• On August 3, 2005, Federal regulators approved the pending $35 billion merger between Sprint Corp. and Nextel Communications Inc., potentially clearing the way for the companies to close the giant deal within weeks. The Federal Communications Commission approved the deal in a unanimous 4-0 vote, and the Justice Department also gave the merger its blessing. The merger will create a nationwide company with about 45 million customers and give Sprint, which will be the surviving company, Nextel’s loyal and lucrative base with business customers. Sprint will remain the nation’s third-largest wireless carrier after Cingular Wireless and Verizon Wireless. The acquisition “will ensure that consumers continue to receive the benefits of wireless competition, such as reduced prices and increased coverage,” FCC chairman Kevin Martin said in a statement. As a condition to its approval to the merger, the FCC is requiring that Sprint Nextel fulfill its voluntary commitment to meet certain milestones for offering service in 2.5 GHz band, unless circumstances beyond its control prevent the merged entity from reaching those milestones. The Justice Department said: “The evidence gathered in the Division’s investigation indicates that the merger will not harm customers.”

• President Bush is expected as early as Friday, August 5, 2005, to fill two vacancies at the Federal Communications Commission, according to an informed source. Expected to be nominated are Richard M. Russell, the White House’s associate director in the Office of Science and Technology Policy, and Deborah Taylor Tate, director of the Tennessee Regulatory Authority. Both are Republicans. The five-member FCC has been short one seat since the March resignation of FCC chairman Michael Powell. Bush is expected to make a second nomination because current FCC member Kathleen Abernathy has said she intends to leave the agency once her seat has been filled.

• On August 1, 2005, CompTel, a leading U.S. industry association representing competitive communications providers, submitted comments on the impact of the SBC/AT&T and Verizon/MCI mergers to the Office of Fair Trading (“OFT”), an independent professional organization that promotes consumers interests in the United Kingdom. CompTel urged the OFT to refer the mergers to the Competition Commission for further investigation. “The competition authorities in Europe should not assume that in the United States the FCC or the Department of Justice will block the mergers or impose effective conditions or other remedies,” writes CompTel President and CEO Earl Comstock in the filing. “These mergers will have detrimental effects on the Internet backbone market, peering, and Global Telecommunications market, and will have a negative impact on E.U. (including U.K.) customers.” In its comments, CompTel offered evidence that the SBC/AT&T and Verizon/MCI mergers will harm competition. “These mergers deserve a very thorough competition review and investigation in the U.K. with a wide consultation of all interested third parties,” writes Comstock. “Therefore in the U.K., it is important that the OFT refer these mergers to the Competition Commission.”

• On July 28, 2005, FCC Chairman Kevin Martin said he has circulated a proposal that would treat the service, known as digital subscriber line (“DSL”) broadband, as an information service. If approved, that would exempt it from most traditional telephone rules, such as requirements to lease network access to competitors. The FCC in 2002 decided that broadband Internet service offered by cable companies was an information service and the Supreme Court last month upheld that decision. That has cleared the road for the FCC to act on DSL service. A 2002 regulatory proceeding governing DSL modems was put on hold pending the cable-modem court case. With the high court’s refusal to consider the FCC’s media ownership rules, the agency will revisit rules barring newspapers from owning broadcast stations. Telephone companies have complained that applying legacy telephone rules to new broadband services put them at a competitive disadvantage against other companies, such as cable operators, that do not have to adhere to such regulations. While DSL is usually cheaper, cable Internet service typically offers faster speeds.

• On July 26, 2005, telecommunications industry officials reacted favorably to reports about a tentative reorganization of the FCC contemplated by agency Chairman Kevin Martin. Martin is contemplating abolishing the Wireless Telecommunications Bureau and splitting its functions into the existing Wireline Competition Bureau and a new spectrum bureau or office, according to sources in the industry and within the FCC, as well as officials who have recently departed the agency. Most sources see a spectrum bureau absorbing the functions of the Office of Engineering and Technology, which offers technological advice to the chairman, particularly on radio-frequency issues. Martin also is contemplating the creation of a homeland security division or bureau that would centralize the functions pertaining to emergency responders, whether through wireless or wire-based communications, sources said.

• On July 24, 2005, Commissioner Adelstein call for an investigation of payola practices uncovered by New York Attorney General Eliot Spitzer, based on the announcement of a settlement with Sony BMG Music Entertainment. Commissioner Adelstein said, “It’s a real tribute to Attorney General Eliot Spitzer that he has blown the lid off a potentially far-reaching payola scandal. I’ve been expressing concern about this for some time in terms of enforcing our federal rules, but it took someone with Spitzer’s tenacity and subpoena power to bring forward solid evidence.” Commissioner Adelstein has challenged the entertainment industry to reform its practices, and he openly called for the American public to help the FCC in monitoring and enforcing the rules against airing undisclosed promotions, including VNRs and product placements. At the urging of Commissioner Adelstein, the Commission issued a unanimous Public Notice on Video News Releases and a fact sheet on payola. In the Notice, the FCC said the payola rules “are grounded in the principle that listeners and viewers are entitled to know who seeks to persuade them with the programming.”

• On July 21, 2005, public-interest groups and competing satellite programmers sought to impose additional conditions on the acquisition of Adelphia Communications by Comcast and Time Warner. Comcast and Time Warner intend to purchase bankrupt Adelphia and divide the spoils — a $17.6 billion transaction that also includes key system swaps design to bolster regional clusters. Among the critics of the merger are DirecTV, EchoStar Communications Corp., International Brotherhood of Electrical Workers, Communications Workers of America, the Center for Digital Democracy, Media Alliance, the National Hispanic Media Coalition and the U.S. Public Interest Research Group. Because “the unmistakable purpose of this transaction is to create or maximize regional monopolies … the commission must refuse permission for this transaction,” the groups said. DirecTV and EchoStar want guaranteed access to regional sports networks before the federal government approves the takeover of Adelphia. Few experts think the deal will be blocked, although some are pushing for rules requiring that cable programmers not discriminate in the price they charge operators for spots or other programs. FCC regulations that prevented a single cable operator from serving more than 30 percent of the nation’s television households have been overturned, and neither Comcast nor Time Warner would exceed the limits as a result of the Adelphia acquisition.

• On July 14, 2005, the FCC delayed the start of its effort to rewrite rules on media consolidation. The FCC pulled the issue from its agenda at the last minute, with FCC Chairman Kevin Martin citing disagreements among commissioners about the kind of public input that would be sought in crafting new rules.

• On July 7, 2005, the Justice Department tentatively approved Alltel’s $4.4 billion purchase of Western Wireless, a merger that would make Alltel the fifth-largest wireless carrier in the United States, the Seattle Post-Intelligencer reports. On July 11, 2004 the Federal Communications Commission consented to the applications filed in connection with the proposed merger of Alltel and Western Wireless subject to certain conditions. The transactions would transfer the control of licenses held by Western Wireless and its subsidiaries to Widgeon Acquisition, a wholly-owned subsidiary of Alltel. The Commission conditioned its consent on the companies divesting Western Wireless business units – customers, infrastructure, and cellular spectrum – in 16 CMAs. The Commission stated that this condition would ensure that there will be a sufficient number of competitors with the presence and capacity to compete effectively against the merged entity in these markets. The Commission denied all of the petitions filed in opposition to the merger, finding that the merger as conditioned would serve the public interest. Western Wireless shareholders are set to vote on the proposed deal July 29th.

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