Microsoft PowerPoint - Telecom Antitrust Telebriefing - D Bonner by vivi07


									Preserving “Net Neutrality” Amidst Massive Telecommunications Consolidation – Can It Happen?
Washington, D.C. April 7, 2007
Douglas G. Bonner Sonnenschein Nath & Rosenthal LLP 1301 K Street NW, Suite 600 East Tower Washington, DC 20005 202.408.6400

Incumbent Telephone Company/Bell Operating Company Consolidation

» Some background might help clarify: » spx

Bell Companies/Major IXCs From 1996 to Date

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In 1996: Bell Atlantic NYNEX SNET Southwestern Bell Ameritech BellSouth Pacific Bell US West GTE AT&T MCI Sprint Qwest

Today’s Players: Verizon AT&T Sprint Nextel Qwest (f/k/a US West)

Telecommunications Act of 1996 Intended to Promote Rapid Local Competition

– Intramodal wireline competition – CLEC boom from 1996 through 2000….then BUST! – Declining LD revenues amidst fierce competition spelled the end of major IXCs as industry leaders. – Intermodal competition today - Wireless; Cable; VoIP (CATV and Standalone – Vonage; Skype); Satellite – Causes: – Overfunded business plans – “Build and They Will Come” – Regulatory Policies: elimination of UNE-P; unbundled switching; more difficult to get access to unbundled network elements where competitive options exist or lack of “impairment”.

The AT&T(f/k/a SBC)/BellSouth Merger

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$80 Billion Merger – largest telecom merger ever. $100 Billion in annual revenue/300,000 employees 67 million access lines/22 states 11 million DSL customers Owning 100% Cingular (AT&T Wireless) – largest wireless carrier Control over 23% of U.S. broadband facilities

Merger Approved by FCC on 12/29/06; Order released 3/26/07

» “Where once there were none, there are some….” » U.S. D.O.J. merger review– under Clayton Act. Concluded it had no anticompetitive concerns about merger. No complaint/consent decree/opinion. On 10/11/06 announced closing of investigation without further action. » Before the FCC, the merger foundered (subject to public interest review in connection with license transfers).
– – – – 2-2 split among Commissioners Commissioner McDowell recusal; initially proposed by merger Applicants without conditions; Democratic control of Senate in October prompted oversight of transaction approval; emboldened Democratic Commissioners to demand conditions on merger approval.

Key Merger Conditions

– AT&T agreed to extend from 11/07 (for 30 months after closing date of Merger (until 10/09) its agreement in SBC/AT&T merger to conduct business in accordance with 4 principles of Net Neutrality adopted in FCC Internet Policy Statement of 9/05. Statement provides that consumers are entitled to: • (1) access lawful Internet content of their choice; • (2) to run applications and use services of their choice, subject to needs of law enforcement; • (3) connect their choice of legal devices that do not harm the network; • (4) “competition among network providers, application and service providers, and content providers.”

Net Neutrality Conditions on AT&T/BellSouth Merger

PLUS A NEW CONDITION : AT&T agrees to: “maintain a neutral network and neutral routing in its wireline broadband Internet access service [including to Wi-Max wireless broadband platform – first time ever applied to a fixed wireless platform]. This commitment shall be satisfied by…agreement not to provide or to sell to…[ISPs, including any affiliated with AT&T] any service that privileges, degrades or prioritizes any packet transmitted over AT&T/BellSouth’s wireline broadband Internet access service based on its source, ownership or destination.”

Other Merger Conditions

» Internet Backbone condition
– For 3 years after Merger Closing, AT&T to maintain as many discrete settlement-free peering arrangements for I/B services with domestic operating entities as they did on merger closing (apart from mergers or bankruptcies). – AT&T to post its peering policy on a publicly accessible website for 3 years within 30 days of Merger Closing.

Other Conditions

» Other Consumer Benefits within 12 months of Merger Closing: » Promoting Accessibility to Broadband:
– Commitment to offer basic broadband (DSL) to 100% of customers in its 22 state region by end of 2007 at 200 kbps. 85% wireline DSL; 15% Wi-Max – 30% of new buildout to be to rural areas. – Agreeing to offer new customers in Wireline Buildout Area, broadband Internet access service up to 768 Kbps at a rate of $10/month.

Other Consumer Benefits

ADSL Services Offering Stand Alone ADSL 768 Kbps Service at $19.95/month within 12 months of Merger Closing. Don’t need to be AT&T voice customer or buy bundled services. Divestiture of 2.5 Ghz spectrum – The “Third Pipe” for competitive broadband AT&T/BellSouth agree to divest all spectrum within 12 months $350 Million deal announced with ClearWire for sale of 2.5 Ghz spectrum (WiMax) Agreement to Buildout of 2.3 Ghz spectrum – to 25% of population in service area of its WCS licenses by July, 2010, or forfeit it for reauction.

What does the Future hold for Net Neutrality

» Chairman Martin’s Statement on December 29, 2006 (joined by Commissioner Tate) that some of the negotiated conditions are “discriminatory and run contrary to Commission policy and precedent.” » In February 1, 2007 Senate Commerce Committee Hearing, Chairman Martin argued that while he stands by the AT&T/BellSouth agreement, it is not a template to “change Commission policy or Commission rules or regulations.” » New net neutrality bill introduced by Senators Dorgan and Snowe in January 2007. Supported by Democratic majority. » Will AT&T merger conditions be template for new net neutrality rules adopted by the FCC or by legislation?

The 96 Act and the Internet
» It is the policy of the United States—
» (1) to promote the continued development of the Internet and other interactive computer services and other interactive media; [and] (2) to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation. . . . 47 U.S.C. § 230(b).



96 Act has Fostered FCC Policies Promoting Intermodal Competition
Promoting Broadband Deployment: FCC Policies Have Reshaped Competitive Landscape and Contributed to Deployment of New Technologies Over Past 3-4 Years Sec. 706 directive to the FCC “and each State Commission”: If FCC determines in NOI that advanced telecommunications capability is not “being deployed to all Americans in a reasonable and timely fashion…” the FCC is to “take immediate action to accelerate deployment of such capability by removing barriers to infrastructure investment and by promoting competition in the telecommunications market.”
– ATC defined “without regard to any transmission media or technology” as “high-speed, switched, broadband telecommunications capability.…” Sec. 706(c)

RESULT: Over the last 10 years, federal policymaking has sent conflicting investment signals to the financial markets, upheaval in the competitive landscape and has led to confusing --and sometimes competing-- federal and state regulation.

Who are the “New Entrants”?
» » » » » Not ILECs/CLECs, CATV or established CMRS carriers VoIP – mobile (Vonage; Skype) vs. non-mobile (CATV) Wi-Fi Muni WiFi (Philadelphia; San Jose; San Francisco) Wi-MAX
– Clearwire; Sprint Nextel (nationwide Wi-MAX 2.5 GHz deployment) – AT&T/BellSouth launch of pre-Wi-MAX, wireless broadband using licensed 2.3 GHz spectrum in Athens, GA, New Orleans, Gulfport, MS, Albany, GA) Divestiture of 2.3 GHz and 2.5 GHz spectrum as part of AT&T merger?

» MVNOs » Handheld Satellite (in 2007 in Asia, Europe and Africa by Inmarsat, currently maritime, fixed terrestrial, and aeronautical satellite service provider) (also ICO, Globalstar, Iridium and others)

Wi-Max - Big Merger Conditions/Divestitures KickStarting Wi-MAX deployment
I. Sprint Nextel Merger (approved August 3, 2005)
– The merger is “likely to result in greater intermodal competition based on the fact that the Applicants are independent wireless carriers.” In the Matter of Applications of Nextel Communications, Inc. and Sprint Corp. For Consent to Transfer Control of Licenses and Authorizations, WT Docket No. 05-63 (Order at para. 142.) – Wi-MAX: 2.5 GHz Band –Sprint and Nextel hold “virtually nationwide footprint” in the 2.5 GHz band (nearly 85% of the pops in the top 100 markets with little overlap).

WiMax (cont’d.)
Sprint Nextel Merger (continued)
– Used for fixed or portable wireless broadband (e.g. Wi-Max type services) that will provide last mile platform alternatives (and compete with DSL and cable modem providers) (Order at para. 167). • Wireless Interactive Multimedia Services (WIMS) – Applicants argue merger will accelerate deployment of interactive data service with average downlink through put rates of 2-4 Mbps. • “a nationwide footprint in the 2.5 GHz band…[is not]…a unique or excessive competitive advantage.” – Commitment to develop the spectrum (merger condition) by agreeing to specific wireless broadband deployment milestones.

Douglas G. Bonner 202.408.3957

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