• Requiring the sale of digital-subscriber-line service on a stand-alone basis is unnecessary because “naked DSL” is generally available in its markets, Verizon Communications said in a filing defending its proposed merger with MCI Inc. Earlier this month, New York State Attorney General Eliot Spitzer urged the Federal Communications Commission (“FCC”) to require naked DSL, claiming that Verizon’s bundling of voice and DSL in a package was anti-competitive and deterred consumers from experimenting with voice-over-Internet-protocol providers. Cable companies complained about Verizon’s bundling policies before the merger was announced, questioning the regional Bell operating company’s refusal to transfer a customer’s phone number until both phone and DSL service had been discontinued.

• Comcast Corp. (“Comcast”) and Time Warner Inc. (“Time Warner”)are asking federal regulators to approve their joint acquisition of Adelphia Communications Corp. (“Adelphia”), claiming that they are in better position than the bankrupt cable company to offer an array of advanced video and data services. The $17.6 billion merger was filed with the FCC. The deal also requires approval from the FTC, which imposed strong conditions on the merger between Time Warner and America Online Inc. in early 2001. The merger “will generate real and substantial benefits for consumers that are not achievable through other means and will do so without violating any statute or [FCC] rule or creating any anticompetitive effects or media-diversity concerns,” the cable companies said in an 86-page filing.

  The FCC decided to start a rulemaking designed to place limits on cable ownership and the amount of affiliated programming a cable company can carry on its systems. The FCC adopted the order unanimously under new chairman Kevin Martin as it prepares to review the acquisition of Adelphia in a complex deal involving the two largest cable companies, Comcast and Time Warner. In March 2001, a federal court struck down FCC horizontal rules that limited one cable company to serving no more than 30% of pay TV subscribers nationally. The agency’s vertical limits allowed a cable company to use no more than 40% of its first 75 channels for affiliated programming, but the court struck down those rules as well. After picking up 1.8 million subscribers in the Adelphia transaction, Comcast CEO, Brian Roberts, said the company would serve about 29% of pay subscribers, based on 23.3 million wholly owned and 3.5 million partially owned subscribers and based on a pay TV universe of 92.2 million subscribers. In a notice, the FCC said it wanted “to take a fresh look at rules that will foster competition and diversity in the video-programming market.”

  The decision by the FCC to revive cable-ownership rules shouldn’t delay the agency’s review of the $17.6 billion joint purchase of Adelphia by Comcast and Time Warner, according to a report by Stanford Washington Research Group analyst Paul Gallant. Gallant, a former FCC official, said the Commission would take between 9-12 months to review the deal after weighing concerns about whether Comcast and Time Warner will have too much market power in various markets and whether their high-speed-data customers can roam the Internet freely.

• The head of Nextel Communications (“Nextel”) in Reston, Va., says regulators seem favorably disposed to his company’s merger with Sprint, based in Overland Park, Kansas. Nextel CEO, Tim Donahue, told Wall Street analysts he expects the regulators to approve the $35 billion deal by August, the Kansas City Star reported Friday. The merger, when completed, would create the nation’s third largest wireless carrier with 43 million subscribers. Cingular and Verizon Wireless are the current market leaders. Donahue’s comments came as Nextel reported first-quarter earnings of $595 million, or 52 cents a share, on sales of $3.6 billion. Nextel added 810,000 subscribers during the period. Donahue sought to reassure customers about the differing technologies used by his company and Sprint, the Star reported. He said no customers will be forced to migrate from one network to the other, and for now Nextel will continue to support and invest in its network.

• The Federal Communications Commission upheld and clarified its rules governing the duty of local exchange carriers to grant competing carriers access to directory assistance information. The Commission denied a petition filed by BellSouth Corp. and SBC Communications Inc. seeking reconsideration of rules that bar them from imposing restrictions on the use by competitors of directory assistance information competitors obtain from the LECs under the Communications Act. Section 251(b)(3) of the Act requires that LECs provide nondiscriminatory access to directory assistance, and the Commission has determined that this permits competitors to have the same access to directory assistance information that the LECs provide to themselves.

• FCC chairman, Kevin Martin, appointed communications lawyer Donna Gregg as chief of the Media Bureau, the division that oversees broadcasters and cable operators. “Donna brings a wealth of experience and expertise on media issues to the [FCC]. I have long been impressed by her intellect and engaging personality, and I am grateful that she has agreed to continue her commitment to public service by returning to the [FCC],” Martin said in a prepared statement. Gregg, whose start date was not announced, is vice president of legal and regulatory affairs and general counsel of the Corporation for Public Broadcasting. The CPB’s acting CEO is Kenneth Ferree, who headed the Media Bureau under FCC chairman Michael Powell. Years ago, Gregg was an FCC staff attorney. Martin also announced that Roy Stewart, a 40-year FCC veteran, will serve as Gregg’s senior deputy chief, and Deborah Klein will serve as deputy chief. Klein has been acting chief since Ferree’s departure in March.

• The antitrust chief at the Justice Department notified his bosses of his intent to resign, The Wall Street Journal reports. The move means R. Hewitt Pate will not be involved in the decision to approve or reject two pending telecommunications mergers. The White House is now conducting interviews for a new assistant attorney general for antitrust, a position that includes merger reviews, prosecuting criminal price-fixing and promoting competition.

Authored by
Gregg Mendenhall
202-218-0025
gmendenhall@sheppardmullin.com