in the previous Senate letter, the four lawmakers cautioned Genachowski Equipment Firms read more about Huawei’s ties with the Chinese government as they noted that Huawei’s current chairwoman had served as a captain in the Chinese People’s Liberation Army and had Fox-Cablevision Carriage worked in China’s Ministry of State Security before joining the company in 1992. As Dispute Spills Over To such, the lawmakers argued that Huawei, ZTE and other Chinese network equipment Internet read more firms are subject to “significant influence by the Chinese military.” While requesting details on the extent to which the FCC is empowered to review carrier purchases of Terrestar Networks Seeks foreign technologies, the four Senate members told Genachowski that “the sensitivity of Bankruptcy Protection information transmitted in communications systems, as well as the potential for foreign read more espionage, requires that the government take decisive action.” Although the FCC declined to comment, Huawei asserted in reply to the August letter that it is a private Verizon Wireless To Carry company in which “government or military organizations do not hold any shares, or Apple iPad read more control the company in any form.” Televisa Withdraws Fox-Cablevision Carriage Dispute Spills Over To Internet Agreement To Purchase Nextel Mexico Stake A high profile retransmission dispute pitting Cablevision against Fox Broadcasting read more spilled over to the Internet this weekend as subscribers to Cablevision’s broadband service found themselves without access to online Fox programming, triggering protest KDDI, Skype Forge Strategic from lawmakers and from net neutrality advocates. Last Saturday at midnight, News Partnership read more Corp., the parent of Fox Broadcasting, pulled its signals for television broadcast stations WNWY, WWOR, and WTXF, and for the Fox Deportes, NatGeo Wild and Fox Business cable networks from Cablevision systems in the New York City and Philadelphia markets after the parties failed to agree on renewed carriage terms by last Friday’s deadline. The days preceding last Saturday’s signal cut-off were punctuated by a media blitz involving both sides, in which Cablevision called for binding arbitration to address Fox’s demand for rates that were “more than for CBS, NBC, ABC and Univision combined.” Fox, in turn, accused Cablevision of failing to negotiate in good faith and of offering less than
thirty-cents per subscriber for the channels in question, as Fox maintained that “direct business-to-business negotiation is the only way to resolve this issue.” As the stations at the heart of the dispute went dark on Cablevision systems, reports surfaced over the weekend that Fox had blocked access by Cablevision broadband subscribers to Fox web sites as well as to Fox-owned content on Hulu.com. Urging the FCC to intervene, former House Communications, Technology & Internet subcommittee chairman Ed Markey (D-MA) told FCC Chairman Julius Genachowski in a letter last Saturday that “the tying of cable TV subscription to access to Internet fare freely available to other consumers is a very serious concern,” as he charged that Fox’s actions contradict the FCC’s 2005 net neutrality policy statement which holds that “consumers are entitled to access the lawful Internet content of their choice.” Advocates of net neutrality such as Public Knowledge and Free Press took a similar view. As Public Knowledge President Gigi Sohn declared that the Fox-Cablevision dispute “shows the dangers of unchecked media consolidation and of a retransmission consent regime badly in need of reform,” Free Press Director-Research S. Derek Turner proclaimed that “consumers should have the right to watch online content, and this access should not be tied to a dispute over cable television carriage arrangements.” In a statement issued Tuesday in the midst of the ongoing debacle, Genachowski promised to scrutinize the actions of both companies “very closely,” as he reminded officials of both firms that they “share responsibility for consumer disruption, and that they shouldn’t punish consumers because of their unwillingness to reach a deal.”
Terrestar Networks Seeks Bankruptcy Protection
Straining under a debt burden in excess of $1 billion, TerreStar Networks filed a petition for Chapter 11 protection with a New York bankruptcy court on Tuesday. Known formerly as Motient Corp., TerreStar is in the midst of deploying a hybrid terrestrial/mobile satellite network that would serve rural and other hard-to-reach areas in the U.S. TerreStar—which recently entered a marketing arrangement with AT&T through which AT&T would sell TerreStar’s dual-mode Genus smart phone to customers who desire satellite phone coverage—launched its first satellite, TerreStar-1, in July 2009 and is currently building a second satellite, dubbed TerreStar-2. In documents filed with the Securities & Exchange Commission in June, TerreStar reported $1.4 billion in assets against liabilities of $1.64 billion. Under the reorganization plan filed with the U.S. Bankruptcy Court in Manhattan, EchoStar Corp.—a key TerreStar shareholder and the company’s largest creditor—has pledged to support a proposed debt-for-equity swap that would cover TerreStar’s secured note holders. In addition to providing TerreStar with $75 million in bankruptcy financing, EchoStar would also backstop a $100 million rights offering that would assist TerreStar’s emergence from bankruptcy. Sources also indicate that TerreStar Corp., the parent company of TerreStar Networks, is not a party to the Chapter 11 proceeding. In a press statement, TerreStar Networks CEO Jeffrey Epstein described his company’s Chapter 11 filing as “a necessary and prudent step to strengthen our balance sheet . . . and position TerreStar Networks as a stronger, healthier company.” Verizon Wireless To Carry Apple iPad - Fueling speculation that Apple, Inc. is developing a version of its popular iPhone to be marketed through Verizon Wireless early next year, officials of Apple confirmed this week that the company’s iPad tablet computer will appear in Verizon stores for the first time on October 28. Currently, AT&T is the only licensed U.S. provider of wireless data services for iPad users although the company has not been authorized as a retailer of the device. (To date, Apple has sold the iPad exclusively through its own stores or through selected Best Buy outlets.) A spokesman for Apple said that AT&T will also be allowed to sell the iPad through its stores by the end of this month. Both moves by Apple as well as the company’s recent decision to expand iPad distribution to Wal-Mart, Target and Sam’s Club locations are seen by analysts as a strategy to head off a wave of tablet PC competitors that Motorola, Research-In-Motion, and k Samsung are slated to roll out by early next year. Initially, Verizon will sell only a Wi-Fi-enabled version of the iPad that will not operate on the carrier’s third-generation network. For an additional $130, Verizon iPad customers will be able to purchase an optional “MiFi” card that can be bundled with the iPad to create a portable hot spot that supports up to five Wi-Fi-enabled devices. Together, the Verizon iPad/MiFi bundle will cost no more than iPads that are bundled with AT&T’s 3G network service. Verizon also said it would offer iPad users discounted data plans that provides access to 1 GB of data for $20 per month or to 5 GB of data for $50 per month. Observers anticipate that Apple will offer a version of the iPad that runs on the Verizon 3G network by early next year.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP 2
Televisa Withdraws Agreement To Purchase Nextel Mexico Stake
Six months after Mexico’s Grupo Televisa announced plans to invest US$1.4 billion for a 30% stake in Nextel Mexico (NM), the two partners confirmed their decision this week mutually to terminate that agreement. Little detail was offered on the companies’ decision, which has been described by observers as amicable, although some sources indicate that the partners had disagreed on regulations and risks related to Televisa’s investment. Together, Televisa—the largest broadcaster in Mexico—and NM, a unit of Reston, Virginia- based NII Holdings, had intended to deploy a third-generation (3G) nationwide wireless network that would compete against Mexican market leader America Movil and against the Mexican wireless operations of Telefonica and Iusacell. Although NM won wireless spectrum at auction last July that would support that plan, NM’s concession has been the subject of a lawsuit by Iusacell, which is challenging spectrum caps and related government regulations that have prevented certain operators from bidding on the 30 MHz nationwide block. A representative of NM, which had planned to use proceeds from the Televisa investment to build its network, emphasized that his company would move forward, asserting: “we are in a strong financial position with the funding necessary to carry out our deployment plans.” Televisa, which had hoped to add NM’s wireless capabilities to a service bundle that would also encompass the broadcaster’s cable, broadband and fixed line voice offerings, confirmed that the companies remain in discussions toward a joint marketing arrangement.
KDDI, Skype Forge Strategic Partnership
Web phone service provider Skype gained another key partner this week with the formation of a strategic alliance with KDDI Corp., the second-largest wireless carrier in Japan, through which KDDI will roll out two Skype-enabled smart phones next month. Skype, which currently boasts more than 560 million registered users worldwide, has agreed to integrate its web calling software with two Android-powered KDDI smart phones—the “IS01” and “IS03.” The built-in software will enable KDDI subscribers to make unlimited Skype-to-Skype voice-over-Internet calls, both domestically and internationally, through the low-cost Skype-Out service, which will transmit calls via the KDDI network. Such calls will not be charged against the monthly service plans of KDDI customers, and a KDDI official said that his company will “work closely with Skype to extend these benefits beyond mobile to broadband, fixed line and cable.” Among other benefits, purchasers of the Skype-enabled handsets will also be able to send and receive instant messages and check other users’ online status with the Skype application running continuously in the background. Expanding its influence in the U.S. and worldwide, Skype has also forged recent partnerships with Verizon Wireless and with Avaya, Inc. through which Skype and Avaya would jointly develop IP products that are aimed at the business communications market. As KDDI senior vice president Takashi Tanaka applauded the agreement as “a breakthrough in giving customers in Japan unlimited, global communications options,” Skype interim CEO Adrian Dillion declared that “KDDI’s position as a leading network provider . . . that offers a wide range of communications services makes it a natural partner for Skype.”
* * *
For information about any of these matters, please contact Patrick S. Campbell (e-mail: [email protected]) in the Paul, Weiss Washington office. To request e-mail delivery of this newsletter, please send your name and e-mail address to [email protected]. (No. 2010-42)
PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP 3