TLJ News from November 21-25, 2011

AT&T Withdraws Merger Applications

11/25. AT&T notified the Federal Communications Commission (FCC) on November 23 that AT&T and Deutsche Telekom withdraw their pending applications associated with the planned merger of AT&T and T-Mobile USA. Others urge the FCC to deny the request, or at minimum, release a "Hearing Designation Order".

On November 22, 2011, FCC Chairman Julius Genachowski announced that he proposed that the FCC's review of the proposed merger of AT&T and T-Mobile be designated for administrative hearing. See, story titled "Genachowski Proposes That FCC Designate AT&T T-Mobile Merger for Administrative Hearing" in TLJ Daily E-Mail Alert No. 2,313, November 22, 2011. The FCC's proceeding is WT Docket No. 11-65.

AT&T then sent a letter [PDF] to the FCC dated November 23, 2011, that states that "AT&T Inc. and Deutsche Telekom AG hereby withdraw, effective immediately, all of the pending applications in this docket, as listed in the Public Notice released by the Commission on April 28, 2011, and, in accordance with the Rules, the applications are to be dismissed without prejudice."

AT&T explained in a separate release dated November 24 that "AT&T Inc. and Deutsche Telekom AG are continuing to pursue the sale of Deutsche Telekom's U.S. wireless assets to AT&T and are taking this step to facilitate the consideration of all options at the FCC and to focus their continuing efforts on obtaining antitrust clearance for the transaction from the Department of Justice either through the litigation pending before the United States District Court for the District of Columbia, Case No. 1:11-cv-01560 (ESH) or alternate means. As soon as practical, AT&T Inc. and Deutsche Telekom AG intend to seek the necessary FCC approval."

AT&T also stated in this release that "As a result of the FCC's action, AT&T expects to recognize a pretax accounting charge of $4 billion ($3 billion cash and $1 billion book value of spectrum) in the 4th quarter of 2011 to reflect the potential break up fees due Deutsche Telekom in the event the transaction does not receive regulatory approval." (Parentheses in original.)

Also, Genachowski and AT&T's Randall Stephenson and Wayne Watts spoke by telephone on November 22. AT&T filed a notice of ex parte communication regarding this conversation. This notice states that "on Tuesday, November, 22, 2011, Chairman Genachowski called Mr. Stephenson and Mr. Watts regarding the above-referenced transactions. During the call, Chairman Genachowski indicated that he would be circulating to his fellow Commissioners a draft order approving the Qualcomm transaction and a draft order designating the T-Mobile transaction for an administrative hearing."

This notice adds that "Mr. Stephenson and Mr. Watts inquired about the timing and procedural process for the draft designation order. Chairman Genachowski indicated that the draft designation order would likely be voted in the next several days or weeks but the administrative hearing would be deferred until after resolution of the pending litigation with the Department of Justice."

Deutsche Telekom (DT) also filed a notice of ex parte communication with the FCC on November 25 in which it stated that "Effective November 23, 2011, AT&T and Deutsche Telekom withdrew the above-referenced applications in WT Docket No. 11-65 without prejudice in accordance with the Commission's rules. This ex parte notice relates to a telephone conversation between Chairman Julius Genachowski and René Obermann, Chief Executive Officer of Deutsche Telekom AG, that occurred prior to the withdrawal of those applications. Specifically, on Tuesday, November, 22, 2011, Chairman Genachowski called Mr. Obermann regarding the above-referenced transaction."

DT continued that "During the call, Chairman Genachowski indicated that he would be circulating to his fellow Commissioners a draft order designating the AT&T/T-Mobile transaction for an administrative hearing. Mr. Obermann expressed disappointment in this development. He also indicated that the transaction was precipitated by T-Mobile's inability to secure needed spectrum not available under FCC policies. Mr. Obermann also reiterated the benefits of the proposed transaction." (Footnotes omitted.)

Telecommunications Remote Toll Fraud Used to Fund Terrorism

11/24. The Philippine National Police's Criminal Investigation and Detection Group (CIDG) announced in a vaguely worded release that the CIDG and the U.S. Federal Bureau of Investigation (FBI) "have busted a group of Filipino hackers whose operation is allegedly being financed by a Saudi-based terrorist group".

This release states that this action included searches and arrests that "stemmed from the complaint of AT&T" about "the activities of Filipino hackers who hacked the system of AT&T" resulting in "almost $2-million in losses".

This release adds that the FBI "uncovered paper trail of various bank transactions linking the local hackers to the Saudi-based cell whose activities include financing terrorist activities".

This release does not disclose the name of the Saudi group. It does state that the Philipino individuals have also "targeted the AT&T in the US" and that they "hack the trunk-line (PBX) of different telecommunication companies including the AT&T".

The release does not use the phrase "remote toll fraud". However, its description of the arrested Filipino individuals' activities is consistent with remote toll fraud. This is the gaining of unauthorized access to the telecommunications equipment of clients of AT&T or other telecommunications companies for the purpose making unauthorized calls.

Then, revenues from the sale of such stolen telecommunications services can be used, for example, to fund terrorist activities.

Remote toll fraud is both ancient and common. What is novel about this case is that it discloses that remote toll fraud is being used to fund terrorism.

Genachowski Proposes That FCC Designate AT&T T-Mobile Merger for Administrative Hearing

11/22. Federal Communications Commission (FCC) Chairman Julius Genachowski announced that he has proposed that the FCC's review of proposed merger of AT&T and T-Mobile be designated for administrative hearing.

Genachowski did not propose that the Commission issue an order denying approval of the license transfers associated with the merger. That would be a final order subject to judicial review.

Under the procedure proposed by the Chairman, the full Commission must first vote to designate this matter for administrative hearing. This has not yet occurred. Then, the hearing process itself would be prolonged because it would be evidentiary and involve numerous issues of first impression for the administrative law judge. Finally, the Commission would then review the decision of the administrative law judge.

An administrative hearing process would not likely play out until after resolution of the Department of Justice's (DOJ) Antitrust Division's action in the U.S. District Court (DC) to block the merger. The trial in that action is scheduled to commence in February of 2012.

By designating this matter for administrative hearing, the FCC would likely evade the judicial review that would follow if the Commission were to issue a final order at this time denying approval. One of the grounds for challenging such a final order would be that the FCC lacks statutory authority to conduct such reviews.

The administrative hearing process is dilatory in nature, while an immediate rejection could result in a Court of Appeals opinion that would constrain future FCC antitrust merger reviews.

Kathy Sloan of the Computer and Communications Industry Association (CCIA) stated in a release that "We applaud the FCC chairman for deciding to designate this proposed AT&T transaction for a hearing. We recognize there are a host of issues raised by the merger in which the FCC has both the expertise and jurisdiction including the effective use of spectrum, the availability of affordable broadband and employment issues. These are not the purview of the Justice Department, which is focused on the antitrust issues raised by AT&T's proposed takeover of T-Mobile."

Gigi Sohn, head of the Public Knowledge (PK), praised Genachowski in a release. Craig Aaron, head of the Free Press, praised Genachowski's announcement, and again criticized AT&T in a release for its "blatant lies and misleading advertising campaign".

FCC Releases Tentative Agenda for December Meeting

11/22. The Federal Communications Commission (FCC) released a tentative agenda for its event titled "Open Meeting", scheduled for Tuesday, December 13, 2011.

There is only one item on the agenda -- adoption of a Report and Order containing rules that implement the Commercial Advertisement Loudness Mitigation Act (CALM Act). This Act pertains to the volume of television commercials.

The Act leaves the FCC little discretion. It requires the FCC to adopt a rule regulating the audio loudness of commercials of TV broadcasters, cable operators, and any other multichannel video programming distributor (MVPD). It also requires the FCC to incorporate by reference the standards set by the Advanced Television Systems Committee (ATSC).

Specifically, the CALM Act provides that the FCC shall write a rule within one year "that is limited to incorporating by reference and making mandatory (subject to any waivers the Commission may grant) the `Recommended Practice: Techniques for Establishing and Maintaining Audio Loudness for Digital Television' (A/85), and any successor thereto, approved by the Advanced Television Systems Committee, only insofar as such recommended practice concerns the transmission of commercial advertisements by a television broadcast station, cable operator, or other multichannel video programming distributor." (Parentheses in original.)

The CALM Act was S 2847 [LOC | WW], enacted in the closing days of the 111th Congress. The House passed this bill on December 2, 2010. See, story titled "House Passes CALM Act" in TLJ Daily E-Mail Alert No. 2,167, December 3, 2010. The Senate passed this bill on September 29, 2010. See, story titled "Senate Passes Bill to Regulate Volume of TV Commercials" in TLJ Daily E-Mail Alert No. 2,137, October 1, 2010. President Obama signed it on "President Signs CALM Act" in TLJ Daily E-Mail Alert No. 2,181, December 17, 2010.

The event is scheduled for December 13 at 10:30 AM at the FCC headquarters, Room TW-C305, 445 12th Street, SW.

People and Appointments

11/21. Cybele Daley was named SVP for Government Affairs of the Motion Picture Association of America (MPAA). Anna Soellner was named VP for Corporate Communications. See, MPAA release. Daley previously worked at Van Scoyoc Associates, and before that as a political appointee in the Department of Justice's (DOJ) Office of Justice Programs in the Bush administration. Soellner was previously VP for Communications at the Center for American Progress (CAP).

11/21. Federal Communications Commission (FCC) Commissioner Michael Copps named Lisa Hone his advisor on wireline matters. She is on detail from the FCC's Wireline Competition Bureau (WTB). See, release.

Go to News from November 16-20, 2011.