Friday, March 29, 2013

Comments Requested: Tribal Mobility Fund Phase I Auction

The FCC released a Public Notice that makes proposals and requests comment on the Tribal Mobility Fund Phase I Auction.  The Auction, designated Auction 902, is scheduled for October 24, 2013.  The auction will award up to $50 million in one-time support to carriers that commit to provide 3G or better mobile voice and broadband services on tribal lands where the service is unavailable. 

Carriers will bid for the support in a reverse auction, and bids will be awarded on the basis of maximizing the population covered by new mobile services, without exceeding the $50 million budget.  Winning bidders will be able to provide service to the highest populations while requesting the lowest levels of support.  The auction will provide a 25 percent bidding credit to tribally-owned or -controlled providers.  The Public Notice asks whether the reverse auction should use a single- or multiple-round design.  It also asks whether there should be any maximum acceptable per-unit bid amounts, reserve amounts, or maximum opening bid amounts in the auction. 

In order to participate in the auction, a carrier must be designated as an eligible telecommunications carrier (“ETC”) for the areas on which it bids.  The carrier must also certify that it is financially and technically capable of providing 3G or better service.  Auction winners will be subject to requirements, including performance, coverage, collocation, voice and data roaming requirements, and tribal engagement obligations.  Winners will have to deploy either 3G service within two years or 4G service within three years, and the Public Notice proposes requiring winning carriers to serve at least 75 percent of the population in each area.  Winning carriers must certify that they will offer service at comparable rates for similar services in urban areas.  Auction winners must also procure a letter of credit to secure the Commission’s support, along with an opinion letter from counsel. 

The Public Notice seeks comment on a list of potentially eligible census blocks, which can be accessed at http://wireless.fcc.gov/auctions/902.  Any census block that was given support in Auction 901 will not be eligible to receive support in Auction 902.  The Public Notice proposes that auction participants bid on tracts of grouped census blocks, which may make it easier to provide service. 

Comments on the Public Notice are due by May 10, and Reply Comments are due by May 24.  The Commission will release another Public Notice announcing the auction’s procedures after it has reviewed the comments.
 
If you have any questions regarding the upcoming Auction or Public Notice, please feel free to contact the TLP Team.

Thursday, March 28, 2013

FCC's April Open Meeting Agenda

The FCC released the tentative agenda for its Open Meeting on April 18.  The Commission is scheduled to hear a presentation on the status of CTIA’s bill shock alerts, which will be fully implemented on April 17.  The presentation will report on participating carriers’ compliance with CTIA’s requirements.  The Commission will also consider:

  • A Notice of Proposed Rulemaking and Notice of Inquiry on allowing IP-based providers to have direct access to telephone numbers.   The Commission will also consider an Order that would allow a limited trial of VoIP providers having direct access to numbers; and
  • A Second Report and Order that would streamline the foreign ownership rules for common carrier radio licensees and certain aeronautical radio licensees.  The Order would reduce regulatory burdens while ensuring that the Commission can protect the public interest.

The Open Meeting is scheduled to begin at 10:30 AM, and it will be broadcast live at www.fcc.gov/live.  Please feel free to contact us if you have any questions.

FCC Order Corrects USF/ICC Rules

In an Order released on March 27th, the Wireline Competition Bureau clarifies and corrects certain rules implementing the USF/ICC Transformation Order.  Specifically, the Bureau:

  • Revises the Connect America Fund intercarrier compensation (“ICC”) support eligibility certification and reporting deadlines to coincide with annual access tariff filings;
  • Clarifies the effects of the USF/ICC Transformation Order on National Exchange Carrier Association (“NECA”) traffic-sensitive tariff pooling when carriers enter or exit the pool;
  • Clarifies various NECA pooling requirements that were adopted in the 2012 Price Cap Conversion Order;
  • Corrects an omission in the rules governing the transition of rate-of-return carriers’ intrastate switched access rates;
  • Clarifies the treatment of local switching support in the calculation of the line-side port costs shift to the Common Line category and the allocation of Transport Interconnection Charge costs among the various access charge expense categories;
  • Clarifies the corporate operations expense limit and monthly $250 per-line cap on universal service support; and
  • Corrects rules implementing the Eligible Recovery true-up adjustment mechanism.
 
Please feel free to contact the TLP Team if you have any questions regarding the Order.

Tuesday, March 26, 2013

Congress to Investigate Whether the USF Lifeline Program is Sustainable; Hearing Scheduled for April 25, 2013

Today, the House Energy and Commerce Committee's Communications and Technology Subcommittee indicated that it will hold an oversight hearing on April 25, 2013, concerning the sustainability of the Universal Service Fund's Lifeline program, "which has tripled in size from $800 million in 2009 to $2.2 billion per year in 2012."

The Federal Communications Commission ("FCC") has made recent efforts to reform the Lifeline program and attempted to reduce waste, fraud and abuse, especially after the "Obamaphone" controversy erupted during the 2012 election season. As a result of the FCC's reforms, a number of wireless service providers, including Sprint and Tracfone, apparently lost about 4 million of their Lifeline subscribers because those subscribers were not actually eligible to enroll for assistance under the Lifeline program.

In preparation for the hearing, the Committee sent a letter to the FCC Chairman stating that while they welcomed the FCC's recent reform efforts, they request additional information and recommendations to help contain the absolute size of the Lifeline program because the Committee is "concerned that the trajectory is still unsustainable." In addition, the Committee sent a letter to NARUC, the state regulator professional association, asking for information on what state government regulators are doing to prevent waste, fraud and abuse in the Lifeline program and for additional recommendations.

Back on March 7, 2013, House Energy and Commerce Committee Ranking Member Henry Waxman (D-CA) and other top Democrats on the Committee also sent a letter to Chairmen Fred Upton (R-MI), Greg Walden (R-OR), and Tim Murphy (R-PA) requesting a hearing on the Lifeline program. Yesterday, Chairman Upton responded to that request.

Further, during last week's floor debate on the Senate budget resolution, Senators Vitter (R-LA) and McCaskill (D-MO) offered a non-binding amendment to essentially eliminate the cellphone subsidies under the Lifeline program. The amendment narrowly failed on a mostly part-line vote with a few Senate Democrats joining all Senate Republicans in favor,

Should you have any questions regarding any legislation or activity in Congress that could impact the telecommunications, media and technology sectors, please contact Vance Schuemann or any member of the TLP team.

Monday, March 25, 2013

AT&T Wins Access Charge Dispute

The FCC released a Memorandum Opinion and Order finding that three CLECs participated in an access stimulation scheme designed to collect more than $11 million in improper terminating access charges from AT&T’s long distance service. 

The access stimulation scheme was started by an ILEC, Beehive.  Beehive had a revenue-sharing agreement with a chat line/conferencing service provider (“CSP”), whereby Beehive paid the CSP a portion of its tariffed access charges for every minute of long distance traffic routed to the CSP’s assigned telephone numbers.  When the FCC’s rules prevented Beehive from charging its high rates, it created the defendant CLECs, All American Telephone Co., e-Pinnacle Communications, Inc., and ChaseCom.  Beehive set up and maintained the CLECs’ equipment on its own premises and allowed them to provide service to the CSP.  Some of the CLECs took on other CSP customers as well.

The newly-formed CLECs then had to set their rates.  The FCC’s benchmarking rule gives CLECs the option to tariff interstate access charges that are no higher than the rate charged for such services by a competing ILEC.  The defendant CLECs, however, benchmarked their rates against Beehive, a conspiring ILEC, instead of a competing ILEC.  After reviewing this practice, the FCC found that the CLECs violated Section 201(b) of the Communications Act by acting as sham entities in order to capture access revenues that could not otherwise be obtained by lawful tariffs.  The FCC further concluded that billing AT&T under this scheme was an unjust and unreasonable practice. 

The Commission also found that the CLECs violated Sections 201(b) and 203 of the Communications Act by billing AT&T for services that they did not provide pursuant to valid and applicable tariffs.  The FCC reasoned that the CELCs’ tariffs were not valid because the CLECs were improperly registered, they disregarded the limitations on their certificates, and they failed to market local exchange services to residents or businesses. 

If you should have any questions the FCC's latest Memorandum, please feel free to contact the TLP Team.

FCC Report on Wireless Competition

The FCC released its Sixteenth Report to Congress on the state of competition in the mobile services marketplace.  The Report makes no formal finding as to whether there is, or is not, effective competition in the wireless industry, but it does report certain facts that may be proxies for competitiveness.  These facts fall into the following categories: network investment; network deployment; consumer preferences; market concentration; prices; handsets; and marketing.  Commissioners McDowell and Pai concurred in the Report because, despite Congress’ request and the comprehensive evidence, the Commission failed to expressly conclude that there is effective competition in the wireless industry. 

Network Investment

  • Verizon, AT&T, Sprint, and T-Mobile, among other carriers, have continued to upgrade their networks with advanced technologies that allow for faster mobile broadband;
  • CTIA reports that investment by wireless operators increased 1.7% from 2010 to 2011 to $25.3 billion;
  • Wireless providers directly employed 238,071 workers at the end of 2011, yielding an average job creation rate of three percent per year;
  • The wireless industry added $146.2 billion to the US GDP in 2011.
Network Deployment

  • In October 2012, 99.9% of the total US population was covered by at least one facilities-based provider offering mobile voice and/or data service.  97% of the population was covered by at least three providers, 93% was covered by at least four providers, and 80% was covered by at least five providers;
  • In October 2012, more than 400,000 people in rural areas had no wireless voice coverage, and 1.3 million rural people lacked access to mobile broadband.
Consumer Preferences

  • Minutes of use for voice services decreased consistently from 2010 to 2011, but mobile data traffic has increased 62% from 2011 to 2012;
  • Voice traffic has decreased while data traffic has increased because of (1) consumers having multiple device connections, many of which can only use data, (2) increased popularity of high-bandwidth mobile applications, and (3) faster networks;
  • The number of consumers subscribing to mobile Internet access services at speeds exceeding 100 kbps in at least one direction increased to 142.1 million in 2011 from 97.5 million in 2010;
  • 11% of mobile users consumed over 2 GB of data per month;
  • Mobile text messaging traffic continued to grow in 2011, but at a slower rate than in 2010;
  • From 2010-2011, 4.6% more consumers subscribed to mobile telephone service;
  • Prepaid, wholesale, and connected device subscriptions are growing faster than postpaid subscriptions;
  • AT&T and Verizon have continued to see the largest number of net consumer additions;
  • The NIH reports that 32.3% of adults lived in wireless-only households in 2011, and in 2012, 36% of households were wireless-only, a trend that is increasing;
  • Poor adults were more likely to live in wireless-only households in the first half of 2012.
Market and Spectrum Concentration

  • The Herfindahl-Hirschman Index’s (“HHI”) weighted average remained essentially unchanged from 2010 to 2011;
  • The average number of mobile broadband providers has increased by  more than 1.3 since August 2010;
  • The four nationwide providers had 92% of wireless revenue in the first half of 2012, with Verizon and AT&T totaling 67% of such revenue;
  • Verizon, AT&T, T-Mobile, Sprint, and Clearwire hold 80% of all spectrum that is suitable for mobile wireless services;
  • For spectrum below 1 GHz, Verizon holds approximately 45 percent, and AT&T holds approximately 39%;
  • For PCS and AWS spectrum, no licensee holds more than 26% of the combined bands.
Prices

  • Mobile wireless prices declined overall in 2010 and 2011;
  • Prepaid smartphone penetration is increasing, as is the trend towards lower per-minute rates;
  • Voice revenue per minute remained at $0.05 for the fifth straight year in 2011;
  • There were three distinct pricing models in 2011 for smartphone data: (1) tiered, usage-based pricing with overage charges; (2) tiered, usage-based pricing with speed reductions; and (3) unlimited data;
  • Data pricing for tablets is less differentiated because the four nationwide providers only offer tiered, usage-based Shared data plans cause light data users with a small number of devices to pay more per megabyte than heavy data users with many devices;
  • plans.
Handsets

  • In June 2012, 23 handset manufacturers offered 266 handset models;
  • Smartphone adoption increased 41% from 2011 to 2012, with 55.5% of consumers owning a smartphone.
Marketing

  • Advertising expenditures by wireless providers declined for the fourth straight year in 2011;
  • From 2010 to 2012, marketing campaigns focused on the quality and size of mobile broadband networks;
  • Since 2011, consumer satisfaction with the wireless purchase experience declined.

If you have any questions regarding the terms of the Report, please feel free to contact the TLP Team.

Friday, March 22, 2013

Chairman Genachowski and Commissioner McDowell to Leave FCC; Thoughts on Replacements

Today, Chairman Genachowski announced that he will step down from the Commission in the coming weeks. Genachowski's term expires on June 30, 2013.  Earlier this week, Republican Commissioner McDowell also announced that he will be leaving the FCC before his term expires on June 30, 2014. 



The following are some thoughts on potential replacements and the Senate confirmation process for the President's nominations.
 
  • Given that Chairman Genachowski’s term expires on June 30, 2013, it seems unlikely - absent some agreement between Democratic and Republican Senate leaders - that his replacement will take over before July 1, 2013 in order to ensure a full five-year term for the replacement. If Genachowski leaves before his term expires or a replacement is confirmed by the Senate, then either Commissioners Rosenworcel or Clyburn will need to act as the interim Chairman until an offical Chairman is confirmed by the Senate.

  • The current front runner to replace Genachowski as Chairman is Tom Wheeler (a leader on Obama’s transition team as well as the former head of both the Cellular Telecommunications and Internet Association (CTIA) and the National Cable and Telecommunications Association (NCTA)). Senate Republican leadership has apparently indicated to the White House that they would not object to the President nominating Wheeler as Chairman.

  • However, the Obama Administration is under pressure from liberal women organizations to nominate a woman to be the next FCC Chairman. In that regard, Karen Kornbluh (President Obama’s OECD Ambassador, former policy advisor for Senator Obama, former Treasury official in the Clinton Administration, and former FCC staffer during the Hundt and Kennard Commissions) is seen by many as the front runner.  Catherine Sandoval (a current member of the California PUC and a former FCC staffer under Chairman Kennard) and current FCC Commissioners Rosenworcel and Clyburn also are possibilities. A dark horse may be Kathy Brown (a Verizon lobbyist and former Chief of Staff for Chairman Kennard). In addition, Anna Gomez (a former NTIA official, Sprint lobbyist and FCC staffer) and Ruth Milkman (the current FCC Wireless Bureau Chief and former advisor for Chairman Hundt) could be in the mix. 

  • Other names that have been mentioned for the FCC chairmanship include Larry Strickling (the current NTIA director, a former FCC bureau chief and former lawyer/lobbyist for Ameritech), Tom Power (a current White House advisor and former advisor for Chairman Kennard), and Blair Levin (former head of the FCC’s National Broadband Plan task force and former advisor to Chairman Hundt). 

  • It is often the case that the President nominates someone for the FCC chairmanship that is not being mentioned in the press. 

  • The nomination to replace Chairman Genachowski will be paired with the nomination for the open Republican seat being vacated by Commissioner McDowell in order to expedite Senate confirmation. It should be noted that the term of the Commision seat for McDowell's replacement will expire on June 30, 2014 (even though the new Commissioner can stay until the end of the first session of the 114th Congress (late December 2015) if not reconfirmed or replaced).
 
  • The front runners for the open Republican seat are Mike O’Reilly (a current policy advisor for the Senate Republican leadership as well as former staffer for former Senator Sununu, an active member of the Senate Commerce Committee, and a former professional staff member on the House Energy and Commerce Committee) and Ray Baum (the current policy advisor for House Communications Subcommittee Chairman Walden as well as the former chairman of the Oregon Public Utility Commission and a former elected member of the Oregon state legislature). Neil Fried (the current Chief Counsel for Communications and Technology of the House Energy and Commerce Committee under Chairman Upton) has also been mentioned for the open Republican seat. In addition, former congressional staffers and current FCC 8th floor staffers Courtney Reinhard and Christine Kurth could be under consideration. It is rumored that Senate Republican leadership has already cleared O’Reilly for the seat. However, while the Senate Republican leadership makes a recommendation to the White House for this seat, it is the President’s prerogative to nominate the person he wants.

If you have any questions regarding the likely nominations for the FCC seats or the Senate confirmation process, please contact Vance Schuemann of any member of the TLP team.



 

FCC Continues to Implement the Spectrum Act; It will Auction the 1695-1710 MHz and 1755-1780 MHz Bands As Early As September 2014

As required by Congress, the FCC has notified the National Telecommunications and Information Administration ("NTIA") that it has accepted NTIA’s recommendation to auction the 1695-1710 MHz band for wireless broadband use.  In addition to authorizing incentive auctions and requiring the auctioning of the T band spectrum, the Spectrum Act required the NTIA to identify 15 MHz of spectrum between 1675 and 1710 MHz for reallocation from federal to non-federal use, which it did in February.  The FCC also plans to auction the 1755-1780 MHz band, and it reserved the possibility that it may pair and auction the 1755-1780 MHz band with the 2155-2180 MHz band, as the wireless industry and Congress have recommended in order to benefit from the international harmonization of that spectrum.

Accordingly, the FCC has indicated that it will begin auctioning both bands as early as September 2014. Under Section 6401 of the Spectrum Act, Congress required the FCC to auction numerous bands spectrum by February 2015, including the 2155-2180 MHz band.

On behalf of its clients, members of the TLP team were among the first to tell Congress and the Administration about the "spectrum crunch" facing the leading competitive wireless providers. TLP subsequently worked closely with Congress to require the FCC to auction these and other spectrum bands by dates certain under Spectrum Act.  TLP continues to work with Congress to pressure the Administration and the NTIA to clear, reallocate and auction underused or unused Federal government spectrum, especially the spectrum in the 1755-1850 MHz band, for mobile broadband use.

If you have any questions regarding the continuing efforts by Congress to deal with the "spectrum crunch," to oversee the FCC's and NTIA's implementation of the Spectrum Act, and to force the Administration to clear additional government spectrum for auction, please contact Vance Schuemann. If you have any questions regarding the upcoming FCC auctions required by Congress under the Spectrum Act, please feel free to contact the TLP team.

Thursday, March 21, 2013

FCC Adopts NPRM to Improve the Reliability of 911 Services

At the FCC’s Open Meeting, the Commissioners unanimously approved an NPRM to improve the reliability of 911 services, based on recommendations that were made in the Derecho Report.  The majority of the NPRM’s proposals are directed at 911 service providers, which are communications providers that are “responsible for routing and delivering 911 calls to” Public Safety Answering Points (“PSAPs”).  The majority of these providers are ILECs, but the NPRM asks whether its proposals should apply to other types of providers, like wireless providers, that may have or attain means to deliver 911 service.

The NPRM explains that many of the 911 outages experienced after the derecho could have been avoided if entities had implemented existing industry best practices.  Because entities had not done so, the NPRM proposes to make the following practices mandatory:

  1. Regularly-scheduled auditing of 911 circuits for physical diversity;
  2. Having sufficient backup power at central offices, which is tested and maintained;
  3. Employing robust network monitoring capabilities that will allow 911 service providers to maintain visibility into their networks in order to detect and repair outages; and
  4. Notifying PSAPs of outages that affect 911 service.  To enact this proposal, the Commission intends to amend Section 4.9 of its rules to require service providers to notify PSAPs of outages immediately, by telephone and email.  The Commission recognizes that its current outage reporting rules apply to a broader range of service providers than 911 service providers, including wireless providers, and it asks whether they should be subjected to the amended rule.
For all of the NPRM’s proposals, the Commission seeks a detailed cost-benefit analysis that uses dollar figures.  The Commission also asks how best to enforce its proposals, either through reporting, certification, reliability requirements, compliance reviews and inspections, or a combination of these methods.  Lastly, the Commission asks whether it should periodically reevaluate or set a sunset provision for the rules based on widespread adoption of NG 911.

Comments will be due 30 days after the NPRM is published in the Federal Register, and Reply Comments will be due 45 days after publication.  Also of note, Commissioner Rosenworcel indicated that she would like to have rules by the first anniversary of the derecho, which is June 29, 2013. 
 
Please feel free to contact TLP if you have any questions regarding the above.

Monday, March 18, 2013

Congress to Look Into Lawful Access to Stored Content under the ECPA

The House Judiciary Committee's Subcommittee on Crime, Terrorism, Homeland Security and Investigations will hold a hearing entitled "ECPA Part 1: Lawful Access to Stored Content" at 10:00 a.m. EST on Tuesday, March 20, 2013. This is expected to be the first in a series of hearings in the House that will look at updating the Electronic Communications Privacy Act (ECPA), especially with regard to requiring search warrants for email and other information stored in the cloud. Appearing before the Subcommittee as witnesses will be Elana Tyrangiel of the Department of Justice,  Richard Littlehale of the Tennessee Bureau of Investigation, Orin Kerr of the George Washington University Law School and Richard P. Salgado of Google.

If you have any questions regarding this hearing as well as any legislation or activity in Congress that could impact the telecommunications, media and technology sectors, please contact Vance Schuemann or any member of the TLP team.



Thursday, March 14, 2013

Bipartisan Leaders of House and Senate Judiciary Committees Settle on Narrow Legislative Fix for Cellphone Unlocking

Despite the efforts of certain interests to use the cellphone unlocking issue to convince Congress to reopen the entire Digital Millennium Copyright Act, the bipartisan leaders of the House and Senate Judiciary Committees seem to have settled on a narrow legislative fix to allow consumers to unlock their wireless devices once they have fulfilled their contractual obligations.

Today, House Judiciary Committee Chairman Bob Goodlatte (R-VA) and Ranking Member John Conyers (D-MI), along with Rep. Howard Coble (R-NC), Chairman of the Courts, Intellectual Property and the Internet Subcommittee and Rep. Mel Watt (D-NC), Ranking Member of the Courts, Intellectual Property and the Internet Subcommittee" introduced H.R. 1123, the "Unlocking Consumer Choice and Wireless Competition Act" in the House, which  "restores the exemption to the  DMCA that permits consumers, once they have fulfilled their contractual obligation, to unlock their cellphones without the approval of their wireless provider."  Specifically, consumers would be able "to unlock their mobile phones, in order to switch from one wireless carrier to another." The legislation "also directs the Copyright Office to determine whether similar treatment should be given to other wireless devices," such as tablets.  The House bill is a companion to a Senate bill (S. 517) introduced on March 11, 2013, by Senate Judiciary Committee Chairman Patrick Leahy (D-VT) and Ranking Member Chuck Grassley (R-IA), and Senators Orrin Hatch (R-UT), Al Franken (D-MN), and Mike Lee (R-UT).

Senators Wyden (D-OR) and Klobuchar (D-MN) also have introduced legislation to address the cellphone unlocking issue (i.e, S. 467, S.481), but those measures will likely face numerous roadblocks in the legislative process.

Should you have any questions regarding any legislation or activity in Congress that could impact the telecommunications, media and technology sectors, please contact Vance Schuemann or any member of the TLP team.

House Judiciary Committee to Examine Abusive Patent Litigation and Patent Trolls

Today at 11:30 a.m. EST, the House Judicary Committee's Subcommittee on the Courts, Intellectual Property and the Internet Subcommittee will hold a hearing entitled “Abusive Patent Litigation: The Impact on American Innovation & Jobs, and Potential Solutions.” The "hearing will examine abusive patent litigation, particularly in the context of patent assertion entities (PAEs), commonly referred to as 'patent trolls'." House Judiciary Committee Chairman Bob Goodlatte (R-VA) has indicated that “[a]busive patent litigation and specifically patent trolls have a significant impact on American competitiveness, costing our economy billions of dollars each year," and the "hearing will allow us to examine the landmark America Invents Act and determine how best to further protect American inventions and promote innovation by discouraging frivolous patent litigation."

Appearing before the Subcommittee as witnesses will be: Mark Chandler of Cisco Systems, Inc.;  Janet Dhillon of J.C. Penney Company, Inc.; John Boswell of SAS Institute, Inc.; C. Graham Gerst of Global IP Law Group, LLC; Phillip Johnson of Johnson & Johnson; and Dana Rao of Adobe Systems, Inc.

Relatedly, Reps Jason Chaffetz (R-UT) and Peter DeFazio (D-OR) introduced H.R. 845, the Saving High-tech Innovators from Egregious Legal Disputes (SHIELD) Act, in the House. "If a troll brings a patent lawsuit and loses, the SHIELD Act makes sure that the troll pays all costs and attorney’s fees associated with the case."

If you have any questions regarding this hearing as well as any legislation or activity in Congress that could impact the telecommunications, media and technology sectors, please contact Vance Schuemann or any member of the TLP team.

Wednesday, March 13, 2013

House to Hold March 20 Hearing on "The Register's Call for Updates to U.S. Copyright Law"

The House Judiciary Committee's Subcommittee on Courts, Intellectual Property and the Internet will be holding a hearing entitled "The Register's Call for Updates to U.S. Copyright Law" on Wednesday, March 20, 2013 at 3:30 p.m. EST.
 
On March 4, 2013, Maria A. Pallante, the Register of Copyrights of the United States and Director of the U.S Copyright Office, gave a speech at the Columbia Law School entitled "The Next Great Copyright Act." A copy of that speech is available here.

If you have any questions regarding this hearing as well as any legislation or activity in Congress that could impact the telecommunications, media and technology sectors, please contact Vance Schuemann or any member of the TLP team.

Tuesday, March 12, 2013

Q2 USF Contribution Factor

The FCC released a Public Notice setting the proposed universal service contribution factor for Q2 of 2013 at 0.155 or 15.5 percent. 

The rate is calculated based on a ratio of (a) the total projected quarterly costs of universal service support mechanisms to (b) the contributors’ total projected collected end-user interstate and international telecommunications revenues.  The projected cost of universal service support is $2,139,590,000.  The projected industry revenue is adjusted to $13.871938 billion.  If the Commission fails to act within 14 days following the release of the Public Notice, then the calculation is deemed to be approved.  Last quarter, the contribution factor was 16.1 percent.

If you have any questions regarding this Public Notice, please feel free to contact us at TLP

Congress Investigating Whether Obamacare's Medical Device Tax and FDA Regulation will Harm Innovation of Smartphones, Tablets, and Mobile Apps

Back on March 1, 2013, the Republican leaders of the House Energy and Commerce Committee wrote to letter to the Food and Drug Administration (FDA) to obtain "information on possible FDA regulation of smartphones, tablets, and mobile apps through Obamacare's medical device tax, which could harm the innovation and economic benefits of the U.S. mobile marketplace."

Now, the Committee has announced a series of hearing to "explore how regulation would affect growth and innovation and look to hear directly from innovators, doctors, patients, and government witnesses who are considering the new tax."

  • "On Tuesday, March 19, the Communications and Technology Subcommittee, chaired by Rep. Greg Walden (R-OR), will explore how FDA regulations and taxes could impact innovation in mobile applications and devices."

  • "On Wednesday, March 20, the Health Subcommittee, chaired by Rep. Joe Pitts (R-PA), will discuss how technological advancements benefit patients and discuss ways to ensure that innovation continues."

  • "On Thursday, March 21, the Oversight and Investigations Subcommittee, chaired by Rep. Tim Murphy (R-PA), will hear directly from FDA and HHS to obtain more information on the Obama administration’s perspective and future plans."

The Committee staff's briefing report for the March 19 hearing follows below. The witnesses for that hearing will be Ben Chodor of Happtique, George Ford of the Phoenix Center for Advance Legal and Economic Public Policy Studies, Robert Jarrin of Qualcomm, Jonathan Spalter of Mobile Future, Bradley Merrill Thompson of mHealth Regulatory Coalition and Teo Forcht Dagi of HLM Venture Partners.

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II. OVERVIEW

Low barriers to entry, quick time to market, inexpensive retail prices, and rapid upgrade cycles have made the mobile application economy an American economic success story. Anyone with a good idea and computer coding ability can get into the business and distribute their innovation around the world. And thanks to the proliferation of subsidized smartphones and the popularity of "app stores," mobile apps are projected to be a $25 billion industry this year and are estimated to have already produced 500,000 jobs.

Health-related applications are a growing segment of this market. Five percent of smartphone owners have downloaded an app to track or manage their health, according to a September 2012 Pew study. Under the Federal Food, Drug, and Cosmetic Act (FFDCA), the Food and Drug Administration could potentially classify these applications—as well as the smartphones and tablets that run them—as medical devices, subjecting them to a lengthy
clearance or approval process. Further, this classification could subject these products to the 2.3 percent medical device tax from the Patient Protection and Affordable Care Act (PPACA), as amended. Overbroad application of this classification could stall the innovation, investment, and job creation that wireless smartphones and apps are bringing to healthcare, as well as ultimately impact the larger wireless ecosystem.
 
III. BACKGROUND

Under section 201(h) of the FFDCA, a product is a medical device subject to FDA regulation if it is:

[A]n instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component, part, or accessory, which is … [either] intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals … [or] intended to affect the structure or any function of the body of man or other animals.

Given this definition, a host of software tools and mobile devices are potentially within the FDA’s regulatory ambit.

The FDA released draft guidance in July 2011 on how it will regulate mobile medical applications and devices under its medical device authority. The FDA indicated that an app that is used "as an accessory to a regulated medical device" or that "transforms the [smartphone] into a regulated medical device" would be subject to FDA regulation. Further, the FDA provided specific guidance and examples on the types of apps that would trigger FDA regulatory oversight (e.g., apps that store or display historical data from a blood glucose monitor, apps that allow the user to view medical imagery, apps that use the device’s built-in features such as the camera for a medical purpose) and those that would not (e.g., dietary tracking logs, appointment reminders, dietary suggestions based on a calorie counter, posture suggestions, exercise suggestions, or similar decision tools that generally relate to a healthy lifestyle and wellness that are not intended to treat a specific health condition). The FDA’s draft guidance also sets out specific criteria for whether a smartphone or tablet is subjected to regulatory oversight as a medical device.

Certain medical devices were also subject to a 2.3 percent excise tax beginning Jan. 1, 2013, as part of PPACA. Depending on how the law is interpreted, this tax potentially could apply to mobile health applications as well as smartphones and tablets.

IV. DISCUSSION Treatment of apps, smartphones, and tablets as medical devices could hinder the growing mHealth app sector and the broader mobile wireless ecosystem by disrupting the virtuous cycle of innovation and investment between applications and devices and the timely and cost effective upgrade cycle for both. Mobile health apps and devices that fall within the medical device regime are subject to a variety of regulatory requirements ranging from registration and labeling to a full, pre-market approval process. This can slow time to market or even discourage development of the applications in the first place. The app ecosystem is also made up of many wireless devices and operating systems. Updates to operating systems, application programming
interfaces, and other software changes outside the control of the app developer occur regularly. How will the FDA handle small, iterative updates to apps to accommodate operating system changes? Does the FDA process contemplate the potentially short life span of a particular wireless device or version of an operating system? Does the FDA intend to reevaluate apps each time there’s a change anywhere in the ecosystem? Why is an app even considered a medical device under the FFDCA?

The lack of clarity surrounding the definition and guidelines has also exacerbated the problem by creating a cloud of uncertainty around applications and device uses that do not fit clearly into the examples the FDA provides. For example, the triggering mechanisms at the FDA for regulation generally have hinged, until recently, on the intended use of the product. In the case of apps, this can produce a strange dichotomy in which the same app that is used to track caloric intake might not be considered a medical device when used by an individual for personal diet purposes, but may be considered a medical device when recommended by a doctor to treat a specific condition (e.g., obesity). And an app that is used to log blood glucose readings is considered a medical device when it interacts directly with a blood glucose meter, but not when the readings are manually entered into the app. How the FDA will apply its device marketing guidance is also unclear. For example, if a company markets its tablets to a nursing school or hospital, or includes an example of a health-related use in an advertising campaign, has it marketed the tablet for use as a medical device?

Applying the medical device tax to apps and wireless devices also threatens this market by raising consumer costs, reducing already thin margins, discouraging investment, and delaying the time to profitability. For every success story like Angry Birds there are tens of thousands of apps and app developers that never turn a profit. Additional costs in the form of lengthy approval processes at the FDA and the imposition of an excise tax could cause developers and investors to focus their mobile app efforts on areas outside the health and wellness arena. What additional costs does classification as a medical device place on app creators? Will application of the medical device excise tax cause app developers to turn away from the health and wellness category of apps, harming innovation? How long is the average app approval at the FDA as compared to unregulated apps? How would application of the tax to smartphones and tablets impact that market? Might raising costs to consumers slow the pace of device innovation?

Ultimately the wireless marketplace is an ecosystem in which changes to one element necessarily impact other parts of the ecosystem. Use of new and innovative wireless devices drives consumers to purchase apps for the devices, which in turn drives demand for improved networks and devices. If private equity is faced with the prospect of smaller margins on investment in a regulated app economy, could that impact the wireless ecosystem as a whole?


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If you have any questions regarding these hearings as well as any legislation or activity in Congress that could impact the telecommunications, media and technology sectors, please contact Vance Schuemann or any member of the TLP team.


Monday, March 11, 2013

Senator Pryor Announces Agenda for Senate Communications, Technology and Internet Subcommittee

Today, Senator Pryor (D-AK) announced that the Senate Commerce Committee's Subcommittee on Communications, Technology and the Internet would be holding informational and educational hearings during the Spring of 2013 on the following issues.

•    State of Wireless Communications: Topics will include the ongoing need for more spectrum, deployment of 4G LTE networks, and competitive issues.
 
•    State of Wired Communications: This hearing will focus on the state of broadband deployment, the transition from traditional telephone to IP based systems, and issues affecting voice telephony and broadband networks.
 
•    State of Video: Topics will include media consolidation, marketplace issues, and other competitive concerns.
 
•   State of Rural Communications: This hearing will examine broadband adoption and deployment in rural America.

Last month, retiring Senate Commerce Committee Chairman Rockefeller (D-WV) also announced his priorities for the Committee during the 113th Congress. Those priorities include:

  • Preparing Americans for a digital economy by closing the digital divide and expanding access to broadband – wired and wireless

  • Oversight of critical government programs, including...FirstNet implementation, which will provide our nation’s first responders with an interoperable broadband communications network...and Increasing access to telecommunications and broadband infrastructure for schools and communities through the E-Rate program

  • Safeguarding consumer information and strengthening privacy protections on the Internet, including an investigation into the business practices of companies that collect and sell consumer data

  • Studying the impact of violent and indecent media content on children

  • Promoting competition and increasing consumer choice in video content

  • Cracking down on consumer fraud, including telephone billing scams, and monitoring the impact technological developments have on consumers to ensure bad actors cannot take advantage of consumer confusion

  • Continuing oversight of key federal agencies with consumer protection mandates, such as the Federal Trade Commission, the Consumer Product Safety Commission, the Surface Transportation Board, and the Federal Communications Commission


  • If you have any questions regarding any activity in Congress that could impact the telecommunications, media and technology sectors, please contact Vance Schuemann or any member of the TLP team.

    House Hearing on Oversight of FirstNet and Emergency Communications Issues

    The House Energy and Commerce Committee's Subcommittee of Communications and Technology will hold a hearing on “Oversight of FirstNet and Emergency Communications” on Thursday, March 12, 2013, at 10:30 am EST.  The hearing will (1) examine the activities of FirstNet, which was created by Congress in the Middle Class Tax Relief and Job Creation Act of 2012 (Spectrum Act) to build and maintain a nationwide, interoperable broadband public safety network, and (2) discuss issues related to other emergency communications systems used to communicate with the general public.

    Appearing before the Subcommittee will be the following witnesses: Sam Ginn (Chairman of FirstNet), Ray Lehr (Maryland Department of Information Technology), Chris McIntosh (Statewide Interoperability Coordinator for the Commonwealth of Virginia), James A. Barnett, Jr.(Venable LLP), Declan Ganley (Rivada Networks), Christopher Guttman-McCabe (CTIA – The Wireless Association), Trey Forgety (the National Emergency Number Association), Diane Kniowski (President and General Manager of WOOD TV, WOTV and WXSP), and David Turetsky (the Federal Communications Commission).

    The Committee staff's briefing memorandum for the hearing follows below.

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    II. FirstNet

    In the 112th Congress, both the House and Senate embarked on legislation to help facilitate construction of a nationwide, interoperable broadband public safety network, although they each took different approaches. The chambers ultimately reached a compromise as part of the Middle Class Tax Relief and Job Creation Act of 2012.

    A. House Approach
    The House approach, embodied in Communications and Technology Subcommittee Chairman Greg Walden’s "Jumpstarting Opportunity with Broadband Spectrum Act," passed the House in December 2011 as part of the Middle Class Tax Relief and Job Creation Act of 2011. That approach would have empowered States or groups of States to negotiate with commercial wireless providers to build out their portions of the nationwide network so long as they met FCC-determined minimum interoperability requirements. The act would have made $5 billion in implementation grants available to the States, administered by the NTIA, and funded with spectrum auction proceeds.

    B. Senate Approach
    The Senate approach, embodied in Commerce, Science, and Transportation Committee Chairman Jay Rockefeller’s "Public Safety Spectrum and Wireless Innovation Act," passed the Committee in June 2011. That approach would have created a national, non-profit, quasi-governmental corporation akin to Amtrak, with access to $11.75 billion in spectrum auction proceeds to build the network.

    C. Final Compromise
    The final compromise, embodied in the Middle Class Tax Relief and Job Creation Act of 2012, created FirstNet, an "independent authority" within the NTIA to oversee construction of a national public safety broadband network. The law makes up to $7 billion from net spectrum auction proceeds available for FirstNet to use toward construction of the network. FirstNet is allowed to borrow up to $2 billion of those proceeds up front, but does not have access to the additional funding unless and until raised by future auctions. FirstNet will build and operate the core and radio access networks that comprise the national system. States are permitted to "opt out" and build their own radio access networks, subject to interoperability rules created by FirstNet and approved by the FCC.

    The law authorizes FirstNet to charge the States user fees for access to the core network as well as leasing fees for access to the 700 MHz public safety spectrum. Although FirstNet is prohibited from offering commercial services to the public, it is permitted to offer wholesale access to wireless providers. States that build their own radio access networks are similarly prohibited from offering commercial services to the public. Unlike FirstNet, they are also prohibited from offering wholesale services unless they do so as part of a public-private partnership for the construction, maintenance and operation of the State’s radio access network.

    Under the statute, the Secretary of Homeland Security, the Attorney General, and the Director of the Office of Management and Budget are permanent FirstNet board members. The NTIA announced the remaining 12 members on August 20, 2012, with Sam Ginn, former CEO of AirTouch, appointed Chairman. The other board members, as announced by the Department of Commerce, are:
    • Tim Bryan, CEO, National Rural Telecommunications Cooperative

    • Charles "Chuck" Dowd, Deputy Chief, New York City Police Department

    • F. Craig Farrill, Wireless telecommunications executive

    • Paul Fitzgerald, Sheriff, Story County, Iowa

    • Jeffrey Johnson, Fire Chief (retired); former Chair, State Interoperability Council, State of Oregon; CEO, Western Fire Chiefs Association

    • William Keever, Telecommunications executive (retired)

    • Kevin McGinnis, Chief/CEO, North East Mobile Health Services

    • Ed Reynolds, Telecommunications executive (retired)

    • Susan Swenson, Telecommunications/technology executive

    • Teri Takai, Department of Defense Chief Information Officer; former CIO, states of Michigan and California

    • Wellington Webb, Founder, Webb Group International; former Mayor, Denver, Colorado
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    FirstNet also has a 40-member Public Safety Advisory Committee, chaired by Chief Harlin McEwen, who is also chairman of the International Association of Chiefs of Police Communications Committee. The Public Safety Advisory Committee vice chairs are Chief Bill McCammon from Alameda County, California, representing the Metropolitan Fire Chiefs Association; Paul Patrick from Salt Lake City, Utah, representing the National Association of State EMS Officials; Heather Hogsett from Washington, D.C., representing the National Governors Association; and Tom Sorley from Houston, Texas, representing the U.S. Conference of Mayors.

    Prior to passage of the Middle Class Tax Relief and Job Creation Act of 2012, the NTIA made available $382.5 million in broadband stimulus funding for seven interoperable, broadband public safety networks in and around Los Angeles; the San Francisco Bay Area; Adams County, Colorado; Charlotte, North Carolina; Mississippi; northern New Jersey; and Albuquerque-Santa Fe, New Mexico. The NTIA suspended those grants in May 2012, alleging it had authority to do so because the networks might not be compatible with the ultimate network designed by FirstNet. FirstNet adopted a process at its February 2013 board meeting under which these suspensions might be lifted if the States comply with certain conditions and demonstrate how they will coordinate their networks with FirstNet.

    III. EMERGENCY COMMUNICATIONS

    A. The Emergency Alert System

    What is now the Emergency Alert System (EAS) began as the 1950s CONELRAD System, designed to use the nation’s broadcast infrastructure to deliver civil defense information. The Emergency Broadcast System, which replaced CONELRAD in 1963, expanded beyond civil defense information to provide the public information about storms and other emergencies. As the scope of the alerts expanded, so did the number of participating outlets. Currently, EAS incorporates participation by broadcast radio, broadcast television, cable systems, satellite television providers, and satellite radio providers. EAS messages originate from the Federal Emergency Management Agency’s Integrated Public Alert and Warning System (IPAWS) and are distributed by Primary Entry Point broadcast stations. Special equipment required by the FCC to be a part of each radio, television, and video programming system picks up the PEP station signal and rebroadcasts the message to subscribers.
    The EAS has a national plan—coordinated by the FCC, the Federal Emergency Management System, and the National Weather Service—in addition to plans that are maintained by the States. Despite requirements that each participant test its system independently, there had never been a coordinated test of all of the EAS stations across the country. That changed on November 9, 2011, when the FCC and FEMA oversaw a nationwide test of the EAS. Unfortunately, a number of stations on the west coast suffered a technical malfunction that prevented the test message from reaching the general public. More recently, a broadcast station in Montana was apparently hacked and transmitted an alert to the public claiming that zombies had begun to attack the living.

    B. Wireless Emergency Alerts
    In April 2012, the nation’s four largest wireless providers as well as a number of local and regional providers voluntarily adopted what is now called the Wireless Emergency Alert (WEA) system. The WEA system is designed to bring geographically targeted emergency and AMBER alerts to wireless users. Like the EAS, the alerts originate from FEMA’s IPAWS. Wireless emergency alerts are then sent through participating carrier networks and targeted to wireless devices in the selected area. Geographically targeting the alerts ensures that information is presented to wireless subscribers only in affected areas, reducing the chances that consumers will ignore alerts over time as a result of receiving alerts that are not relevant to their particular area.

    C. 9-1-1
    The 9-1-1 system is the primary way the public reaches emergency services over voice telephony. Originally a wireline system, it was eventually expanded to wireless service. As of 2005, service became available for Internet-based voice services that provides the ability to make and receive calls with traditional phone numbers. The Middle Class Tax Relief and Job Creation Act of 2012 also provides $115 million in funding to incorporate broadband connectivity into the 9-1-1 system. As communications systems migrate from traditional telephony to Internet Protocol (IP), the 9-1-1 system will need to evolve to take advantage of the increased connectivity that IP will provide—including the possibility of including photos and video. While the 9-1-1 system provides reliable service the vast majority of the time, during several recent natural emergencies the 911 system suffered both equipment and capacity problems.

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    If you have any questions regarding this hearing as well as any legislation or activity in Congress that could impact the telecommunications, media and technology sectors, please contact Vance Schuemann or any member of the TLP team.