Current Telecom Developments March 13, 2015 FCC Publishes Text of Title II Order, Highlights Forbearance in “Fact vs. Fiction” News Release Two weeks after voting by a 3-2 margin to reclassify broadband Internet services as telecommunications services that are subject to regulation under Title II of the 1934 Communications Act, the FCC yesterday publicly released the full, 313-page text of the order, which details the new open Internet rules and the agency’s rationale for adopting those rules. As it encouraged the public “to read the order, which reflects the input of millions of Americans,” the FCC also issued a fact-versus-fiction news release which attempts to dispel many of In This Issue: the “myths” surrounding the order by highlighting areas where the FCC intends to forbear from applying rate, unbundling, and other Title II common carrier FCC Publishes Text of Title regulations to fixed and wireless Internet service providers (ISPs). II Order, Highlights Forbearance in “Fact vs. The rules contained in the FCC’s order prohibit blocking, throttling and other Fiction” News Release more limitations on access to lawful web content and the impairment of connectivity on the basis of content. They also bar paid prioritization arrangements between Wheeler Pledges FCC ISPs and websites and the establishment of web traffic “fast lanes.” With the Scrutiny of DISH Network exception of modifications to the FCC’s transparency rule for broadband ISPs, DEs as Verizon which require separate OMB approval, the rules will go into effect 60 days after Recommends Restrictions they are published in the Federal Register. The window for seeking judicial on Joint Bidding more review also opens on the date of Federal Register publication, at which time a host of broadband ISPs and others are expected to challenge the rules in court. FTC Lawsuit Accuses DirecTV of Deceptive In the accompanying fact-versus-fiction document, the FCC explained that the Advertising more order is premised on “multiple sources of authority” that include the broadband Apple Previews Smart advancement mandates of Section 706 of the Telecommunications Act as well Watch at Media Event more as Title II. Declaring that the order “takes a modernized approach to Title II, tailored for the 21st century,” the FCC emphasized that the order “bars the kinds Sony to Launch Vue Online of tariffing, rate regulation, unbundling requirements and administrative TV Service in Major Cities burdens that are the hallmarks of traditional utility regulation.” The order does more not subject ISPs to Universal Service Fund (USF) contribution requirements but stipulates that the FCC will consider that issue in separate proceedings to Auction of AWS-3 Channels reform the USF system. Among other things, the fact sheet also points out that Nets $1.67 Billion for (1) Internet services, content and applications will not be regulated, (2) ISPs Canadian Government more will remain free to offer a variety of services and rates to customers without FCC approval, and (3) specialized or managed data services, such as cable- based Voice over Internet protocol and mobile Voice over LTE services, that are ©2015 Paul, Weiss, Rifkind, Wharton & not transmitted over the public Internet will not be regulated. Asserting, “there Garrison LLP. In some jurisdictions, this has always been a ‘just-and-reasonable’ standard for telecommunications brochure may be considered attorney service—and investment has flourished,” the fact sheet further argues that advertising. Past representations are no guarantee of future outcomes. Current Telecom Developments application of the “just and reasonable” standard to broadband ISP behavior will not chill innovation. Other Title II provisions, such as Section 222, which requires carriers to protect the confidentiality of customer proprietary information, and Section 224, which requires utilities to provide non-discriminatory access to poles, conduits and rights-of-way, will not be subject to forbearance. Although FCC Chairman Tom Wheeler again maintained that the order places the FCC more in the role of a referee over “a playing field where there are known rules” than as a regulator, Commissioners Ajit Pai and Michael O’Rielly dissented on partial grounds that the corresponding rulemaking notice issued by the FCC—which, in the words of Pai, had been “tailored to avoid reclassification” -- did not adequately inform the public of the possibility that the FCC would adopt a Title II track. Confirming that all five FCC commissioners are scheduled to discuss the order at House and Senate hearings next week, Senate Commerce, Science, and Transportation Committee Chairman John Thune (R-SD), House Energy and Commerce Committee Chairman Fred Upton (R-MI), and House Communications & Technology Subcommittee Chairman Greg Walden (R-OR) announced in a joint statement: “we look forward to working our way through the 300-plus pages of this Washington manifesto.” Wheeler Pledges FCC Scrutiny of DISH Network DEs as Verizon Recommends Restrictions on Joint Bidding The fallout over DISH Network’s involvement in two designated entities (DEs) that posted $13.3 billion in gross winning bids during the Advanced Wireless Service (AWS)-3 auction continued as FCC Chairman Tom Wheeler promised ranking House Energy & Commerce Committee member Frank Pallone Jr. (D-NJ) that the FCC will closely scrutinize bidding arrangements between DISH and the DEs in question and “will not grant licenses to any party that does not strictly adhere” to the agency’s rules. Wheeler made his pledge in a February 27 letter to Pallone, which was released by the FCC late last week in response to Pallone’s earlier recommendation that the FCC “take a fresh look” at rules for the upcoming incentive auction out of concern that “major corporations have been able to game certain FCC rules designed to aid small businesses.” During the AWS-3 auction, SNR Wireless LicenseCo and Northstar Wireless—both very small business DEs in which DISH holds non-controlling stakes of 85%--bid successfully for 702 licenses that qualify provisionally for a 25% bid credit, which would reduce the companies’ combined gross bid by $3.3 billion. In defense of its AWS-3 auction strategy, DISH reminded the FCC that “investments in DEs have been a longstanding practice of incumbent wireless carriers, and DISH’s participation followed a path that has been available for 15 years.” Noting that the FCC launched proceedings last fall to consider modifications to competitive bidding rules that include the rules pertaining to DEs, Wheeler told Pallone “we are keenly aware that we must also look to lessons learned from . the recently-concluded AWS-3 auction,” as he emphasized: “we take seriously concerns that parties may seek to capitalize on our rules in order to receive benefits intended for small businesses.” As he assured Pallone that the FCC “will thoroughly review and scrutinize each application to ensure that granting each license is in the public interest and that each applicant has complied with the Commission’s rules,” Wheeler maintained: “our rules must preserve the integrity of the Commission’s auction process and ensure that bidding credits are available only to eligible entities.” Meanwhile, in reply comments that pertain to the competitive bidding rulemaking proceeding, Verizon Communications cited concerns raised recently by AT&T over DISH’s bidding strategy in urging the FCC on Monday to restrict joint bidding 2 Current Telecom Developments arrangements in future spectrum auctions. Like AT&T, Verizon took issue with “extensive coordinated bidding” among DISH and its affiliated DEs in which “double and triple bidding may have created the false signal that there was more competition for certain licenses than was actually the case.” Agreeing with AT&T and other parties that such coordinated bidding “undercut[s] the integrity” of the AWS-3 sale, Verizon said the FCC “at a minimum should reinforce the existing prohibition against collusion by prohibiting all joint bidding arrangements or other communications about bids or bidding strategies among two or more applicants for the same licenses.” On behalf of DE interests, however, Council Tree Investors countered that “the robust, record-setting results of the recently-concluded Auction 97 compellingly illustrate why a viable DE program very much enhances competition.” As such, Council Tree advised the FCC that “changes to facilitate the growth of the DE program should be adopted” while “those . intended to clip the DE program’s wings should be rejected.” FTC Lawsuit Accuses DirecTV of Deceptive Advertising Officials at DirecTV are vowing to fight a lawsuit, filed Wednesday by the Federal Trade Commission (FTC), that accuses the direct satellite TV provider of misleading the public with deceptive advertising that tricks customers into signing up for discounted viewing packages that end up costing much more than anticipated. Filed with the United States District Court for the Northern District of California, the FTC lawsuit comes as federal regulators continue to review AT&T’s plan, announced last May, to acquire DirecTV in a $49 billion transaction that would position the post-merger entity in second place among the nation’s multichannel video program distributors. Specifically, the FTC lawsuit alleges that DirecTV marketed a discounted, 12-month service package to customers without adequately disclosing that the deal locked subscribers into a two-year contract during which prices would nearly double—from $25 to $45 per month—at the end of the first year. According to the lawsuit, customers attempting to cancel service before the end of the contract term would be assessed early termination fees of up to $480. DirecTV is also charged with failing to disclose that offers of free premium channels required customers to actively cancel the channels at the end of a three- month trial period to avoid automatic charges. Claiming that DirecTV engaged in such advertising “in many instances” since 2007 and that a “substantial portion” of DirecTV’s 20 million U.S.