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August 13, 2003, 9:00 AM ET, Alert No. 717.
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7th Circuit Holds State Cannot Substitute Tariff Filings for Negotiations to Set Prices and Terms for Interconnection

8/12. The U.S. Court of Appeals (7thCir) issued its split opinion [18 pages in PDF] in Wisconsin Bell v. Bie, a case regarding the interconnection provisions of §§ 251 and 252 of the Communications Act.

Avie Bie is a Commissioner of the Public Service Commission of Wisconsin (PSCW). Wisconsin Bell (Ameritech) is the incumbent local exchange carrier (ILEC) in the state of Wisconsin. The PSCW ordered Wisconsin Bell to file tariffs setting forth the price and other terms on which competitors can interconnect with its local telephone network.

The Telecom Act of 1996 provides that the competitors can require the local phone company to negotiate, in good faith, an agreement authorizing interconnection on mutually agreeable terms. And then, if negotiations fail, the competitor can seek arbitration by the state regulatory commission. Thus, the PSCW provided for a tariff, rather than a contract, route to obtaining inteconnection rights.

Also, the Court noted that the PSCW "ruled that the rates in the tariffs that it has required Wisconsin Bell to file must be based on the cost of the tariffed services as determined in accordance with cost-accounting procedures prescribed by the commission; specifically, the rates must be based on ``the sum of the Total Element Long Run Incremental Cost (TELRIC) and a reasonable allocation of forward-looking joint and common costs.´´"

Wisconsin Bell filed a complaint in U.S. District Court (WDWisc) against Avie Bie and the other PSCW Commissioners challenging the order. The District Court held that the order is barred by the Telecom Act of 1996. This appeal followed.

Judge Richard Posner wrote the opinion of the Appeals Court, affirming the District Court. Judge Easterbrook joined. Judge Cudahy wrote a lengthy dissent.

Judge Posner first summarized the rationale and the framework of the interconnection provisions of 47 U.S.C. §§ 251 and 252. "Local telephone companies such as Wisconsin Bell have a degree of monopoly power because of the cost to a competitor of duplicating the grid of telephone wires and switching equipment that constitutes a local telephone network. The competitor will find it difficult to compete unless it is interconnected with the local network. The Telecommunications Act of 1996 provides a machinery for encouraging interconnection. The competitor can require the local phone company to negotiate, in good faith, an agreement authorizing interconnection on mutually agreeable terms. If negotiations fail, the competitor can seek arbitration by the state regulatory commission, and the commission’s arbitral decision can be challenged in federal district court on the ground that the decision fails to comply with 47 U.S.C. §§ 251 or 252, sections that establish pricing and other standards for interconnection."

Posner wrote that the issue is "whether a state may create an alternative method by which a competitor can obtain interconnection rights."

He concluded that the PSCW's tariffing requirement is preempted by the Act. Nor is it saved by 47 U.S.C. § 261 (b), which provides that there is no preemption "if such regulations are not inconsistent" with the Act.

Judge Posner reasoned that "The requirement has to interfere with the procedures established by the federal act. It places a thumb on the negotiating scales by requiring one of the parties to the negotiation, the local phone company, but not the other, the would-be entrant, to state its reservation price, so that bargaining begins from there. And it allows the other party to challenge the reservation price, and try to get it lowered, by challenging the tariff before the state regulatory commission, with further appeal possible to a state court -- even though Congress, in setting up the negotiation procedure, explicitly excluded the state courts from getting involved in it. At the very least, the tariff requirement complicates the contractual route by authorizing a parallel proceeding."

Judge Posner also commented on the legislative process and statutory interpretation. He wrote that "The commission and WorldCom argue that by providing an alternative means of obtaining interconnection, the state's tariff requirement promotes the procompetitive policy of the federal act. But to identify the policy underlying a statute and then run with it is a dangerous method of interpretation; it is likely to run roughshod over the compromise between interest groups that enabled the statute to be passed in the first place."

This is Wisconsin Bell, d/b/a Ameritech v. Avie Bie, et al. and WorldCom, Nos. 02-3854 and 02-3897, appeals from the U.S. District Court for the Western District of Wisconsin, D.C. No. 01-C-0690-C, Judge Barbara Crabb presiding.

USPIRG Seeks Broad Regulation of Cable Companies

8/12. The U.S. Public Interest Research Group (USPIRG) released a report [90 pages in PDF] titled "The Failure of Cable Deregulation: A Blueprint For Creating a Competitive, Pro-Consumer Cable Television Marketplace". See also, USPIRG release and summary.

The report states that "Since enactment of the 1996 Act that deregulated cable rates, consumer cable prices have been rising at three times the rate of inflation and even faster for basic and expanded basic service, which is the choice of the overwhelming majority of cable subscribers. These rates have risen by more than 50 percent."

It asserts that "Cable price increases have been restrained by competition only when a wireline competitor, often referred to as an overbuilder, enters a market to challenge the incumbent. Where such overbuilder competition exists, the effect is dramatic: The General Accounting Office (GAO) reports that cable rates are 17 percent lower where there is an overbuilder in a franchise area. By contrast, national competition from satellite providers – notwithstanding their increasing market share – has not resulted in lower cable rates."

The report also addresses internet access over cable facilities. It states that "Cable operators now also dominate the broadband Internet market, comprising a huge new source of profits. Cable now has nearly twice as many subscribers as its nearest broadband competitor, DSL (digital subscriber line)."

It continues that "cable operators have become a critical link in the public's ability to participate in the Internet's growing virtual ``town square´´ of American discourse and civic activities. The danger that cable's reign poses to the diversity and democracy of the Internet is quite simple: Cable operators are not required to share their networks with competitive Internet service providers (ISP's). Independent ISP's will not be able to provide cable broadband Internet services because they will not have access to cable wires, unless cable operators open their wires and networks to competitors. They will either have to provide DSL reseller service from phone companies or attempt to negotiate access with a cable operator, which is at the discretion of such operators."

The report also states the "Cable operators have taken anti-competitive action to limit access to certain streaming video content to prevent or limit broadcast quality streaming video over their broadband Internet cable modem service as a means of blocking current and future competition for video content. This has created significant concern on behalf of many of the Internet’s leading content providers and e-commerce websites. Some cable operators have also apparently opted to condition the carriage of a video channel upon the provider’s agreement not to distribute the same content over the Internet at all."

The report contains a long wish list of regulatory restraints on cable service providers.

To start with, "Congress must empower state public utility commissions (PUC) to regulate all cable rates and charges for video services". Also, it recommends that the "Preemptive provisions of the Act have thwarted attempts by local communities to protect cable subscribers from the worst of the industry's depredations. These preemptive provisions must be abolished ..."

In addition, "Consumers must be given the right to purchase every individual channel on an á la carte basis at fair, reasonable and nondiscriminatory prices."

The report also recommends requiring "reasonably priced leased-access rates" similar to FCC rate setting for telecommunications services. It states that "Cable operators have avoided their obligation to lease channel capacity to independent programmers by setting the prices so high that no competing provider could possibly pay current fees and remain commercially viable. In order to promote competition with diverse and independent programming, reasonably priced leased access must be adopted."

The report next recommends that the "existing federal program-access law must be modified to eliminate loopholes that have allowed the cable industry to continue these anti-competitive practices and undermine the emergence of wireline competitors. Additionally, cable operators should be prohibited from entering into exclusive contracts for equipment or other technical services that prevent competitor access to such programming."

The report also states that "A public member representing subscribers should be placed on the board of directors of any cable operator with a greater than four percent market share of cable households as a condition of franchise or FCC approval."

Finally, the USPIRG report recommends prohibiting "cable broadband content restrictions". It states that "Cable operators have a long history of restricting consumer access to content that cable operators disfavor. With the cable industry's ongoing dominance of the broadband market, cable operators must be prohibited from restricting consumer access to Internet content based on the source or nature of the consumer's request."

Rob Stoddard, a SVP of the National Cable & Telecommunications Association (NCTA), responded that "The wild and unfounded claims of these Washington-based advocacy groups are recycled arguments that fell out of favor a decade ago. The regulatory environment envisioned by Congress in 1996 and maintained by the FCC has fostered the most robust telecommunications marketplace in the world. It’s providing a better deal for consumers, who are getting far more for their dollar. How odd that so-called consumer groups would prefer to take all that away." See, release.

He also addressed broadband internet access. He stated that "The broadband renaissance, and the marketplace competition it has spawned, has brought unprecedented choice and value to tens of millions of Americans. Cable’s investment of more than $75 billion in upgrades and rebuilds has facilitated the transmission of more than 300 nationally-delivered video networks and popular consumer services such as high-speed Internet access, video on demand, high definition television, and competitive local telephone service. If these self-appointed consumer representatives had their way, the majority of this investment and innovation would have been stifled from the start."

Wednesday, August 13

The House is in recess until September 3. Senate is in recess until September 2. The Supreme Court is in recess.

10:00 AM - 12:00 PM. The Federal Communications Commission's (FCC) Wireless Telecommunications Bureau (WTB) will hold a public forum to present the new application search interfaces that will be available for the public to access Multipoint Distribution Service/Instructional Television Fixed Service (MDS/ITFS) Application data. See, notice [PDF]. Location: Room 4-B-516, 4th Floor, FCC, 445 12th Street, SW.

Day one of a three day conference hosted by the American Intellectual Property Law Association (AIPLA) titled "2003 Practical Patent Prosecution Training for New Lawyers". See, notice [PDF]. Location: Arlington, VA.

Thursday, August 14

Deadline to submit comments to the National Institute of Standards and Technology (NIST) regarding its document [12 pages in PDF] titled "Draft Federal Information Processing Standard (FIPS) 199 on Standards for Security Categorization of Federal Information and Information Systems". The NIST states that this document "defines requirements to be used by Federal agencies to categorize information and information systems, and to provide appropriate levels of information security according to a range of risk levels." For more information, contact Ron Ross at 301 975-5390 or See, notice in the Federal Register, May 16, 2003, Vol. 68, No. 95, at Pages 26573 - 26574.

Friday, August 15

Deadline to submit comments to the Federal Communications Commission (FCC) in response to a Petition for Rulemaking on compliance by carriers with relevant statutory provisions on disclosure of customer information in 911 emergencies. The petition was submitted by the National Emergency Number Association (NENA), the Association of Public Safety Communications Officials International (APCO), and the National Association of State Nine One One Administrators (NASNA). See, FCC notice [3 pages in PDF]. For more information, contact Barbara Reideler or Jared Carlson at 202 418-1310.

Monday, August 18

10:15 AM - 12:00 NOON. The American Enterprise Institute (AEI) will host a panel discussion titled "Trade in Services: Is More Liberalization Possible in the Doha Round?". The speakers will be Stephen Canner (U.S. Council for International Business), James Mendenhall (Office of the U.S. Trade Representative), and Robert Vastine (U.S. Coalition of Services Industries). See, notice. Location: AEI, 12th Floor, 1150 17th Street, NW.

Deadline to submit reply comments to the Federal Communications Commission (FCC) in response to its Notice of Inquiry (NOI) pertaining to the possibility of incorporating receiver performance specifications into the FCC's spectrum policy. This NOI follows the recommendations of the FCC's Spectrum Policy Task Force (SPTF) report [PDF] of November 15, 2002. See, story titled "FCC Announces NOI Re Receiver Performance Standards" in TLJ Daily E-Mail Alert No. 624, March 17, 2003. See also, notice in the Federal Register, May 5, 2003, Vol. 68, No. 86, at Pages 23677 - 23686. This is ET Docket No. 03-65, FCC 03-54. For more information, contact Hugh Van Tuyl at the FCC's Office of Engineering and Technology (OET) at 202 418-7506 or

Tuesday, August 19

Deadline to submit reply comments to the Federal Communications Commission (FCC) in response to its notice of proposed rulemaking, released on April 30, 2003, regarding changes to its rules implementing the FCCs policy to carry forward unused funds from the schools and libraries universal support mechanism (aka e-rate subsidies) in subsequent funding years. See, notice in the Federal Register, June 20, 2003, Vol. 68, No. 119, at Pages 36961 - 36967.

Wednesday, August 20

12:00 NOON. Gordon England, Deputy Secretary of the Department of Homeland Security (DHS), will give a speech titled "Leading the Department of Homeland Security: Progress and Challenges of Transition during the War on Terrorism". See, notice. Location: Lehrman Auditorium: Heritage Foundation, 214 Massachusetts Ave NE.

GAO Report Faults EOUSA IT Management

8/12. The General Accounting Office (GAO) released a report [60 pages in PDF] titled "Information Technology: Executive Office for U.S. Attorneys Needs to Institutionalize Key IT Management Disciplines".

This report examines, for the House Judiciary Committee, the extent to which the Executive Office for United States Attorneys (EOUSA), which is responsible for managing the information technology (IT) resources for the U.S. Attorneys' Offices (USAO), has institutionalized key IT management capabilities critical to achieving the Department of Justice's (DOJ) strategic goal of improving the integrity, security, and efficiency of its IT systems.

The 93 USAOs prosecute criminal cases for the federal government, prosecute and defend civil cases in which the U.S. is a party, and collect debts owed to the federal government that are administratively uncollectible. The EOUSA provides administrative and operational support to the USAOs.

The report finds that the "EOUSA has partially defined and implemented certain IT management disciplines". However, "it has yet to institutionalize any of these disciplines, meaning that it has not defined existing policies and procedures in accordance with relevant guidance, and it has yet to fully implement what it has defined. In particular, while EOUSA has developed an enterprise architecture -- a blueprint for guiding operational and technological change -- the architecture was not developed in accordance with certain best practices.

In addition, the report states that "while the office has implemented certain process controls for selecting, controlling, and evaluating its IT investments, it has not yet implemented others that are necessary in order to develop an effective foundation for investment management. Further, it has not implemented important management practices that are associated with an effective security program. In contrast, it has defined -- and is implementing on a major system that we reviewed -- most, but not all, of the management practices associated with effective systems acquisition."

The report concludes that "Institutionalization of these IT management disciplines has not been an agency priority and is not being guided by plans of action or sufficient resources. Until each discipline is given the priority it deserves, EOUSA will not have the IT management capabilities it needs to effectively achieve the department’s strategic goal of improving the integrity, security, and efficiency of its IT systems."

Cato Paper Addresses Middle East Free Trade Area

8/6. The Cato Institute released a paper [16 pages in PDF] titled "The Trade Front: Combating Terrorism with Open Markets". See also, Executive Summary. President Bush has announced plans to create a U.S. middle east free trade area within a decade.

The paper, written by Cato's Brink Lindsey, argues that "The fact is, though, that negotiating FTAs will take time. Relatively few countries in the region are ready to begin serious talks. Hammering out all the details of a mutually acceptable agreement with those that are prepared to take the plunge -- and then guiding that agreement through approval by Congress -- will be a complex, contentious, and time-consuming process. A U.S.-Middle East free-trade area, however desirable, is a policy goal for the long term."

The paper also argues that "The biggest prize in FTA negotiations -- the hardest to attain, but offering the richest rewards -- is liberalization of trade in services. Services are the dominant contributor to GDP throughout much of the Muslim world and are frequently the largest employer. Yet in those critical service industries that constitute the backbone of a modern economy -- transportation, utilities, telecommunications, financial services, distribution -- competition, whether foreign or domestic, is typically stunted or nonexistent. As a result, productivity in those industries is abysmal by world standards -- and thus the potential benefits of liberalization are immense."

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