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October 26, 2004, 9:00 AM ET, Alert No. 1,004.
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DOJ Approves Cingular Acquisition of AT&T Wireless, Subject to Divestitures

10/25. The Department of Justice (DOJ) approved Cingular Wireless's acquisition of AT&T Wireless, subject to divestiture of assets in 13 markets. Cingular Wireless is a joint venture between SBC Communications Inc. and BellSouth Corporation.

To put this settlement into effect, the DOJ, and the states of Texas and Connecticut, filed a complaint [19 pages in PDF] in U.S. District Court (DC) against Cingular, SBC, BellSouth, and AT&T Wireless. It alleges that "The effect of Cingular's proposed acquisition of AT&T Wireless, if it were to be consummated, may be substantially to lessen competition in interstate trade and commerce in the relevant geographic markets for mobile wireless telecommunications services and mobile wireless broadband services, in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18."

The complaint adds that "Unless restrained, the transaction will likely have the following effects in mobile wireless telecommunications services and mobile wireless broadband services in the relevant geographic markets".

However, the DOJ and states simultaneously filed a Proposed Final Judgment [24 pages in PDF] that sets forth the required divestiture of assets, including spectrum and customer contracts. See also, Plaintiff United States's Explanation of Consent Decree Procedure's [3 pages in PDF].

Pursuant to the Tunney Act, before the District Court may enter the proposed consent decree, the proposed settlement and the DOJ's competitive impact statement must be published in the Federal Register, and there must be a 60 day public comment period.

Hewitt PateHewitt Pate, Assistant Attorney General in charge of the DOJ's Antitrust Division, stated in a release that "Today's action by the Department ensures that consumers of mobile wireless services will continue to benefit from competition ... Without these divestitures, wireless customers in these markets would have had fewer choices for their wireless telephone service and faced the risk of higher prices, lower quality service, and fewer choices for the newest high-speed mobile wireless data services."

Stan Sigman, P/CEO of Cingular Wireless, stated in a release that "Today's decision by the Department of Justice is an important step in the approval process ... We hope the merger process will continue to progress in an orderly and expeditious fashion. This merger will create a premiere provider that is very well equipped to meet the most demanding needs of wireless customers today and in the future."

Meanwhile, the Consumers Union and the Consumer Federation of America stated in a joint release that this merger approval "spells bad news for consumers, who ultimately can expect higher prices and diminished service as fewer companies compete for their business".

This case is U.S.A., State of Connecticut, and State of Texas v. Cingular Wireless Corporation, SBC Communications, Inc., BellSouth Corporation, and AT&T Wireless Services, Inc., U.S. District Court for the District of Columbia, D.C. No. 1:04CV01850 (RBW).

FCC Approves Cingular's Acquisition of AT&T Wireless

10/26. The Federal Communications Commission (FCC) completed its antitrust analysis of Cingular Wireless' acquisition of AT&T Wireless. The FCC released a Memorandum Opinion and Order [146 pages in PDF] in which it approved the merger, with conditions. Two of the five Commissioners, Copps and Adelstein, criticized the MOO's analysis of intermodal competition.

The order states that "the proposed AT&T Wireless-Cingular transaction marks a watershed" for the FCC. First, it involves "the potential consequences of a proposed merger between two large national wireless carriers that is largely horizontal in nature. Many earlier combinations in this sector were aimed at creating competing national systems, while what the Applicants propose is to combine the largely, but not entirely, overlapping second and third largest systems nationwide."

Second, "the proposed transaction marks a turning point because it is the first large license-transfer proceeding since the removal of prophylactic thresholds, including a Commercial Mobile Radio Services (“CMRS”) spectrum aggregation limit, which the Commission had employed to encourage new entry and prevent undue concentration of limited resources in the developing mobile telephony sector."

This proceeding is nominally a license transfer proceeding to which the FCC applies "public interest, convenience, and necessity" analysis. However, the Memorandum Opinion and Order (MOO) is largely an analysis of competition.

It concludes that "Competitive harm is unlikely in most mobile telephony markets, primarily because of the presence of multiple other carriers who have the capacity to add subscribers and the ability to supplement their current capacity, as well. Thus, despite concentration that appears high in many markets when measured based on firms’ current shares of subscribers, other operators will nonetheless be an effective competitive constraint on the behavior of the merged entity."

The MOO precludes the merger in 16 markets, and imposes restrictions in other markets.

The MOO also conditions the approval of the merger on the divestment of any post-transaction spectrum holding in excess of 80 MHz. The MOO also conditions approval on the companies' not applying to bid in Auction No. 58, the Broadband PCS scheduled for January, for any licenses in any BTA in which Cingular controls, or has a 10-percent or greater interest in, 70 MHz or more of cellular and/or PCS spectrum. The MOO also conditions approval on Cingular's and T-Mobile's unwinding of their joint venture.

The MOO also addresses the effects of this merger on competition between wireline and wireless carriers. Cingular is a joint venture of BellSouth and SBC.

The MOO states that "Because these applications result in the acquisition of an independent mobile provider by a joint venture controlled by two large wireline telephone companies, issues of intermodal competition arise as well. We find that this transaction raises novel competitive issues surrounding the differing incentives that wireless providers may have to engage in robust competition against the wireline operations of incumbent local exchange carriers. We consider whether this transaction diminishes intermodal competition for mass market voice telecommunications services, and conclude that any potential public interest harm arising from the loss of AT&T Wireless as an independent competitor is mitigated by the limited level of wireless-wireline competition at this point in time, and by the continued existence of a number of independent national and regional wireless carriers in the markets relevant to this transaction."

The MOO addresses intermodal competition between wireline and wireless carriers at Paragraphs 237 through 250, at Pages 90 through 98.

Also in this Memorandum Opinion and Order, the FCC approved the applications Cingular and T-Mobile USA in connection with the unwinding of their GSM network infrastructure joint venture in portions of the states of California, Nevada, and New York. The FCC also approved the applications of Triton PCS and AT&T Wireless to exchange spectrum in portions of the states of North Carolina and Georgia.

FCC Chairman Michael Powell wrote in a separate statement [PDF] that "Cingular will emerge a stronger competitor with better coverage, improved customer service and a renewed commitment to innovation. This will not only be true in the voice market but also increasingly for data."

FCC Commissioner Kathleen Abernathy wrote in a separate statement [PDF] that "consumers are likely to recognize many benefits in the forms of efficiencies from this merger". Also, "even after the merger, 97 percent of the total U.S. population will continue to live in a county with access to three or more different operators offering mobile telephone service. In addition, populations in many other counties will have access to 4, 5, 6 or even 7 or more different mobile telephone operators."

FCC Commissioner Kevin Martin wrote in a separate statement [PDF] that "The wireless industry is the poster child for the success of competition. ... With this merger vigorous competition will remain."

FCC Commissioner Michael Copps wrote in a separate statement [5 pages in PDF] that "I must dissent to those parts of the Order relating to the intermodal aspects of the merger, however, because of the increased potential for discrimination by the merged entities’ wireline parent companies and also because I find the lack of rigorous competitive analysis troubling."

Michael Copps"But who will these intermodal competitors be?" Copps (at right) asked. "Someday broadband over powerline may offer real competition. But today there are less than 10,000 BPL customers in the whole country. Maybe VoIP? I have high hopes here. But we need always to remember that as end-users of facilities-based carriers, VoIP competitors are beholden to the Bell and cable companies. We can cross our fingers and hope that growing duopoly does not discriminate so as to snuff out growing competition -- but absent any commitment on the part of this Commission to insist on non-discrimination rules, I remain concerned for independent VoIP providers. Additionally, all customers desiring VoIP for their voice service must subscribe to expensive broadband services."

Similarly, FCC Commissioner Jonathan Adelstein wrote in a separate statement [3 pages in PDF] that "The majority declines to adopt any condition to ensure that intermodal competition does not disproportionately suffer as a result of our approval of the merger." He added that "For example, we could have dug deeper into bundling issues and tried to determine how we can minimize the competitive impact of the merger on this expanding market, as even the item recognizes that wireless-wireline bundling may be a significant product offering in the future."

See also, FCC release [3 pages in PDF] summarizing this MOO.

This Memorandum Opinion and Order is FCC 04-255 in WT Docket No. 04-70 (Cingular AT&T Wireless merger review), WT Docket No. 04-254 (Cingular T-Mobile applications), and WT Docket No. 04-323 (Triton PCS and AT&T Wireless applications).

1st Circuit Rules in Export Administration Act Case

10/25. The U.S. Court of Appeals (1stCir) issued its opinion in U.S. v. Lachman, a criminal prosecution under the expired Export Administration Act (EAA).

The EAA regulates the export of military items, including dual use items, such as computers and software. The EAA has lapsed, but contains a provision enabling the President to extend the implementing regulations, provided that he declares that there exists a national emergency, and that the provisions of the EAA must be continued. President Bush signs such an order every August. See, for example, August 6, 2004 order.

Walter Lachman, and the other defendants, exported a control panel for a hot isostatic press (HIP) to the government of India. They did not first obtain a license from the Department of Commerce.

The U.S. prosecuted them on charges of violating and conspiring to violate the expired Export Administration Act of 1979, which was Public Law No. 96-72, and which was codified at 50 U.S.C. app. §§ 2401-2420 (2000), as well as the regulations implementing the EAA. The U.S. argued that the control panel exported by the defendants was "specially designed", within the meaning of implementing regulations, for use with a HIP, which the regulations provided could only be exported with a license.

The trial jury convicted, but the District Court granted the defendants' motion for acquittal notwithstanding the verdict. The District Court held that the EAA regulation and the term "specially designed" was unconstitutionally vague.

The Court of Appeals held that the applicable EAA regulation was not unconstitutionally vague, and vacated the judgment of acquittal.

The defendants did not raise the issue of whether they could be prosecuted under an expired statute. However, the Court of Appeals hinted in a footnote that it might consider this issue, if properly raised. It wrote that "The EAA expired in 1994, was briefly renewed by Congress in 2000, and expired again in 2001. ... The defendants do not make any argument that the EAA and its regulations are inapplicable due to the expiration of the original statute."

At least one Judge has opined on the inapplicability of the expired EAA. Judge Raymond Randolph wrote a dissenting opinion in Wisconsin Project on Nuclear Arms Control v. Department of Commerce, a case involving a Freedom of Information Act (FOIA) request for information contained in export license applications. See, January 31, 2003 opinion of the U.S. Court of Appeals (DCCir).

The Appeals Court held that such information is exempt from disclosure under FOIA Exemption 3, which pertains to records exempted by a federal statute. The EAA exempts application information from disclosure. Randolph dissented that the EAA no longer exists, and hence, its FOIA exemption provision no longer exists. He ridiculed the majority's Alice in Wonderland logic. He suggested that enforcing a statutory provision, when there is no statute, is like observing the Cheshire Cat's grin, when there is no Cheshire Cat.

See also, story titled "Court Holds Export License Application Information is Exempt from FOIA Disclosure" in TLJ Daily E-Mail Alert No. 598, February 5, 2003.

Many members of the House and Senate worked on passage of a new and updated EAA, particularly in 2000 and 2001. The Senate passed S 149 (107th Congress), the Export Administration Act of 2001, sponsored by Sen. Mike Enzi (R-WY), on September 6, 2001 by a vote of 85 to 14. This bill would have modernized export control laws. It would have eased restraints on most dual use products, but increased penalties for violations. It would have also repealed provisions of the 1998 National Defense Authorization Act which require the President to use million theoretical operations per second (MTOPS) to set restrictions on the export of high performance computers (HPCs). The House had not yet enacted this bill. When Al Qaeda terrorists struck five days after Senate passage of its bill, they destroyed the bill's chances for enactment.

This case is U.S. v. Walter Lachman, Maurice Subilla, Jr., Fiber Materials, Inc., and Materials International, Inc., App. Ct. Nos. 03-2274 & 03-2275, appeals from the U.S. District Court for the District of Massachusetts, Judge Douglas Woodlock presiding. Judge Timothy Dyk, of the Federal Circuit, sitting by designation, wrote the opinion of the Court of Appeals. Judges Selya and Howard joined.

Washington Tech Calendar
New items are highlighted in red.
Tuesday, October 26

The House is in recess until November 16, 2004. See, Republican Whip Notice.

The Senate is in recess until November 16, 2004.

9:30 AM. The Department of Commerce's (DOC) Bureau of Industry and Security's (BIS/BXA) Sensors and Instrumentation Technical Advisory Committee (SITAC) will hold a partially closed meeting. The agenda includes discussion of Wassenaar Export Group proposals on semiconductor lasers and cameras. See, notice in the Federal Register, October 8, 2004, Vol. 69, No.195, at Page 60352. Location: Room 3884, DOC, 14th Street between Constitution and Pennsylvania Aves., NW.

12:00 NOON. The Cato Institute will host a panel discussion titled "Would a National ID Make Us Safer or Just Less Free?" The speakers will be Jim Harper (Director of Information Policy Studies at Cato) and former Rep. Bob Barr (American Conservative Union). Lunch will follow the program. See, Cato notice.

The Department of Homeland Security (DHS) and the National Academies and Radio and Television News Directors Foundation will host a workshop titled "News and Terrorism: Communicating in a Crisis". This is the fourth in a series of ten workshops. See, DHS release. Secretary of Homeland Security Tom Ridge will speak. Press contact: Kristin Gossel at 202-282-8010 or Location: WHYY-TV Station, 150 North Sixth St., Philadelphia, PA.

Day two of a five day conference hosted by the Office of the Secretary of Defense (OSD) Networks and Information Integration (NII) and the Joint Chiefs of Staff titled "7th Annual DoD Spectrum Management Conference". See, notice. Location: Radisson Hotel, Annapolis, MD.

Deadline to submit reply comments to the Library of Congress in response to its notice of proposed rulemaking (NPRM) regarding continuation, with a few modifications, of the procedures adopted by the Copyright Office in 1995 that permit copyright applicants to request reconsideration of decisions to refuse registration. See, notice in the Federal Register, July 13, 2004, Vol. 69, No. 133, at Pages 42004 - 42007.

Wednesday, October 27

8:30 - 11:00 AM. The New Millenium Research Council will host an event titled "The End of Regulation? Reforming Telecom Policy and Regulators' Roles to Meet New Market Realities". The speakers will include Rob Atkinson (Progressive Policy Institute), Matt Brill (Advisor to FCC Commissioner Abernathy), Jeff Carlisle (Chief of FCC's Wireline Competition Bureau), Braden Cox (Competitive Enterprise Institute), Charles Davidson (Commissioner of the Florida Public Service Commission), Susan Kennedy (Commissioner of the California Public Utilities Commission), Christopher Libertelli (Advisor to FCC Chairman Powell), Randy May (Progress and Freedom Foundation), Connie Murray (Missouri Public Service Commission), Harold Furtchgott-Roth (former FCC Commissioner), Bob Rowe (Chairman of the Montana Public Service Commission), Adam Thierer (Cato Institute), and Paul Vasington (Analysis Group). See, notice. RSVP to Ed Rovetto at 202 263-2922. Registration and breakfast begin at 8:00 AM. Location: Holeman Lounge, National Press Club, 529 14th St. NW, 13th Floor.

10:00 AM - 3:00 PM. The Federal Communications Commission's (FCC) Technology Advisory Council will meet. The topic will be ultrawideband (UWB) technology. See, FCC notice [PDF], and notice in the Federal Register, September 28, 2004, Vol. 69, No. 187, at Page 57915. Location: FCC, 445 12th St. SW., Room TW-C305.

12:15 - 1:45 PM. The New America Foundation (NAF) will host a brown bag lunch titled "Debating the Offshoring Debate: A Joust Between Contending Views About What A Healthy Economy Looks Like". The speakers will be Catherine Mann (Institute for International Economics) and Charles McMillion (MBG Information Services). See, notice. RSVP to Jennifer Buntman at 202 986-4901 or Location: NAF, 1630 Connecticut Ave, 7th Floor.

2:00 - 4:00 PM. The Department of State's Telecommunication Advisory Committee (ITAC) will meet. See, notice in the Federal Register, October 14, 2004, Vol. 69, No. 198, at Page 61066.

Day three of a five day conference hosted by the Office of the Secretary of Defense (OSD) Networks and Information Integration (NII) and the Joint Chiefs of Staff titled "7th Annual DoD Spectrum Management Conference". See, notice. Location: Radisson Hotel, Annapolis, MD.

Deadline to submit comments to the Department of Commerce's Technology Administration in response to its request for comments regarding the recycling of electronics equipment, such as flat panel monitors. See, TA notice.

Thursday, October 28

Day four of a five day conference hosted by the Office of the Secretary of Defense (OSD) Networks and Information Integration (NII) and the Joint Chiefs of Staff titled "7th Annual DoD Spectrum Management Conference". See, notice. Location: Radisson Hotel, Annapolis, Maryland.

8:30 - 11:30 AM. The Software and Information Industry Association (SIIA) will host a seminar titled "Software Licensing Best Practices Seminar Series: Licensing (and Other) Issues in Software Distribution". See, notice. Prices vary. Location: Mintz Levin, 12010 Sunset Hills Road, Suite 900 Reston, Virginia.

2:00 - 4:00 PM. The Federal Communications Commission's (FCC) WRC 07 Advisory Committee's Informal Working Group 3: IMT-2000 and 2.5 GHz Sharing Issues, will meet. See, FCC notice [PDF]. Location: FCC, 445 12th Street, SW, South Conference Room (8th Floor, Room 8-B516).

6:00 - 8:00 PM. The Federal Communications Bar Association (FCBA) will host the second part of a two part continuing legal education (CLE) seminar on Homeland Security. Prices vary. See, notice. Location: FCC, Commission Meeting Room, 445 12th St., SW.

Friday, October 29

Day five of a five day conference hosted by the Office of the Secretary of Defense (OSD) Networks and Information Integration (NII) and the Joint Chiefs of Staff titled "7th Annual DoD Spectrum Management Conference". See, notice. Location: Radisson Hotel, Annapolis, Maryland.

Deadline to submit comments to the Federal Communications Commission (FCC) in response to its notice of proposed rulemaking (NPRM) regarding the Emergency Alert System (EAS). The FCC adopted this NPRM at its August 4, 2004 meeting, and released it on August 12, 2004. This NPRM is FCC 04-189 in EB Docket No. 04-296. See, notice in the Federal Register, August 30, 2004, Vol. 69, No. 167, at Pages 52843 - 52847.

Sunday, October 31

Daylight Savings Time ends.

Monday, November 1

10:00 AM. The U.S. Court of Appeals (FedCir), Panel A, will hear oral argument in Nellcor Puritan v. Masimo Corporation (04-1247). (The Court will decide Hoffer v. Microsoft, No. 04-1103, on the briefs.) See, FedCir calendar. Location: Courtroom 402, 717 Madison Place, NW.

10:00 AM. The U.S. Court of Appeals (FedCir), Panel B, will hear oral argument in Harris Corp. v. Ericsson (No. 03-1625) and Syntex USA v. Apotex (No. 04-1252). See, FedCir calendar. Location: Courtroom 203, 717 Madison Place, NW.

2:00 PM. The U.S. Court of Appeals (FedCir), Panel C, will hear oral argument in Evident Corp. v. Church & Dwight Co. (No. 03-1541) and Lewis v. Agriculture Facilities (No. 04-1255). See, FedCir calendar. Location: Courtroom 402, 717 Madison Place, NW.

Deadline to submit comments to the National Institute of Standards and Technology (NIST) regarding the first draft of NIST Special Publication 800-52 [33 pages in PDF], titled "Guidelines on the Selection and Use of Transport Layer Security". Submit comments and questions to Matthew Fanto at

Deadline to submit comments to the National Institute of Standards and Technology (NIST) regarding the second public draft of NIST Special Publication 800-53 [94 pages in PDF], titled "Recommended Security Controls for Federal Information Systems". Submit comments and

EU May Lift FSC/ETI Sanctions

10/25. Pascal Lamy, the EU Commissioner for Trade, announced that he will propose lifting the sanctions that the EU imposed following the World Trade Organization's (WTO) rulings that the United States' foreign sales corporation (FSC) tax regime, and its replacement, the extraterritorial income (ETI) tax regime were illegal export subsidies.

On October 22, President Bush signed HR 4520, the "American Jobs Creation Act of 2004", which repeals the ETI. See, White House release. See also, story titled "House and Senate Approve Tax Bill That Repeals FSC/ETI" in TLJ Daily E-Mail Alert No. 995, October 13, 2004.

Pascal LamyLamy (at right) stated in a release that "I am extremely pleased that this Bill now has become law. It is a victory for multilateralism and for the rule of law in foreign affairs and I want to thank leaders of the US Congress and Bob Zoellick for their efforts in this respect. Obviously, I am very satisfied that our efforts have been rewarded after 5 years, right before the end of the mandate of the current European Commission."

He continued that "In recognition of the progress that has been made, I will now propose to the Council the lifting of the FSC sanctions currently in force. As there remain some problems with the Bill, which we have previously discussed both with the US Administration and Congress, we intend to resolve these issues in the WTO."

Lamy concluded, "We have been trying to put FSC to bed for a long time. It is now in bed, but we need to just check before the lights go out."

On October 25, Rich Mills, spokesman for the Office of the U.S. Trade Representative (USTR) stated in a release that "We welcome the EU's lifting of sanctions so U.S. exports no longer will be burdened by higher tariffs. Congressional action has clearly ended the FSC/ETI, bringing the U.S. into compliance with WTO rules as the EU sought. We will continue to explain to the EU and others how the new law brings the U.S. into compliance."

On October 22, Sen. Charles Grassley (R-IA), the Chairman of the Senate Finance Committee, stated in a release that "We fulfilled our commitment to repeal FSC/ETI. I fully expect the European Union to fulfill its commitment to lift these sanctions now."

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