Tech Law Journal Daily E-Mail Alert
October 26, 2001, 9:00 AM ET, Alert No. 295.
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Michael Powell Addresses Broadband Policy
10/25. FCC Chairman Michael Powell gave a speech on broadband policy at a NARUC convention in Crystal City, Virginia. He stated that broadband should exist in a minimally regulated space, that there should be multiple broadband platforms, that availability rather than adoption rates should drive government policy, that broadband service is already widely available, and that copyright issues are delaying the distribution of broadband intensive content, and hence, demand for broadband.
Powell repeated his oft stated premise that "the key measure is availability of the service, not adoption rates. I emphasize availability, because there are many questions that remain as to what services consumers will value, and to what degree they will be willing to subscribe. I am hesitant to let adoption rates drive government responses, for a developing market needs the cues provided by consumer free choice."
Copyright Barriers to Broadband Adoption. Powell noted that broadband service, through either cable or DSL service, is already available to almost 85% of households; yet, only 12% of these households subscribe. He stated that part of the problem is the lack of applications for broadband. He added that "much of the broadband intensive content that is likely to be the core of broadband applications (like movies and music) is in the hands of major copyright holders that are unlikely to make it widely available without stringent protections and a way to profit from its distribution (see, for example, the Napster experience). This will take some hard work and time." (Parentheses in original.)
He also stated that "Much of what is holding broadband content back is caused by copyright holders trying to protect their goods in a digitized environment (in other words, a perfect reproduction world). Stimulating content creation might involve a re-examination of the copyright laws."
Regulatory Classification. Powell stated that "I believe strongly that broadband should exist in a minimally regulated space. Substantial investment is required to build these networks and we should limit regulatory costs and uncertainty. We should vigilantly guard against regulatory creep of existing models into broadband, in order to encourage investment."
Competition Policy. Powell was vague on this issue. He said that "Economic scale does matter and it does take a great deal of resources to deploy these networks. There will be a very strong pull towards greater concentration in these markets to get the job done and we will be forced to consider the trade-offs. I am equally convinced, however, that competition can exist in the race to deploy broadband platforms and that policy should not foreclose competition and jump on the monopoly trolley as it did in the early 1900s."
Multiple Broadband Platforms. He stated that "we should work to keep multiple platforms and routes to the home open and viable in a broadband world. We need to keep incentives alive that encourage investment in alternate platforms (such as cable, wireless, and satellite) and push entrepreneurs to find creative ways to bypass incumbents and get into the home."
George Gilder Addresses Broadband Policy
10/23. George Gilder gave an address on broadband policy in which he argued that broadband services should be deregulated, and particularly, that the incumbent local exchange carriers (ILECs) should be deregulated. He stated broadband deployment is fundamental to reviving the economy. In addition, he argued for monetary policy that recognizes that there is global deflation which is harming debt laden tech companies.
Gilder is the author of Telecosm: How Infinite Bandwidth Will Revolutionize Our World [Amazon], and numerous other books.
He stated that "what went wrong is two key factors: ... a global deflation ... and regulatory paralysis in the local loop. These were the two big factors that halted this tremendous pace of Internet deployment and the deployment of content for it."
Gilder criticized the Telecom Act of 1996. He stated that "what happened really in 1996 was a regulation of broadband. And, price controls imposed on broadband by the FCC across the country. And this meant that the incumbent operators were forced to share their facilities with rivals at costs well below their real cost. And this had two effects. It, one, created lots of companies attempting to hitch hike on the RBOC facilities ... The other effect was to devalue all facilities based carriers ... They had to compete with the bargain basement facilities that were being mandated under what is called TELRIC -- total element long run incremental costs."
"They privatize the risk, and socialize the rewards, and the result is paralysis of investment," concluded Gilder.
Section 271 and Long Distance. "There should not be any distinction between long distance and local service. That is a vestige of a long gone era. Communications is communications. The problem with the separation is that it adds yet another layer of cost to broadband services," said Gilder. "So, you get slower deployment than you would otherwise have."
Regulation of Voice. Gilder conceded that some regulation should remain. He said that "there is such an enormous entrenched regulatory system for voice, which is a relatively static service, which will be eroded over time, as IP telephony advances. You probably do have to retain regulations on voice. The universal service charade is not going to be dissolved tomorrow. The emergencies services, the 911, all of that cluster of requirements that surrounds existing voice probably can't be dissolved".
Tauzin Dingell Bill. Gilder stated that the Tauzin Dingell bill would "deregulate broadband." He stated that "it is a step forward. It counteracts the pressure to enforce the darn Act, and to require them to collocate more fully, and to share more generously, and to unbundle more readily. And, all those requirements just deter deployment. The whole idea of sharing facilities with your rivals is just not -- at punitive costs -- is just a prescription for paralysis."
Future of the Bells. "All of these incumbent companies are going to be swept away by history. And, to worry about their monopoly power today is just perverse and backward retro thinking." Gilder added that "BOCs are going to have very aggressively to compete. They are not going to be able to exploit their monopolies. They are going to be bypassed."
Bell Lobbyists. Gilder continued that the Bells "have to be allowed to compete, or else, they will increasingly try to obstruct their rivals. It is all they can do. They got plenty of lobbyists. They are government creations almost. And, they are surrounded on all sides by government, and defended on all sides by lobbyists. And, that arrangement is destructive to the future of the economy."
WorldCom. Gilder also criticized regulators for requiring WorldCom to sell MCI Internet facilities, and for blocking the merger with Sprint. He said that "WorldCom was fighting monopoly, but of course, the monopoly fighters in Washington all supported the incumbent telopolies against the challenges".
Spectrum Policy. Gilder also touched on spectrum policy and Third Generation (3G) wireless systems. Gilder said that he opposes public auctions. They "just about wiped out 3G in Europe." Instead, he argued that "expansion of unlicensed areas of spectrum is important."
Deflation. Gilder also argued that the world economy is in a state of deflation, and government policy should recognize and address this. He added that "one of the more disappointing developments of the last year has been Greenspan's incredible blindness on a whole number of issues. I mean, I think he is over the hill."
He spoke at a Discovery Institute luncheon at the University Club in Washington DC. He also spoke with TLJ afterwards. The above quotes are from his luncheon address, his answers to questions from the audience, and the following interview.
Senate Passes Anti Terrorism Bill
10/25. The Senate passed HR 3162, which is known as the "anti terrorism bill", by a vote of 98 to 1. See, Roll Call No. 313. The House passed the bill on October 26. President Bush will promptly sign it. It contains many provisions that will increase the ability of law enforcement, intelligence, and other government agencies to combat terrorism, including expanded authority to conduct electronic surveillance of phone and Internet communications. It is titled the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism  Act of 2001 (USA PATRIOT ACT).
NTIA Chief Addresses Broadband Policy
10/25. Nancy Victory, head of the National Telecommunications and Information Administration (NTIA), also gave a speech on broadband policy. The NTIA is a part of the Commerce Department. She spoke at a convention hosted by the NARUC, a group of government regulators.
Victory stated that "Although I would love to be able to unveil the Administration's broadband policy for you today, it remains a work in progress." She did state, however, that "government policy responses should not be driven by consumer adoption rates" and that "policies that promote rational facilities investment should be pursued". She also said that "competition should be promoted using a technology neutral paradigm" and that "the market might not always work in all areas, particularly in rural and certain urban areas".
Victory also announced that the NTIA is "planning to release a Request for Public Comment in the next few weeks to open the record for written comments and suggestions on a variety of broadband issues."
8th Circuit Rules in PSLRA Scienter Case
10/25. The U.S. Court of Appeals (8thCir) issued its opinion [PDF] in Florida v. Green Tree Financial, the 8th Circuit's first case to address the pleading standards in securities fraud cases under the PSLRA.
Plaintiffs filed three complaints against Green Tree Financial and several of its officers alleging violation of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The District Court held that the complaints failed to plead facts giving rise to a strong inference of scienter, as required by the PSLRA, and dismissed with prejudice. The Appeals Court reversed and remanded.
The issue in this case is whether the plaintiffs' complaints meet the pleading requirements set by the Private Securities Litigation Reform Act of 1995 (PSLRA), which the Congress passed to insulate defendants from abusive class action suits. High tech companies are frequently the targets of these suits. The PSLRA creates both a safe harbor for forward looking statements, and a heightened pleading requirement. It provides that plaintiffs must "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." Eight circuits have previously addressed this question, reaching a variety of results.
The Court of Appeals in this case wrote that "the legislative history provides nothing but uncertainty about whether the motive- and- opportunity test is an inherent part of the strong inference standard or whether it modifies and relaxes that standard. Ultimately, the Act as passed does not resolve this question."
After reviewing the relevant statutes, legislative history, and opinion of other circuits, the Court reached several conclusions. It wrote: "First, motive and opportunity are generally relevant to a fraud case, and a showing of unusual or heightened motive will often form an important part of a complaint that meets the Reform Act standard. Second, in some cases the same circumstantial allegations that establish motive and opportunity also give additional reason to believe the defendant's misrepresentation was knowing or reckless. For instance, in insider trading cases, the timing of trades shows motive and opportunity, but it may also provide additional circumstantial evidence that the defendant knew of an advantage. Such allegations may meet the Reform Act standard, but if so it is because they give rise to a strong inference of scienter, not merely because they establish motive and opportunity. Third, when the complaint does not show motive and opportunity of any sort -- either the unusual, heightened motive highlighted in the Second Circuit cases, or even an everyday motive such as keeping one’s job -- then other allegations tending to show scienter would have to be particularly strong in order to meet the Reform Act standard."
10th Circuit Rules in Dominion v. Echostar
10/25. The U.S. Court of Appeals (10thCir) issued its opinion [PDF] in Dominion v. Echostar, an interlocutory appeal from the issuance of a preliminary injunction in a contract dispute over activation of DBS subscribers. The Appeals Court affirmed the preliminary injunction order.
EchoStar, also know as the "DISH network", owns and operates satellites and transmits direct broadcast programming. Dominion is a TV and radio broadcaster of religious programming that operates the Sky Angel network. EchoStar leased eight transponders on its satellites to Dominion for satellite broadcasting.
The dispute arose when EchoStar sent Dominion a letter stating that EchoStar would not activate any Dominion subscribers unless they purchased a minimum level of DISH Network programming, an unsubsidized satellite receiver directly from EchoStar, or a Dominion specific smart card. Dominion then sought, and obtained, injunctive relief from the District Court.
DOJ and FTC Announce International Competition Network
10/25. The Department of Justice (DOJ) and the Federal Trade Commission (FTC) announced the launch of an International Competition Network (ICN), See, DOJ release and substantially identical FTC release.
The DOJ and FTC stated that the "ICN will provide an environment in which antitrust officials from dozens of countries can work together to achieve consensus on ways to make international antitrust enforcement more efficient and effective, to the benefit of consumers and companies around the world." The problem, they said, is that "With more than 60 countries around the world now reviewing mergers, many deals are reviewed in multiple countries, thereby creating the risk of inconsistent outcomes and potentially unnecessary procedural burdens. International cartels also cut across national borders, harming consumers in many countries."
The DOJ and FTC also stated that the ICN "has been embraced by a number of foreign antitrust officials including Mario Monti, EU Commissioner for Competition, Konrad von Finckenstein, Commissioner of the Canadian Competition Bureau, and Dr. Fernando Sanchez Ugarte, President of Mexico's Federal Competition Commission."
The DOJ and FTC also asserted that trade and antitrust issues are separable. They stated that the ICN "will not deal with trade issues, or other non antitrust issues." The DOJ and FTC releases do not address the use of antitrust enforcement as a non tariff barrier to trade.
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Friday, Oct 26
9:30 AM - 12:00 NOON. The American Enterprise Institute (AEI) will host a panel discussion titled "What Should the Government Do about the Transition to Digital Television?" The participants will be Harold Furchtgott-Roth (AEI), Stanley Besen (Charles River Associates), Thomas Hazlett (AEI), Bruce Owen (Economists Incorporated), Edward Fritts (NAB), Robert Sachs (NCTA), Gary Shapiro (Consumer Electronics Association), Richard Wiley (Wiley Rein & Fielding), and Gregory Sidak (AEI). The price to attend is $5 (waived for AEI supporters, government employees, and media). Location: Wohlstetter Conference Center, Twelfth Floor, 1150 17th Street, NW, Washington DC.
11:00 AM. The Heritage Foundation will host a panel discussion titled "How Internet Based School Report Cards are Revolutionizing Educational Accountability." The speakers will be Bill Owens (Governor of Colorado), Eugene Hickok (Undersecretary of Education), and Tom Hinton (Heritage). Location: Heritage Foundation, 214 Massachusetts Ave NE, Washington DC.
The National Association of Regulatory Utility Commissioners (NARUC) will hold the second day of a two day conference. See, brochure [PDF]. Location: Hyatt Regency Hotel, Crystal City, Virginia.
 • 8:15 - 8:45 AM. Speech: Bruce Mehlman (Commerce Department).
 • 8:45 - 9:00 AM. Speech: Rep. Heather Wilson (R-NM).
 • 9:00 - 10:30 AM. Panel: "Competition vs. Regulation - Whether or what extent government should use regulatory intervention to accelerate broadband deployment."
 • 10:45 AM - 12:15 PM. Panel: "Facilitating the Business Case for Rural Upgrades."
 • 10:45 AM - 12:15 PM. Panel: "Building The New Public Switched Network: Conclusions from the National Research Council and Implications from Internet 2 - Computer Science & Telecom's forthcoming broadband report and discuss Internet2 and its implications for new technologies."
 • 12:15 - 12:30 PM. Speech: Hilda Legg (Rural Utility Service).
 • 12:30 - 2:00 PM. Lunch: FCC Commissioners Kathleen Abernathy, Michael Copps, Kevin Martin.
 • 2:00 - 3:30 PM. Panel: "Role of Local Governments in Broadband Deployment - Discuss local government policies that encourage and restrict broadband deployment including rights of way issues, pole attachment policies and municipal service provision."
 • 2:00 - 3:30 PM. Panel: "Economic Impact of Broadband Deployment."
 • 3:30 - 4:15 PM. Speech: Brett Perlman (Texas PUC).
Monday, Oct 29
The House will meet at 2:00 PM in pro forma session only.
12:00 NOON - 5:00 PM. The FCC's Office of Plans and Policy will hold a forum to discuss FCC media ownership policies. Location: FCC, Commission Meeting Room (Room TW-C305), 445 12th Street, SW, Washington DC. The schedule is as follows:
 • 12:00 NOON. Speech by FCC Chairman Michael Powell.
 • 12:15 PM. Panel: Ownership Policies and Competition. The speakers will be Stanley Besen (Charles River Assoc.), Mark Cooper (CFA), Robert Majure (DOJ), Bruce Owen (Economists Incorporated).
 • 2:30 PM. Panel: Ownership Policies, Diversity and Localism. The speakers will be Douglas Gomery (U Maryland), Philip Napoli (Fordham U), and Joel Waldfogel (U Pennsylvania).
 • 4:15 PM. Jane Mago and Robert Pepper.
Tuesday, Oct 30
The House will meet at 10:00 AM for legislative business.
10:00 AM - 1:00 PM. The FCC's Network Reliability and Interoperability Council will hold a meeting. See, FCC release. Location: FCC, Room TW-C305, 445 12th Street, SW, Washington DC.
12:00 NOON - 1:30 PM. The National Telephone Cooperative Association (NTCA) will host a press luncheon to release and discuss its 2001 Wireless Survey. The speakers will be Michael Brunner (NTCA CEO), Jill Canfield (NTCA regulatory counsel), and Rick Schadelbauer (NTCA economic analyst). RSVP to Contact Donna L. Taylor at 703 351-2086 or Location: Hyatt Regency Washington, Lobby Level, Congressional A, 400 New Jersey Avenue, NW, Washington DC.
12:15 PM. The Federal Communications Bar Association's (FCBA) Cable Practice Committee will host a luncheon. The speakers will be Susanna Zwerling, the Mass Media and Cable legal advisor to FCC Commissioner Copps. The price to attend is $15. RSVP to NCTA, 1724 Massachusetts Ave., NW, Washington DC.
1:30 - 3:00 PM. The U.S. International Telecommunication Advisory Committee (ITAC) will hold a meeting. The purpose of this meeting is to prepare the State Department for the 2002 Plenipotentiary Conference and the 2002 World Telecommunication Development Conference. See, notice in Federal Register, October 17, 2001, Vol. 66, No. 201, Page 52825. Location: Federal Communications Commission, Room 6-B516.
2:30 - 4:30 PM. The FCC will host a tutorial on developments in wireless networks and technology, including wireless data, CDMA, TDMA, GSM, IDEN, wireless content, applications and market growth. The speakers will be Mark Desautels (CTIA) and representatives of TBD, Verizon, Voicestream, Nextel, NextBus, Nokia, Qualcomm, OnStar, Aether Technologies, Openwave, Telephia and others. See, FCC notice. Location: FCC, Commission meeting room.
Wednesday, Oct 31
10:00 AM. The House Commerce Committee's Subcommittee on Telecommunications and the Internet will hold a hearing titled "An Examination of How the Corporation for Public Broadcasting Uses Federal Funds for National Public Television Programming." Location: Room 2123, Rayburn Building.
People and Appointments
10/25. Brian Gross was named Director of Communications of the SEC. This newly created position will manage the SEC's relationships the Congress, Administration, federal, state, and local agencies, foreign regulatory bodies, and the SEC's regulatory constituents. Gross was previously a long time assistant to Sen. Phil Gramm (R-TX), ranking Republican on the Senate Banking Committee, which oversees the SEC. Sen. Gramm recently announced that he will not run for re-election in 2002. See, release.
10/25. Stephen Cutler was named Director of the SEC's Division of Enforcement. Before joining the SEC in 1999, Cutler was a partner at the Washington DC law firm of Wilmer Cutler & Pickering. See, SEC release.
More News
10/25. Microsoft announced the worldwide availability of its Windows XP operating system. See, release.
10/26. The Library of Congress, which includes the Copyright Office, announced that it has "completed testing of all its Capitol Hill buildings and has been notified by the Centers for Disease Control and Prevention that the tests were negative and no evidence of anthrax contamination was found." It will reopen on Friday, October 26.
10/24. Federal Reserve Board Chairman Alan Greenspan gave a speech titled "Globalization". He advocated free markets, free trade, and globalization. He spoke in Washington DC at the Institute for International Economics.