• On January 31, SBC Communications Inc. (“SBC”), the second-largest regional phone company in the nation, said it would buy AT&T Corp. (“AT&T”), the biggest U.S. long-distance carrier, for about $16 billion. The combination will make SBC the largest U.S. telecommunications company and end AT&T’s independence after suffering a two-decade decline after losing its U.S. monopoly. The deal marks the final chapter in the 120-year history of AT&T, the first technological giant of the modern age and the original model for telecommunications companies worldwide. It is a reunion of sorts, putting back together some of the largest pieces of the Ma Bell telephone monopoly, which was broken up in 1984. This transaction will be reviewed by both the FCC and the DOJ. In 1997, Reed Hundt, FCC chief at the time, deemed such a reunion “unthinkable.” But many analysts feel the deal will probably clear that agency as well as Justice Department antitrust enforcers because the industry has changed so dramatically.
  • The DOJ will not ask the U.S. Supreme Court to review a decision that struck down FCC rules that relaxed restrictions on the ownership of TV stations, radio stations and newspapers in the same market, an FCC spokeswoman said on January 27. Media interests that supported the FCC’s rules nevertheless intend to file an appeal with the high court, but the absence of Bush administration support will make it harder to get the case heard. The FCC sparked a controversy in June 2003 when it adopted rules that allowed one company to own three TV stations, eight radio stations, the dominant local newspaper and cable systems in the country’s largest markets. In addition, the agency permitted greater media concentration in mid-sized and small markets. Last June, a panel of the U.S. Court of Appeals for the Third Circuit in Philadelphia rejected the bulk of these FCC policies. The rules never took effect because the Third Circuit imposed a judicial stay in September 2003.
  • On January 25, the FCC opened an inquiry to examine the competitive impact of rules that prevent cable systems from importing network stations from neighboring markets. Small cable operators are concerned that the inability to provide out-of-market network stations gives the in-market network stations excessive market power in negotiating carriage agreements. Last December, Congress passed a law that ordered the Commission to study the impact of four rules and to file a report with the House Energy and Commerce Committee and the Senate Commerce Committee by September 8. Congress was particularly concerned about whether the rules were harming the ability of rural cable to obtain access to digital-broadcast signals and to compete with direct-broadcast satellite carriers. In its public notice, the FCC requested to receive comments no later than March 1 and reply comments no later than March 16. The FCC study will review retransmission consent, which allows TV stations to demand payment and other forms of compensation for cable carriage. The agency will also look at the network-nonduplication rule, which allows a network station to bar a cable system from carrying network programming provided by another network affiliate. Additionally, the Commission asked for comment on the syndicated-exclusivity and sports-blackout rules. Small cable operators are focused on retransmission-consent and network-nonduplication rules. By importing out-of-market network stations, small operators believe that in-market network affiliates of ABC, NBC, CBS and Fox would have less leverage in carriage negotiations.
  • On January 24, Kenneth Ferree, chief of the FCC’s Media Bureau, informed his staff in an e-mail that he plans to depart March 4, about the same time as FCC chairman Michael Powell (see below). Ferree was Powell’s point man on a number of key issues. He helped craft controversial broadcast-ownership rules that were ultimately blocked from taking effect. Last year, Ferree and his staff created a plan to end TV broadcasting’s transition of digital-only transmission by December 31, 2008 – a proposal the National Association of Broadcasters (“NAB”) is trying to defeat as too friendly to the cable industry and too hostile to consumers who have not purchased digital receivers. In June 2003, Powell and Ferree tried to relax broadcast-ownership rules in a plan that would have allowed one company to own more TV stations, radio stations, newspapers and cable systems in the same market. These media rules sparked a large controversy, with consumer and public-interest groups complaining that the FCC was catering to the wishes of industry and exaggerating the impact of the Internet on competition and diversity. But TV broadcasters were divided over the plan. In particular, NAB members affiliated but not owned by the four major TV networks bitterly opposed the FCC’s decision to move the national audience-reach cap to 45%. Congress rolled back the 45% cap to 39%, and a Federal Appeals Court rejected nearly all of the rest of the plan.
  • On January 21, FCC chairman Michael Powell announced his resignation after four years as chairman. In a prepared statement, Powell said he planned to leave “sometime in March” and take some time off “before taking up my next challenge.” Powell, 41, joined the FCC in 1997, a Republican nominee of President Clinton who previously appointed him chief of staff of the DOJ’s Antitrust Division. President Bush elevated Powell to FCC chairman a few days after his 2001 inauguration. Later, Powell was confirmed for a five-year term ending June 30, 2007. Powell said it was time to leave the FCC “having completed a bold and aggressive agenda” designed “to get the law right in order to stimulate innovative technology that puts more power in the hands of the American people.”

Authored by:
Olev Jaakson
213-617-5528
OJaakson@sheppardmullin.com