TLJ News from May 1-5, 2008

People and Appointments

Paul Atkins5/5. Securities and Exchange Commission (SEC) Paul Atkins (at right) announced in a release that he "intends to leave the SEC following the end of his term" which ends this year, and that he "plans to stay until his successor is appointed and takes office". Atkins has been an advocate of the interests of technology and other companies burdened by Section 404 of the Sarbanes Oxley Act, and its implementation.

Microsoft Withdraws Offer to Acquire Yahoo

5/3. Microsoft withdrew it offer to acquire Yahoo. See, Microsoft release and attached letter to Yahoo.

Microsoft CEO Steve Ballmer stated in this release that "Despite our best efforts, including raising our bid by roughly $5 billion, Yahoo! has not moved toward accepting our offer. After careful consideration, we believe the economics demanded by Yahoo! do not make sense for us, and it is in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw our proposal."

Roy Bostock, Chairman of Yahoo, responded in a release that "Microsoft's offer undervalued the company".

Steve BallmerBallmer (at right) described in his letter to Yahoo CEO Jerry Yang some of the negotiations that transpired. He wrote that "I first called you with our offer on January 31 because I believed that a combination of our two companies would have created real value for our respective shareholders and would have provided consumers, publishers, and advertisers with greater innovation and choice in the marketplace. Our decision to offer a 62 percent premium at that time reflected the strength of these convictions."

Ballmer also wrote that "In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33.00 offer."

Ballmer explained that a reason for withdrawing the offer was that Yahoo was "pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today."

He elaborated that this "would fundamentally undermine Yahoo!’s own strategy and long-term viability by encouraging advertisers to use Google as opposed to your Panama paid search system. This would also fragment your search advertising and display advertising strategies and the ecosystem surrounding them. This would undermine the reliance on your display advertising business to fuel future growth."

He also wrote that "it would impair Yahoo’s ability to retain the talented engineers working on advertising systems" and "it would raise a host of regulatory and legal problems that no acquirer, including Microsoft, would want to inherit".

Yang stated in the Yahoo release that Microsoft's offer was a "distraction".

See also, stories titled:

DC Circuit Upholds FCC 800 MHz Band Reconfiguration Orders

5/2. The U.S. Court of Appeals (DCCir) issued its opinion [10 pages in PDF] in Sprint Nextel v. FCC, petitions for review and appeals of Federal Communications Commission (FCC) orders regarding reconfiguration of the 800 MHz band. The Court of Appeals upheld the orders.

The Court of Appeals wrote that 47 U.S.C. § 405(a) "bars most of Nextel’s arguments because the Commission did not have an ``opportunity to pass´´ on them and Nextel failed to petition for reconsideration. On the merits, we reject Nextel’s argument that the Commission acted arbitrarily and capriciously. We therefore affirm."

This opinion may be significant for two reasons. First, it rejects Sprint Nextel challenges regarding the timing of 800 MHz rebanding process, and thereby impacts Sprint Nextel's operations. Second, aside from 800 MHz issues, it sets precedent for procedure for bringing petitions for review of FCC orders.

Background. The FCC adopted a report and order on July 8, 2004 that addressed the problem of interference to 800 MHz public safety communications systems from Commercial Mobile Radio Services (CMRS) providers operating systems on channels in close proximity. This order is FCC 04-168 in WT Docket No. 02-55, ET Docket No. 00-258, RM-9498, RM-10024, ET Docket No. 95-18, and IB Docket No. 01-185. See also, story titled "FCC Adopts Report and Order Regarding Interference in the 800 MHz Band" in TLJ Daily E-Mail Alert No. 936, July 13, 2004. Although, R&O is not the subject of this petition for review.

On September 12, 2007, the FCC adopted and released a Third Memorandum Opinion and Order (MO&O) [18 pages in PDF] and a Public Notice (DA 07-168) [9 pages in PDF]. This MO&O is FCC 07-167 in WT Docket 02-55. See also, FCC release [PDF] and story titled "FCC Adopts MO&O Regarding 800 MHz Band Reconfiguration" in TLJ Daily E-Mail Alert No. 1,640, September 13, 2007. These items are the subject of these petitions for review.

Impact on Sprint Nextel Operations. The 2004 R&O provided that Nextel (now Spring Nextel) will return its interference causing spectrum, and in return, will be given 10 megahertz of spectrum, located at 1910–1915 MHz and 1990-1995 MHz.

The Court of Appeals offered this summary. "The Initial Order gave Nextel a central role in the rebanding process. Nextel would (1) relinquish its 700 MHz spectrum, (2) vacate certain 800 MHz spectrum in the ``General Category´´ and ``Interleaved´´ areas of the band, and (3) fund the relocation of other licensees. ... For its part, the Commission would (1) allow Nextel to operate on other 800 MHz spectrum vacated by public safety licensees, (2) authorize commercial mobile service operations in the 900 MHz band, and (3) favorably modify Nextel’s 1.9 GHz spectrum licenses. ... Under the Initial Order, licensees would relocate to different blocks of the 800 MHz band. ``NPSPAC´´ public safety licensees would move from the current NPSPAC channels to General Category channels; Nextel would be responsible for moving itself and other General Category licensees from the General Category to other parts of the band; and Nextel would eventually move into channels vacated by the NPSPAC licensees. ... In addition, Nextel would vacate its Interleaved channels. ... The Commission ordered Nextel to complete band reconfiguration within 36 months of the starting date announced in a public notice." (Footnotes and citations omitted.)

NPSPAC is an acronym for National Public Safety Planning Advisory Committee.

The rebanding process described above is not at issue in this court proceeding. Rather, this court proceeding concerns the timing of this rebanding process. As of September 12, 2007, the Court of Appeals wrote, "only a small fraction of public agencies had relocated to their new 800 MHz spectrum. Here's the rub: many NPSPAC licensees will not be ready to vacate their spectrum by June 2008, and many will need until 2009 or 2010."

On September 12 the FCC determined that Sprint Nextel must comply with the FCC imposed June 26, 2008, deadline, regardless of whether NPSPAC licensees are ready to swap.

The Court of Appeals opinion upholds this determination.

Sprint Nextel stated in a release that it "is disappointed with the court's decision. Sprint has been and continues to be committed to working with public safety to eliminate the risk of interference for public-safety communications. However, more than 500 public-safety agencies have requested more time -- in many cases, years -- to complete their retuning activities. Sprint has agreed to provide spectrum to public-safety licensees within 60 days of when they are ready to retune. In addition, we have requested waivers to remain on these channels pending these retunes."

Sprint Nextel added, "We remain hopeful that we will be able to resolve this issue in a manner that balances the 800 MHz reconfiguration with the needs of our customers -- especially the 3 million public-safety customers who rely on our iDEN network."

Petition for Review Procedure. Section 405 provides in part that "The filing of a petition for reconsideration shall not be a condition precedent to judicial review of any such order, decision, report, or action, except where the party seeking such review ... relies on questions of fact or law upon which the Commission, or designated authority within the Commission, has been afforded no opportunity to pass ..."

Sprint Nextel did not file a petition for reconsideration. It did make oral presentations to the FCC, and submitted written ex parte communications.

The Court of Appeals wrote that "appellate briefs recounting oral statements purportedly made to the Commission cannot satisfy § 405."

In contrast, it concluded that "Ex parte notices can satisfy § 405." However, it added that "future litigants should note that relying on such notices to satisfy § 405 is a risky strategy."

The Court of Appeals concluded that Sprint Nextel did not argue all of its petition for review arguments in ex parte communications. Hence, it concluded that it need not consider any of Sprint Nextel's arguments, other than that the FCC unreasonably changed the rebanding process from a synchronized spectrum swap to an asynchronous exchange. It considered this under the arbitrary and capricious standard, and rejected it.

This case is Sprint Nextel Corporation v. FCC, U.S. Court of Appeals for the District of Columbia Circuit, App. Ct. Nos. 07-1416 and 07-1458, petitions for review and appeals of final orders of the FCC. Judge Brown wrote the opinion of the Court of Appeals, in which Judges Sentelle and Ginsburg joined.

People and Appointments

5/2. Daniel Petri, head of Verizon's operations outside of the US, will retire, effective August 1, 2008. See, release.

More News

5/2. The U.S. Court of Appeals (9thCir) withdrew its November 9, 2007, opinion [27 pages in PDF] in Doran v. 7-Eleven, and replaced it with a new opinion [30 pages in PDF]. Both the majority opinion, and the dissenting opinion, are almost identical to the withdrawn opinions. This is an Americans with Disabilities Act (ADA) case that does not involve information technology. However, this case foreshadows some of what internet and technology companies may face if, or when, the federal judiciary extends the ADA to them. The new majority opinion, like the original, carves out an exception to the Constitutional case or controversy requirement for ADA cases. The opinion further provides that discovery is available in ADA cases, in the absence of any case or controversy, for the purpose of seeking evidence of an unknown violation of the ADA. The new opinion adds guidance to the District Court on evidence and arguments that 7-Eleven might assert on remand. See also, story titled "9th Circuit Rules on Standing and Discovery in ADA Cases" in TLJ Daily E-Mail Alert No. 1,678, November 20, 2007.

5/2. The U.S. Court of Appeals (7thCir) issued an order in Chicago Lawyers v. Craigslist, a Section 230 interactive computer service immunity case. This order merely corrects a typographical error in a statutory citation in the March 14, 2008, opinion [10 pages in PDF]. The Court of Appeals affirmed the summary judgment of the District Court for Craigslist on Section 230 grounds. See also, story titled "Circuit Applies Section 230 Immunity in Craigslist Case" in TLJ Daily E-Mail Alert No. 1,731, March 17, 2008.

5/2. The Federal Communications Commission (FCC) filed its opposition [25 pages in PDF] to the National Cable & Telecommunications Association's (NCTA) emergency motion for stay in UCCOC v. FCC., consolidated petitions for review of the FCC's order that revises its leased access rules. The FCC argues that the NCTA is not entitled to a stay because it has not met the requirements for injunctive relief, and particularly, likelihood of success upon the merits. Cable operators provide video programming to their subscribers. Cable operators pay for programming. In contrast, with leased access programmers pay cable operators to lease access to cable channels. The 1984 Act requires this, and the FCC regulates this leased access, including prices. Few channels have been leased. In the order under review the FCC lowered rates for leased access, and imposed further requirements upon cable operators. This order is FCC 07-208 in MB Docket No. 07-42. This case is United Church of Christ Office of Communications v. FCC and USA, U.S. Court of Appeals for the District of Columbia Circuit, App. Ct. No. 08-3245 and consolidated cases. See also, story titled "FCC Adopts R&O and FNPRM Regarding Commercial Leased Access" in TLJ Daily E-Mail Alert No. 1,680, November 30, 2007.

5/2. The Cato Institute released a paper [5 pages in PDF] titled "The Temptation of Media Regulation". The author is Bruce Owen of Stanford University. He argues that bundling is benign and ubiquitous, and that the government should not mandate unbundling of cable channels.

Senators Request Information Regarding Federal Cybersecurity Initiative

5/1. Sen. Joe Lieberman (D-CT) and Sen. Susan Collins (R-ME) sent a letter to the Department of Homeland Security (DHS) asking questions about a nonpublic document titled "NSPD-54 / HSPD-23" and an initiative that it describes titled "Comprehensive National Cybersecurity Initiative".

President Bush, the DHS, and other government agencies have been secretive about this initiative. These two Senators seek more public information. Their letter also discloses some information about the initiative.

Sen. Joe LiebermanSen. Lieberman (at right) and Sen. Collins are the Chairman and ranking Republican of the Senate Homeland Security and Government Affairs Committee (SHSGAC), which has oversight jurisdiction within the Senate with respect to the DHS.

The wrote that they are pleased that the DHS "is taking additional steps to secure federal computer networks", but want to know more about a Presidential directive titled "National Security Presidential Directive 54 / Homeland Security Presidential Directive 23" or "NSPD-54 / HSPD-23" and the DHS's role in the initiative titled "Comprehensive National Cybersecurity Initiative" or "CNCI".

They stated that "increased openness and information sharing with the Congress, the private sector, and the American public will aid in the eventual success of the initiative". Their letter propounds numerous interrogatories to be answered by the DHS. Notably, they did not ask questions about what roles, if any, other federal agencies, such as the National Security Agency (NSA), have in the CNCI. The SHSGAC does not have oversight jurisdiction with respect to agencies such as the NSA.

President Bush may have signed NSPD 54 / HSPD-23 on January 8, 2008. He has not released it to the public. Nor has he released a redacted version. It created the CNCI.

Release of NSPD-54 / HSPD-23. Sen. Lieberman and Sen. Collins stated that "this initiative is highly classified". They asked "how will you ensure that government officials and members of the private sector have the necessary information to carry out their respective roles in the initiative?"

They also asked "Are there plans to issue an unclassified version of HSPD-23 similar to President Clinton’s release of an unclassified version of PDD-63?"

See, directive titled "Presidential Decision Directive/NSC-63", and dated May 22, 1998. The Clinton directive is also know as "PDD 63".

CNCI, NCSC and Rod Beckstrom. Sen. Lieberman and Sen. Collins wrote that "on March 20th, you announced that Rod Beckstrom would be the Director of the new National Cyber Security Center (NCSC) within DHS. Prior to this announcement, committee staff had been instructed that the existence of the NCSC itself was classified."

Hence, they asked, "What is the role of the National Cyber Security Center?" They also asked for an "unclassified summary of the CNCI". And, they asked, "Under what authority was Mr. Beckstrom appointed and is he serving?"

Budget, Staff, Contractors and Procurement. President Bush's budget proposal for the DHS [64 pages in PDF] for Fiscal Year 2009, released in February, addresses, at pages 37-38, information security. However, it does not disclose the existence of NSPD-54 / HSPD-23 or the CNCI.

Sen. Lieberman and Sen. Collins asked about budget related issues. They wrote that the "DHS has requested substantial new resources for cyber security, and it is critical that the funds are spent carefully and appropriately. The Department has requested an additional $83 million dollars for the National Cyber Security Division (NCSD) for fiscal year 2009. Including the $115 million that was awarded for the initiative in the FY 2008 omnibus appropriations bill, this would be a nearly $200 million dollar increase, tripling the amount of money spent on cyber security in DHS since 2007."

They then asked budget related questions, particularly regarding recruitment of staff, use of contractors, and procurement.

Private Sector Assistance. Sen. Lieberman and Sen. Collins wrote that "Its our understanding that the private sector was not consulted before the CNCI was drafted and that very few members of the private sector have been briefed on CNCI to date".

They stated too that the "private sector controls the vast majority of our nation’s cyber infrastructure and is an important partner in our efforts to protect government systems".

The two Senators mention the existence of a "Project 12", that "will assemble a group of industry leaders to help the Department issue a report on how the government should work to protect the larger cyber infrastructure".

They asked questions regarding what the DHS is doing to benefit from the expertise of outside experts, and to obtain feedback from the private sector.

Privacy. Sen. Lieberman and Sen. Collins asked about the privacy implications of this initiative. They asked "How does this new policy comport with privacy and public comment requirements in existing statute, such as the E-Government Act (P.L. 107-347) and the Privacy Act (P.L. 93-579)?"

They also asked "How will you ensure that the privacy of Americans who access government websites and provide personally identifiable information through electronic means will be protected?"

Government Surveillance. Sen. Lieberman and Sen. Collins ask about the acquisition and aggregation of internet traffic to and from government networks, including the possibility that this would include the content of communications.

They also asked about plans to extend these government operations to "securing cyberspace outside of government systems".

They asked, "What are the goals for the NCSD for this year, beyond the protection of government networks, to ensure that cyber security is enhanced overall, and not just within government networks?"

They also asked about privacy implications. However, they did not ask about legal authority.

FCC Adopts Cap on High Cost Universal Service Support

5/1. The Federal Communications Commission (FCC) released an Order [117 pages in PDF] in its long running omnibus proceeding regarding universal service taxes and subsidies. See also, FCC release [PDF].

This order states that "we adopt an interim, emergency cap on the amount of high-cost support that competitive eligible telecommunications carriers (ETCs) may receive." (Footnote omitted.)

It adds that, with exceptions, "total annual competitive ETC support for each state will be capped at the level of support that competitive ETCs in that state were eligible to receive during March 2008 on an annualized basis."

The order offers the explanation that "the rapid growth in high-cost support places the federal universal service fund in dire jeopardy. In 2007, the universal service fund provided approximately $4.3 billion per year in high-cost support. In contrast, in 2001, high-cost universal service support totaled approximately $2.6 billion. In recent years, this growth has been due to increased support provided to competitive ETCs, which receive high-cost support based on the per-line support that the incumbent LECs receive, rather than on the competitive ETCs’ own costs. While support to incumbent LECs has been flat since 2003, competitive ETC support, in the seven years from 2001 through 2007, has grown from under $17 million to $1.18 billion". (Footnotes omitted.)

The order states that this cap "will remain in place only until the Commission adopts comprehensive high-cost universal service reform". There is nothing in the order to ensure that this cap will in fact be interim.

The FCC order also states that the FCC "plans to move forward on adopting comprehensive reform measures in an expeditious manner". This has been the stated plans of the FCC since it opened this proceeding twelve years ago.

This order is FCC 08-122 in WC Docket No. 05-337 and CC Docket No. 96-45.

FCC Chairman Kevin Martin wrote in a statement [PDF] that "This action is essential to preserve and advance the benefits of the universal service program while we consider comprehensive reform."

He continued that this order "is not an end in itself, but a step on the path towards comprehensive reform. I continue to believe the long-term answer for comprehensive reform of high-cost universal service support is to move to a reverse auction methodology and to require that high-cost support be based on a carrier’s own costs."

On May 5, Scott Wallsten, of the Technology Policy Institute, released a paper [20 pages in PDF] titled "Reverse Auctions and Universal Telecommunications Service: Lessons from Global Experience". He wrote that "reverse auctions have proven themselves both feasible and effective mechanisms for reducing expenditures on universal service and for revealing information about the true costs of supplying service in rural areas. Assuming these policy goals, policymakers in the U.S. should at a minimum devise pilot projects to begin implementing this idea."

FCC Commissioners Michael Copps and Jonathan Adelstein dissented. Copps wrote in his statement [PDF] that this cap is "an illusory band-aid that is supposed to contain costs but, in reality, imposes the much heavier cost of lost opportunity to reform Universal Service". Adelstein wrote in his statement that this cap is "a step backwards in universal service policy".

Verizon's Susanne Guyer stated in a release that "This is a positive development. Comprehensive reform of universal service and intercarrier compensation makes sense for consumers and the industry. As an initial matter, it is critical to clarify the rules for VoIP and other IP-enabled services and confirm that all such services are 'interstate’ services subject to the FCC's authority. IP is an important growth engine for the entire sector, and the commission should encourage competition and a level playing field so customers enjoy new services faster."

Organization for the Promotion and Advancement of Small Telecommunications Companies (OPASTCO) President John Rose praised the order in a release [PDF], and stated that "The very future of rural networks is at stake. The USF is crucial to ensuring rural America makes the transition to the IP world. We cannot allow rural communities to founder as the demand for broadband capabilities increases."

Rep. Dingell and Rep. Markey Seek Open Devices Requirement for Satellite Radio

5/1. Rep. John Dingell (D-MI) and Rep. Ed Markey (D-MA) wrote in a  letter [PDF] to the Federal Communications Commission (FCC) that they want an open devices requirement to be imposed upon satellite radio services.

Rep. Dingell and Rep. Markey are the Chairmen of the House Commerce Committee (HCC) and the HCC's Subcommittee on Telecommunications and the Internet, which write telecommunications legislation, and oversee the FCC's implementation of that legislation.

They did not propose to impose this requirement through legislation, or an FCC rule making proceeding implementing any existing statute. Instead, they seek to use their positions to induce the FCC to impose conditions upon the only two satellite radio companies, XM and Sirius, in a merger review proceeding. The two announced their merger on February 19, 2007. See, story titled "XM and Sirius Announce Plans to Merge" in TLJ Daily E-Mail Alert No. 1,540, February 20, 2008.

Rep. Dingell and Rep. Markey stated that they have no position on approval of the merger, but that if the FCC approves the merger, the approval should be subject to FCC imposed conditions.

They wrote that they want the FCC to "require the merged company to permit any device manufacturer to develop equipment that can deliver the company's satellite radio service. Device manufacturers should also be permitted to incorporate in satellite radio receivers any other technology that would not result in harmful interference with the merged company's network, including hybrid digital (HD) radio technology, iPod ports, Internet connectivity, or other technology. This principle of openness would serve to promote competition, protect consumers, and spur technological innovation."

They also wrote that "it is not enough simply to require open development of satellite radio services. The Commission must also ensure that consumers have unfettered access to these devices. To that end, the merged company should be prohibited from preventing such devices, and any features such devices might contain, from reaching consumers, through exclusive contracts or otherwise. It would be contrary to the public interest, for example, to permit the merged company to bar HD radio chips or iPod compatibility from inclusion in a manufacturer's satellite radio device, whether that device is freestanding or installed in an automobile."

The Department of Justice (DOJ), which possesses statutory antitrust merger review authority, has already reviewed and approved this merger, without conditions. See, story titled "DOJ Won't Challenge XM Sirius Merger" in TLJ Daily E-Mail Alert No. 1,736, March 25, 2008.

The FCC, which proceeds as though it possesses statutory antitrust merger review authority, rarely blocks mergers. Rather, in some cases, it withholds its approval of transfers of licenses associated with mergers and acquisitions, while it conducts lengthy antitrust reviews. This power to delay mergers enables the FCC to extract concessions from the merging entities. It does this to obtain policy objectives that it might not be able to attain through other administrative processes, such as rule making proceedings. Alternatively, it may impose conditions in response to requests from members of the legislative branch, who might be unable to attain their policy objectives through the legislative process.

Rep. Dingell and Rep. Markey also wrote that they want to FCC to "require the merged entity to adhere, at a minimum, to the pricing constraints that XM and Sirius have already submitted to the Commission. Such a condition would ensure that a combined entity does not take advantage of consumers by leveraging its position as sole provider of satellite radio services by raising prices."

The FCC's proceeding is numbered 07-57.

People and Appointments

5/1. Robert Brust was named Chief Financial Officer of Sprint Nextel. See, release.

More News

5/1. The Social Security Administration (SSA) published a notice in the Federal Register that announces the creation of a Future Systems Technology Advisory Panel, to provide advise on future computer systems technology. See, Federal Register, May 1, 2008, Vol. 73, No. 85, at Pages 24102-24103.

5/1. The Securities and Exchange Commission (SEC) filed a civil complaint [10 MB PDF file] in U.S. District Court (SDFla) against GlobeTel Communications Corp., Timothy J. Huff, Thomas Y. Jimenez and Lawrence E. Lynch, alleging Section 10b fraud and other violations of federal securities laws in connection with an alleged a scheme to inflate GlobeTel's revenue and then hide millions of dollars of unpaid receivables and liabilities between 2004 and 2006. This case is SEC v. GlobeTel Communications Corp., et al., U.S. District Court for the Southern District of Florida, D.C. No. Case No. 08-CV-60647. See also, SEC release.

Go to News from April 26-30, 2008.