THURSDAY, SEPTEMBER 29, 2011

VOL. 31, NO. 189

TODAYS NEWS
FREE PRESS CHALLENGES FCC net neutrality order in court, saying it's too weak. MAP files similar challenges on behalf of grassroots groups. (P. 1) OUTGOING FTC COMMISSIONER

Free Press, MAP, File First Challenges to FCC Net Neutrality Order
Free Press sought judicial review of the FCCs December 2010 net neutrality order in the U.S. Court of Appeals for the First Circuit in Boston. Free Press is based in Boston. Meanwhile, the Mountain Area Information Network, based in Asheville, N.C., also challenged the order in 4th Circuit in Richmond, and the Media Mobilizing Project filed a challenge in the 3rd Circuit in Philadelphia. Both are represented by the Media Access Project. Free Press challenged the FCCs decision to "adopt one set of rules for broadband access via mobile platforms and a different set of rules for broadband access via fixed platform," according to its Wednesday petition for review. Doing so violates the Communications Act and is "arbitrary and capricious, an abuse of discretion, or otherwise contrary to law," it said. Free Press Policy Director Matt Wood said the groups goal is to strengthen the rules. "Our challenge will show that there is no evidence in the record to justify this arbitrary distinction between wired and wireless Internet access," Wood said. "The disparity that the FCC's rules create is unjust and unjustified. And it's especially problematic because of the increasing popularity of wireless, along with its increasing importance for younger demographics and diverse populations who rely on mobile devices as their primary means for getting online." The other two challenges raise similar questions about the order and the distinction it draws between wireless and wireline broadband. Verizon and MetroPCS are expected to file appeals in the Court of Appeals for the D.C. Circuit. The result is questions about where the challenge will ultimately be heard. Net neutrality opponents hope it's the D.C. Circuit, which they believe will be more skeptical of the FCCs reasoning in the order and more likely to overturn it.

Kovacic talks privacy, Google, apps, and regulatory globalization, in exit interview. (P. 2)
SPECTRUM LEGISLATION TOPS

CTIAs agenda, Largent says. CTIA also focused on USF, getting 1755 MHz band reallocated for broadband. (P. 4)
COMCAST ENTERS TOWER SECTOR

as it finds new use for old broadcast receive and microwave sites. (P. 8)
RURAL MERGER MANIA feared in

USF proceeding. (P. 9)

RELIGION AND NEWS COMMONALITIES discussed by Waldman, who

says both grappled with technology. NHMC still wants hate-speech FCC inquiry. (P. 11)
HOUSE PRIVACY BILL to deal with

practices of government as well as business, Blackburn says. Officials should 'lead by example.' (P. 12)
VERIZON SEEKING TAX EXEMPTION in New Jersey, citing decrease

in landline customers. (P. 13)

Copyright 2011 by Warren Communications News, Inc. Reproduction or retransmission in any form, without written permission, is a violation of Federal Statute (17 USC101 et seq.).

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"There is a considerably better than a 50-50 chance that all of the net neutrality rules will be thrown out on the basis the Commission lacks authority to regulate Internet services in the way it did," said Free State Foundation President Randolph May, a net neutrality critic. "In any event, in light of the differences between wireless and wireline networks, the odds that Free Press will succeed in arguing the FCC acted arbitrarily in treating wireless more flexibly are close to zero." CTIA Vice President Chris Guttman-McCabe questioned the logic of the Free Press challenge. "I don't know what Free Press is reading, but as the FCC noted during the proceeding, wireless is different," he said. "There is ample evidence on the record that proves this." Relations between the White House and the FCC have become strained over the net neutrality rules, a former FCC official told us. President Barack Obama and his team are frustrated that the net neutrality order was too watered down, the official said. The matter has disappeared from his campaign's talking points. Howard Buskirk
Google Inquiry Warranted

FTC Struggling to Understand Rapid Technological Changes, Says Outgoing Commissioner Kovacic
The FTC needs to commit more resources to understand rapidly evolving technologies, despite the trend of heightened fiscal scrutiny, said former Commissioner Bill Kovacic in an exit interview Wednesday. His term, a Republican slot, ended Sept. 25 after five years on the commission, including a year as chairman from March 2008 to March 2009. Kovacic returns to his former job as a law professor at the George Washington University Law School in Washington. The biggest change Kovacic saw during his term was the increased speed at which new technological phenomena begin, he said. The rate of change in technologies is occurring "faster today than ever," and is placing "extreme pressure on policy making institutions" like the FTC, he said. "The greatest challenge for the commission is to understand what is taking place. And secondly it must appreciate both the hazards and benefits associated with these changes and to take those tips to create a base of knowledge for making judgments about the policy response going ahead." The commission is still working to wrap its head around emerging technologies like Apple and Android's mobile application stores, Kovacic said. "These are extraordinarily complex phenomena and they are changing quickly, so the commission is spending more resources on understanding it first," he said. "It requires a base of technical knowledge and a deep understanding of the relevant commercial practices and their significance. That is a key investment of the agency's resources." The FTC recently settled with the makers of two apps that promised to treat acne using colored lights on mobile devices (CD Sept 9 p12). But the tight fiscal environment facing nearly all federal agencies could constrain the FTC's investment in new resources, Kovacic said. "One hopes Congress will understand that you can't get first-rate policy results on the cheap," he said. "If you want broadband-quality policy outcomes you can't do it with dialup-quality institutions."

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Kovacic said one of his biggest regrets is that he won't be around to contribute to the agency's conversation in the online privacy debate. Just this month the FTC suggested more than two dozen changes to the rules for the Children's Online Privacy Protection Act (COPPA). The proposed changes would impose new requirements on operators of websites that cater to children under the age of 13. The FTC's proposed revisions to COPPA are "appropriate" to ensure that minors "know what they are getting into online," Kovacic said. "A greater level of precaution taking is important for children." The proposed revisions "respond to a deep social preference to ensure that minors do not get in over their heads in a form of communication whose implications may not be entirely apparent to them," he said. "I regret that I won't be here as the further elaboration of the commission's statement on privacy takes place." The agency's antitrust inquiry into Google's business practices is warranted, Kovacic said, but that doesn't necessarily mean the FTC will bring action against the company. "I believe that it is responsible for the agency to take a closer look, but where that leads is an entirely different question," he said. Kovacic said he's particularly concerned about the way Google integrates the service offerings of other firms into its own search listings and products. "The assessment will evaluate whether some of the complaints that were made about access discrimination are well founded," Kovacic said. Last week, Yelp CEO Jeremy Stoppelman said Google incorporated Yelp content into Google Local without permission (WID Sept 22 p1). "Those results are worth exploring, but initiating an inquiry does not necessarily mean prosecuting the company," Kovacic said. Another change the outgoing commissioner observed is the increased globalization of the policymaking arena. There is a "growing awareness that the solutions have an increasingly international dimension" and the solutions to many of today's policy questions "require a broad range of interaction with policy makers at home and abroad," he said. Kovacic hopes his successor will be able to work cooperatively with international regulatory agencies on policies that require a more global approach. "There is a lot of room for improvement in strengthening the cooperative framework related to the international and state governments," he said. Kovacic's successor should also "emphasize the importance of making capital investments in improving capability in the regulatory framework," he said. "The quality of the institution should be decisive in good results and we should not short change the investment of these policies." In July, President Barack Obama nominated Maureen Ohlhausen, a partner at the Washington law firm of Wilkinson Barker, to replace Kovacic (CD July 21 p7). She previously spent 11 years at the FTC, where she was the director of the Office of Policy Planning until 2008. Her nomination is awaiting approval from the Senate, which hasn't scheduled a hearing. Bryce Baschuk
USF Being Watched

Largent Optimistic Congress Will Approve Spectrum Legislation This Year

CTIAs top priority is getting Congress to pass spectrum legislation, and the association thinks its not a question of if, but when a bill will be approved, CTIA President Steve Largent said during a press conference Wednesday. CTIA officials also said Universal Service Fund reform remains a significant is-

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sue for wireless carriers, with the FCC poised to take up an order at its Oct. 27 meeting. Largent said he's confident the 1755-1780 MHz band will be reallocated for wireless broadband. All Im going to say is that at this point in time: CTIAs number one, two and three highest priorities are getting more spectrum, Largent said. We are focused like a laser beam on getting more spectrum. The U.S. will lose its leadership position in the world if carriers dont get another 500 MHz in 10 years." Timing is a big concern and CTIA hopes broadcast spectrum will be auctioned within two years, Largent said. CTIA isnt sure which version of spectrum legislation will pass, but is very confident a bill will move before Congress leaves in December, Largent said, suggesting it could be folded into the work of the Joint Select Committee on Deficit Reduction. Largent is not confident the super committee will produce a product that reduces the deficit by $1.5 trillion, but I am totally confident that theyll have something in there on spectrum, because were helping the process." The super committee process is new, so its unclear what will happen, said CTIA Vice President Jot Carpenter. Even if spectrum is included, theres no guarantee it will pass since there are many other issues involved, Carpenter said. Its still possible spectrum legislation will be passed through regular order, he said. Weve told [Congress] we dont care much what the process is, as long as at the end of the process, theres additional spectrum coming to market, he said. The House Communications Subcommittee plans a markup on spectrum legislation next week (CD Sept 28 p13). Chairman Greg Walden, R-Ore., wants to move a bill to give options to Commerce Committee Chairman Fred Upton, R-Mich., and the super committee, Carpenter said. If the super committee doesnt take it up, then the House still has the option to move the bill through regular order, he said. The GOP and Democratic staffs have meetings regularly and are working very hard to reach consensus, Carpenter said. Based on talks Carpenter has had with both sides, he estimated the parties are in about 80 to 85 percent agreement. There may be a few issues at the end where the staff cant figure out how to get in agreement, and thats where you get the members in the room and you try and work it out, Carpenter said. If they cant get agreement, then you take votes. CTIA likes most of President Barack Obamas American Jobs Act, but opposes spectrum fees, Carpenter said. Fees collect revenue for the government later, but reduce the amount of money companies pay for auctions up front, he said. Carpenter hopes a new tax on wireless would be a non-starter but CTIA is taking it seriously, he said. Theres a little more meat on the bones in this particular proposal than there has been in the past, he said. CTIA officials are particularly concerned about a proposal to impose fees retroactively. Carriers would bid less for spectrum licensees if they know theyd have to pay additional fees on the backend, Largent said. It doesnt make sense. Largent also said one incentive auction probably wont be enough to tee up all the spectrum the industry needs. Either youre going to hold an auction and its going to be so late and our industry is going to so desperately need the spectrum that youre sort of defeating yourself anyway, he said. Or youll hold it so early and have so much spectrum available that you drive the price." He said the best solution would be to hold two or three auctions over 10 years. CTIA Vice President Chris Guttman-McCabe said he's not concerned about Congress imposing too-specific of rules for auction design as part of legislation. The 700 [MHz auction] as a whole is an

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example of how not to hold an auction, he said. The D-block didnt get auctioned. The C-block had two bidders but only one that truly wanted to win the license. ... Then you had the A and the B blocks and the A block had interference concerns." Largent said weve seen the FCC play games with auctions and weve seen what the results are. Public safety officials have pointed to the wireless industrys network woes following the Virginia earthquake as evidence that they need to control the 700 MHz D-block. Largent said its technically impossible for wireless networks to serve a spike in demand like was felt during the earthquake. Networks saw a 400 to 600 percent demand spike after the earthquake, he said. The truth is, we would never be able to build enough lanes on the highway, regardless of how much spectrum we have, to handle a 400 to 600 percent increase of traffic on a given moment, Largent said. That spike in demand could never be met with all the spectrum in the world, he said. It did highlight the fact that we need more spectrum. Largent has more confidence in our networks than maybe public safety does, he said. Commercial networks are pretty darn good, and when they do go down theyre able to come back very, very quickly, he said. But public safety has its own needs and wishes, and I wish them well on their quest to get the Dblock, he said. CTIA members differ on whether the D-block should be auctioned or reallocated to public safety, so the association is not taking a position, Guttman-McCabe said. But there is consensus among members that public safety needs money to build the network, he said. CTIA hopes disagreement over the D-block doesnt hold up spectrum legislation since there's much more spectrum at stake, he said. Asked about broadcaster concerns about voluntary incentive auctions, Guttman-McCabe said CTIA wants broadcasters to be comfortable, because we want broadcasters to participate in the auctions. This shouldnt have to be a life-and-death battle because thats not whats being contemplated." Broadcast spectrum is important, but its only 120 MHz of the 500 MHz sought by carriers, he said. CTIA officials also took questions on a few non-Hill issues. USF reform is a very big issue, Guttman-McCabe said. We believe that here is a vehicle out there that can help get us to a solution on intercarrier comp and USF and what weve suggested are a few changes to it, the key one being a significantly larger Mobility Fund, he said. We think that that fits exactly in line with the other policy issues in front of the commission greater deployment, greater adoption of wireless broadband." GuttmanMcCabe noted comments by Commissioner Michael Copps that he was able to use his wireless device while on a trip on the Yangtze River in China. Were not going to get broadband service on our Yangtze rivers if the size of the Mobility Fund is $300 million, he said. He said he hopes the FCC will be able to vote out an order in October. When I signed on with CTIA in August 2003, intercarrier comp and USF was one of the issues that I inherited then, and were just now coming to a point where I think something is going to happen, Largent said. Largent also said he's really optimistic that the NTIA and FCC will conclude that the 1755-1780 MHz band should be reallocated for wireless broadband. My hope is that as the auctions come along that that would be the first spectrum to be auctioned, he said. Several of the spectrum bills, including the jobs bill, advocate that the band be reallocated. Guttman-McCabe questioned the conclusions in a Citigroup report released this week that found there's no spectrum shortage in the U.S. (CD Sept 27 p10). The study was based on 2010 numbers, he

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noted. They suggest in the study that theres no AWS being used, which isnt factually correct, he said. The paper is based on, as far as we can see, no 700 MHz being used even though Verizon has deployed their C-block to a whole bunch of markets." Guttman-McCabe said he was surprised when he saw the report: I dont want to have to go on the attack against Citigroup. Im sure these guys had every intention of getting it right. ... I just dont agree with their analysis." Meanwhile, CTIA expects the House will soon pass the Wireless Tax Fairness Act by Rep. Zoe Lofgren, D-Calif., Carpenter said. The bill (HR-1002), which has wide bipartisan support in the House, would impose a five-year moratorium on new state and local discriminatory taxes on wireless. Meanwhile in the Senate, Sen. Ron Wyden, D-Ore., Olympia Snowe, R-Maine, and John Thune, R-S.D., have asked (CD Sept 28 p13) for a Finance Committee hearing on the Senate companion, S-543. "If we can get the [Lofgren] bill through the House this fall [and] get a hearing scheduled in the Senate, I think well be in a nice position with a fairly long runway in front of us next year in the Senate to finally get this done. Without a moratorium, state and local governments will continue to look at wireless as a potential revenue source," said CTIA Vice President Jamie Hastings. Adam Bender, Howard Buskirk
800 Towers

Comcasts Venture Capital Wing Sets Up Wireless Tower Operator

Comcast is getting into the wireless tower business through a company just set up by its venture capital arm, Comcast Ventures. CTI Towers said it will take the 800 towers Comcast already owns and try to lease them to wireless companies. For now, CTI Towers holdings overlap entirely with Comcasts service area, but the company is looking to expand its footprint either through acquisitions or developing new tower sites, said CEO Anthony Peduto. As fiber connections have replaced microwave links as a means of delivering TV programming to cable headends, Comcast has been left with under-used tower sites around its service area, Peduto said. Comcasts many cable system acquisitions has left it with multiple towers in some markets. In Washington, D.C., for instance, it has three sites within the Beltway one in Northwest D.C., another in Capitol Heights, Md., and a third in Arlington, Va. according to data from CTI Towers website. Plus, the towers are in prime locations, said Peduto. By virtue of coming in through the cable systems, a lot of these towers are in strategic locations, such as some residential neighborhoods and high profile commercial areas." Some local regulatory hurdles remain to be cleared because the towers werent built for commercial wireless use, he said. But local governments are generally willing to allow the shift because it may mean eliminating the need for building a new tower in their jurisdiction, he said. Demand for tower space is high and is forecast to increase, said Clayton Funk, a managing director for Media Venture Partners who brokers transactions involving wireless towers. Bringing in a towerindustry veteran and running the CTI Towers as a separate unit within Comcast is a smart business move for the company, he said. Instead of being viewed as a nuisance or non-core asset, it can be viewed as a separate revenue center." Its easy to see why Comcast would get into the tower sector, said Clayton Moran, an analyst for Benchmark Capital who follows the tower industry. The tower industry in the U.S. is growing at about 9

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percent year over year in terms of revenue, and we think it will be in high single-digit growth for several years to come." Its very profitable growth, as the tower business largely fixed cost business, meaning incremental revenue can drop directly to the bottom line, said Jonathan Schildkraut, an analyst with Evercore Partners. An independent operator can break even with a single tenant on the site, but the next tenant, maybe 90 cents of the incremental dollar falls down the bottom line." Most leases are long term, providing steady, recurring revenue, he said. Its a great business and its unsurprising to me that Comcast Ventures would look at this and take advantage of the assets Comcast had and make them more productive. Dont look for clues about Comcasts wireless ambitions in this move, Moran said. Its being run within their venture group and its obviously not part of their operating business, so theyre not assuming synergies with their other business lines, he said. I wouldnt read this as indicating anything about their wireless strategy." CTI Towers could make an attractive acquisition target for some of the larger tower operators, both stock analysts said. Theres been a pretty healthy consolidation trend for many years, Moran said. And the number of tower operators with 500 or more sites is limited, he said. That potentially creates a scarcity value as these bigger companies desire to continue to grow." Josh Wein
'Part and Parcel'

Rural Telcos Worry that USF Reform Points to Consolidation

Rural telcos and state regulators worry the pending universal service and intercarrier compensation regime reforms will result in consolidation in their sector. Earlier this week, ex-FCC commissioner Harold Furchtgott-Roth accused the agency of pushing rural telcos toward consolidation in the Universal Service Fund rulemaking notice (CD Sept 26 p13). The "dynamic" rural market may inevitably result in mergers or acquisitions, but rural carriers are still worried that the FCC will push them into consolidation, said NTCA Policy Director Josh Seidemann. I think the FCC certainly indicated their view that there could be benefits to consolidation, he said. This is an aspect of the industry, however, that should be left to market forces and the market forces will determine what works best for a particular carrier or for particular carriers." Parts of the rulemaking notice ask about whether companies ought to share switching support, Seidemann said. Some rural telecom officials read that as an indication that their operations ought to be merged, he said. There have been other indications that reform points toward M&A. After listening to an Iowa regulator talk at an FCC workshop on the pending reforms about the difficulties in regulating the 140some telcos in her state, AT&T Vice President Bob Quinn asked aloud whether we really need so many small telcos in Iowa. FCC staffers have made similar statements in ex parte meetings, a rural telecom official told us. Blair Levin made clear in a number of public speeches that he thinks the entire rate-ofreturn regime should be rethought (CD Jan 25 p9). Levin led the team that wrote the National Broadband Plan, from which many of the pending USF reform proposals have come.

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Rural consolidation is already underway, Vermont regulator John Burke told us. Shoreham, a Vermont telco, is about to be acquired by Otelco, a wireline provider that works in Maine, Massachusetts and New Hampshire, he said. He said he would expect M&A to increase if the incumbent-backed ABC plan is adopted by the FCC. The cost models in the plan simply make it too hard for small, rural carriers to operate, Burke said. That would be a disaster for rural economies, Federal/State USF Joint Board Chairman James Cawley said. Small, independent telcos are part and parcel of the business and social fabric of rural communities." Anxiety over a shrinking market has become a new angle in the USF battle but its not clear that consolidation is a direct consequence of pending reforms, MF Global analyst Paul Gallant said. Financial buyers of rural telcos raise certain issues for regulators, but one rural telco buying another shouldn't have much effect on consumers, he said. So I don't think rural consolidation is per se good or bad from a public policy perspective. If consolidation follows from the pending reforms, its probably an unintended consequence, Gallant said: The commission's goal is expanding broadband by rationalizing a fairly irrational system of subsidies. One consequence might be some rural consolidation, but I doubt that's what's driving the commission." In the meantime, rural telcos ought to be looking at each other to see if they can maximize efficiencies with or without M&A, John Staurulakis Inc. Senior Vice President Steve Meltzer said. Our position is that the FCC should not force these companies to consolidate, said the consultant to small and mid-size telcos. However, there are certain services where they can gain economies of scale." Companies can theoretically pool resources for help desks, engineering and billing to cut costs, Meltzer said. Meanwhile, a group of Missouri rural telcos released a study Wednesday claiming that USF is central to the states rural economy. Without USF support, economic output would drop by
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$604 million over five years, 3,500 jobs would be lost either directly or indirectly, wages would decline by more than $162 million and federal tax revenues would fall by $36.4 million, the study claimed. Bill Myers, Yu-Ting Wang
Copps Seeks Diversity

Religion and News Media Share Commonalities, Waldman Says

Religion and news media have more in common than it may appear at first glance, the author of the FCC's report on the future of the industry said as he prepares to leave the agency next week (CD Sept 27 p4). Steve Waldman said the news industry and religious leadership have both grappled with how to stay abreast of technological trends and make sure those trends don't undermine some of their reason for existence. Both have at times wondered "how they won't be overrun by technology," he said in a Wednesday lecture on ethics in telecom. The Internet boom of the 1990s and early part of last decade offers some hope for long-time institutions seeking to remain relevant, Waldman suggested. EToys, which some thought would become the top website for buying kids' presents, went bust, he noted. But toysrus.com, owned by the brick and mortar retailer, is now the online leader, Waldman said in the annual Everett Parker Ethics in Telecom Lecture. The United Church of Christ helped organize it and was among the sponsors. "If you embrace technology, use it as an exciting way to get your message out, rather than sticking your head in the sand, you will thrive," Waldman said. That "would have been very good advice" for "TV news managers" to have heard. Journalists and religious authorities "both care, in some sense, about the good news," he said. "There are more similarities there than might be first apparent, and I don't mean that only news and the holy scripture tell stories about floods," he said. "They both attempt to get at something they call the truth, they both try to do so in profoundly different ways" and "they both attempt to get at the question 'why is the world this way?'" At the same event, FCC Commissioner Michael Copps pressed his case for more diversity in media, while the head of the National Hispanic Media Coalition again sought an FCC inquiry into hate speech. Both men accepted awards, along with Joe Waz, who retired this year as senior vice president of Comcast. Commitments to diversity and selling cheap Internet access to the poor that Comcast made to buy control of NBCUniversal are bearing fruit and will continue to, Waz said. "We're taking them on," NHMC President Alex Nogales said of media that perpetuate what he called hate speech he didn't define the term in markets including Los Angeles. "Hate speech is not good for anyone, it's not good for people who are the recipients, or the people who are doing it," he said. Hate crimes have risen in L.A. and in Washington, which he said "is not an accident" and comes after more hate speech. "We still have so many miles to go to build the media that America requires," said Copps. There's "too little substance and too much fluff" now, he added. Consumers should "work for and insist upon a media environment that informs us with real news and information" and reflects "the diver-

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sity of this land," he said. Copps speaks Monday in Phoenix about the report Waldman finished in June that was done under the auspices of FCC Chairman Julius Genachowski, who also will talk about its recommendations. If Waldman had to send out a summary on Twitter of his 478-page report (http://xrl.us/bmesmp), it would be: "There is tremendous innovation in the modern media landscape, but there are very consequential gaps," he said. "Technology has reduced the cost of gathering, producing and distributing news" while a "search engine-driven Internet has just made it much easier to find stuff out," he said. Newer local news websites, some started by former traditional journalists, "have the skill, but not the scale" needed, Waldman said. He stumped for the report's recommendation of disclosure by broadcasters of how they're serving their communities, including by disclosing news sharing and other arrangements with stations in the same market. "I don't mean coverage that is locally relevant" should be disclosed in lieu of only local information, he said, "because that is a loophole that you can drive a truck through. But I mean news about their community, as that is commonly understood." Jonathan Make
'Lead by Example'

House Commerce Privacy Bill to Deal With Government Data Practices, Says Blackburn
SANTA CLARA, Calif. The government's handling of personal information will be the subject of a House Commerce Committee privacy bill, which also will have provisions on business practices, Rep. Marsha Blackburn, R-Tenn., told us Wednesday. She didn't elaborate, including about when the measure will be introduced, and a committee spokeswoman didn't get back to us right away. Blackburn is a member of the Communications Subcommittee. Speaking at a forum of the Congressional Internet Caucus Advisory Committee and Santa Clara University's High Tech Law Institute, Blackburn had said the government's collection, protection, use and retention of data has been a major subject of worries expressed at privacy roundtables she has held. "Citizens are very concerned" about the amount and kinds of information the government collects and holds, Blackburn said. But she added, "I can't tell you exactly what the processes to move forward are going to be." People want the opportunity "to protect their virtual 'you,'" and "government has a different set of rules than anybody else," Blackburn said. The "government must lead by example on privacy protection," she said. On the Hill, "bipartisan opposition to the imposition of the net neutrality rules" by the FCC "has had an impact" on the progress of spectrum legislation, Blackburn said. The "lesson in the failed D-block auction" is not to "weigh these auctions down with a lot of conditions and mandates," which are "counterproductive" to business aims, she said. It's "vitally important" to "get this spectrum out in the marketplace," she said. Asked about the administration's legal challenge to the T-Mobile sale, Blackburn said, "I'm going to pretty much leave that alone. ... We'll see what DOJ has to say." But she added, "Let's think long-term about the health of the industry and the health of jobs growth." The policy shouldn't "stifle the ability of innovators to innovate and bring applications" to users, Blackburn said. Louis Trager

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Court Case Pending

Verizon Seeking New Jersey Tax Exemption

Due to a decrease in landline customers, Verizon is telling 68 municipalities in New Jersey that its no longer required to file tangible telephone property tax returns. Municipalities like Hopewell Borough in Mercer County disagreed, bringing the telco to state tax court. Based on New Jersey law (Title 54, section 4-1), in municipalities where Verizon no longer provides landline to 51 percent of a local exchange, the company isnt required to file the property tax returns, a Verizon spokesman said. For tax year 2011, Verizon didnt pay personal property tax in 37 municipalities that met the threshold, and identified 31 additional municipalities for 2012, he said. Verizon estimates savings of about $7.8 million for the 2012 tax year, he said. None of Verizons competitors in New Jersey are subject to the tax, he noted. Verizon is still submitting property tax returns for about 475 other municipalities across the state and continues to pay the personal property tax in the municipalities where the assessor has placed an assessment on the tax roll, he said. Hopewell Borough has appealed Verizons decision in the Tax Court of New Jersey (case pending). The New Jersey League of Municipalities is also opposing Verizons position, said Executive Director Bill Dressel. The league maintains that the statute specifically provides that those telecom carriers formerly subject to the New Jersey Franchise and Gross Receipts Tax Act will continue to be taxed, and contains no provision for an annual test to determine whether the tax continues to apply, he said. Consumers have more communications service options now, the Verizon spokesman said regarding declining landlines. New and evolving technologies enable various service providers, many of which arent traditional telephone companies, he said. Verizon is seeking tax exemption on a case-by-case basis, said a spokesman with the state Treasury Department. The agency doesnt have any comments because its a tax collected at the local level, he said. Yu-Ting Wang

Comm Daily Notebook

Any intercarrier compensation regime reforms should clearly address the rights of CLECs, Time Warner Cable and Cox Enterprises executives said in meetings with FCC staff last week, according to an ex parte notice released Wednesday (http://xrl.us/bmesj3). Meeting with FCC Chairman Julius Genachowskis aide Zac Katz and Wireline Bureau staff, including Bureau Chief Sharon Gillett, the cable executives said todays ICC regime is increasingly plagued by resource-draining disputes regarding competitors' rights to terminating access charges. In order to accomplish genuine reform, the commission should define terminating access in a functionally neutral manner that includes either the termination of calls directly to retail customers or the delivery of traffic to facilities-based interconnected VoIP providers that in turn transmit calls to retail customers, Time Warner and Cox said. As other cable executives have done, Time Warner and Cox executives urged the commission to reject the ABC Plans call for deregulating tandem transit services, the ex parte notice said. We explained that such services are governed by Section 251(c) of the Act as a form of interconnection, as several state commissions and courts have held, and there are often no competitive alternatives to relying on an incumbent LECs facilities to transmit traf-

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fic to rural LECs via indirect interconnection arrangements, the ex parte notice said. The two cable companies would support measures, however, that subject VoIP traffic to interstate access rates during the reform transition, if the Commission can develop a reliable means of identifying such traffic, the ex parte said. By the same token, we explained that our willingness to compromise on the treatment of so-called VoIP traffic has a significant impact on the revenues of companies like TWC and Cox and any failure to deliver clear, certain and enforceable rules would undermine the rationale for that compromise, the ex parte said.

NCTA CEO Michael Powell said he's calling the "bluff" of CEA CEO Gary Shapiro for saying the administration is the most anti-business of his lifetime (CD Sept 27 p8) while seeking AllVid rules. "While he is vehemently condemning some 200-plus new regulations that would cost industry hundreds of millions of dollars if implemented, Gary and CEA are leading an effort to push the FCC to adopt new regulations that would impose substantial costs on cable and other video providers," Powell wrote on NCTA's blog Wednesday (http://xrl.us/bmerxc). Shapiro addressed the criticism, in a response on Powell's blog post that noted it's been 15 years since the Telecom Act required cable interoperability with third-party CE devices. The AllVid rules for all pay-TV companies to connect to consumer electronics without CableCARDs "would have the very government bureaucrats that he so disdains set technical standards on a marketplace that is exploding with innovation," Powell said of Shapiro. The proceeding, hanging over cable like Damocles' sword, "if implemented as Gary and CEA would like," would "force video providers (job-producing business owners) to break up their services in a manner that would strip away valuable (and popular) content and allow competitors to pick and choose which pieces they want," Powell wrote. "He should be true to his principles and walk away, and the FCC should shut down the proceeding and let the market continue working." Shapiro acknowledged that "in a perfect world cable would not have to be mandated to give consumers a choice," in his response. "As long as consumers have only one cable provider, giving consumers an option to get boxes at retail is pro-competition" since "few consumers" can "cancel one broadband cable service and replace it with another," Shapiro wrote. "Cable is a physical monopoly, like utility services, and even the strictest of conservatives accept some regulation of natural physical monopolies." If retailers like Best Buy could sell "cable boxes and even cable services, more people would subscribe to cable," he said: "Worked well for DBS, phones and tablets."

Capitol Hill
Rep. Jo Ann Emerson, R-Mo., urged the FCC to move forward with its overhaul of the Universal Service Fund and intercarrier compensation. In a letter dated Tuesday to FCC Chairman Julius Genachowski, Emerson cited a serious problem with broadband connectivity in rural America." Emerson chairs the House Appropriations subcommittee that oversees the FCC. The Commission needs to continue with reform of these two programs in a manner that is aimed at meeting the objective of accelerating broadband deployment to rural areas and doing so in a fiscally responsible way by carefully targeting support and keeping the high-cost Universal Service Fund within its current budget, Emerson said. In a separate letter to Genachowski dated Sept. 23, the congressional delegation from Idaho applauded the FCC and the industrys overhaul efforts. We are encouraged by the recent discussions with Idaho stakeholders, said Sens. Mike Crapo and James Risch and Reps. Mike Simpson and Raul Labrador, all Republicans from the state. You have already received a careful review process and feedback that gives you and the FCC an opportunity to reform and update the USF and its core mission mandate and goals."

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The co-chairmen of the House Privacy Caucus asked the FTC to investigate what they allege to be Facebooks practice of tracking users after they log out. Such an investigation should fall within the FTCs mandate with respect to protecting Americans from unfair and deceptive acts or practices, Reps. Joe Barton, R-Texas, and Ed Markey, D-Mass., said in a letter to FTC Chairman Jon Leibowitz. While Facebook claims that it stopped this practice, we remain concerned about the privacy implications for Facebooks 800 million subscribers. Facebook should "consider this problem a top priority and should allocate the resources necessary to safeguard consumers in an expedited fashion, they said. There was no security or privacy breach, a Facebook spokesman said in an email. "Facebook did not store or use any information it should not have." Three of the cookies used to personalize content and secure users' experience "inadvertently included unique identifiers when the user had logged out of Facebook," he said. The social network site didn't store the identifiers for logged out users, he said: "We could not have used this information for tracking or any other purpose."

Wireline
Rate-of-return carriers would receive more than $13 billion in Universal Service Fund cash over the next six years under the ABC plan, executives from the incumbent companies behind the plan said last week in a meeting with FCC staff. USF support for rate-of-return areas would start at $2 billion in 2012 and reach $2.3 billion in 2017, executives said, according to an ex parte notice posted Wednesday to docket 10-90. The program would generate $161 million in budget surplus over the next five years, the executives said in their presentation (http://xrl.us/bmesfk). Under the ABC plan, the legacy high cost Universal Service Fund would spend a little more than $2 billion over four years, starting with $821 million in 2012 before dropping to zero in 2016, the ABC executives said. The Connect America Fund would start by spending $440 million in 2012 and reach more than $2.2 billion by 2017, the executives said. The executives were from AT&T, Frontier, USTelecom, Verizon, Windstream and CenturyLink.

Wireless
The Rural Cellular Association offered a compromise on the size of a proposed Mobility Fund as the FCC moves forward on Universal Service Fund overhaul. A $300 million fund as proposed in the ABC Plan, or even a $500 million fund, "would dramatically undervalue the ability of wireless providers to deliver broadband service to high-cost, rural communities," RCA said in a letter to the commission (http://xrl.us/bmercx). In the past, the group advocated a $1.5 billion annual fund, the letter noted. "RCA could support a $800 million Mobility Fund, approximately one-fourth of what the wireless industry contributes, if the FCC also allocates a sufficient amount for annual operating expenses and if the largest wireless carriers and rural local exchange carriers are prohibited from participating in the Mobility Fund."

Google sought to protect confidential information it has filed with the government in the AT&T/ T-Mobile case, in a filing to U.S. District Court in Washington, D.C. Google submitted information to the Justice Department as it investigated the deal under a protective order. "As it stands, the Protective Order fails to require the parties always to provide advance notice to Google of potential disclosure of its confidential information on the public record, in open court or to experts retained by the parties," the company said. "Google therefore wishes to seek limited additional relief to ensure such advance notice is always given."

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PTC-220 LLC, the alliance owned by the major rail carriers to develop positive train control technology in the 220 MHz band, is testing the technology at the Transportation Technology Center near Pueblo, Colo., said an FCC filing (http://xrl.us/bmerfb). "Though this testing does not give us the final word on our spectrum needs, it does help us understand the radio's real capabilities so that we can do our communications network engineering more precisely," the filing said. The alliance invited key FCC officials to attend testing Oct. 11-13 in Pueblo at the end of its second month-long test.

Internet
Only one in five businesses handling payment-card data is "fully compliant" with payment card industry (PCI) security rules, Verizon said in a report (http://xrl.us/bmer2m) released Wednesday. The results are based on more than 100 such reviews by its assessors last year and Verizon's investigations into data breaches, covering the U.S., Europe and Asia. The compliance situation has "neither worsened nor improved" in the past year, the telco said, with "overconfidence, complacency and the need to focus on other compliance and security issues" among the reasons for noncompliance. Breached organizations are more likely not to be PCI-compliant and to suffer from identity theft and fraud, Verizon said. The report said organizations struggled to meet requirements to protect stored cardholder data, track and monitor access, regularly test systems and processes, and maintain security policies. Despite the availability of the "prioritized approach" guidance from the PCI Security Standards Council since 2009, organizations largely rely on older standards and are "ignoring security threats with the highest risk and potential for the largest negative impact," Verizon said. It recommended organizations holding payment card data make compliance into "an everyday, ongoing process" by undertaking "daily log review, weekly file-integrity monitoring, quarterly vulnerability scanning and annual penetration testing," through a "champion" within their organizations who can oversee such compliance. Verizon also suggested that Level 1 and 2 merchants, who process the most cardholder transactions, hire an "objective third party" to validate the scope of its self-validation assessments or perform the testing itself. The company told organizations that are having trouble with existing PCI standards to "quickly get ready" for the morestringent 2.0 standards, which were approved a year ago but haven't taken effect.

Internet ad revenue increased 23 percent to $14.9 billion in the first half of 2011, according to research from the Interactive Advertising Bureau and Pricewaterhouse Coopers. The growth rate more than doubled year-over-year, as last years first-half ad revenues of $12.1 billion had represented an 11.3 percent increase over 2009, IAB said. Banner ads, rich media, digital video and other display-related advertising reached more than $5.5 billion in the first six months of 2011, up from nearly $4.4 billion, IAB said: Digital video increased 42 percent over a year ago, "and moved close to the $1 billion mark with $891 million in half year 2011 revenue. Fueling online ad growth is the ability of advertisers to correlate performance and results with the dollars they are investing, IAB said.

State Telecom Activities

United Private Networks (UPN) will partner with Iowa Communications Network (ICN) to help build a BTOP-funded state-wide fiber network in Iowa, the companies said. UPN will connect 65 Iowa

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communities to expand access to over 170 end-user facilities located throughout the state. The project will increase the ICN Network to a 10 Gbps backbone that will reach all 99 counties in Iowa. The project will also offer one Gbps of Ethernet connectivity to education facilities, hospitals, libraries, public safety, workforce development and other anchor institutions.

Broadcast
NAB and NPR continue seeking changes to an FCC plan to cut a backlog of FM translator requests and then let low-power radio applicants seek outlets, in replies to a rulemaking on implementing part of the Local Community Radio Act. NAB opposed some low-power FM backers' requests (CD Sept 8 p12) for the agency to change the way it decides whether there would be enough LPFM frequencies available in a market after translators are awarded. The concerns about the size of the market grid come as there are inherent tensions between LPFM and translators, the association said (http://xrl.us/bmesht). "There may be no perfect solution to the problem of accommodating both" types of requests "in markets where FM frequencies and locations are in short supply," it said in docket 99-25 (http://xrl.us/bmesfv). "There is certainly no approach that will please all interested parties. The Commission should reject calls to adopt a conclusive preference for one service over another or to manipulate its proposal to favor one service over the other." Making the changes to the rulemaking the NPR seeks will better "comport" with Section 5 of the act, the public radio programmer said (http://xrl.us/bmeshv). "It is clear, therefore, that further modification of the Commission's market-by-market approach is warranted" to deal with leftover applications from a 2003 FM translator filing window, NPR said. "The Commission should not dismiss pending FM translator applications that, if granted, would not obstruct future LPFM opportunities." There's "widespread support" demonstrated in the initial comments "for the expansion of LPFM to urban areas," Prometheus Radio Project said. "We urge the Commission to use the utmost caution in preserving LPFM opportunities, reiterating the need for a freeze on translator application modifications and prohibitions on translator speculation and AM rebroadcast." NAB disagreed. The commission should let AM stations use any FM translator from the auction seven years ago, it said: "No parties refuted NABs explanation that eliminating the date restriction on AM stations use of FM translators will not reduce potential opportunities for future LPFM stations."

The proposed community of license change of WHRO-TV Hampton, Va., to channels in Norfolk, Va./ Elizabeth City, N.C., fully complies with all pertinent FCC rules and policies, Hampton Roads Educational Telecommunications Association said. The comments are in docket 11-139 (http://xrl.us/ bmer9v). HRETAs proposal to change its community of license is mutually exclusive with its existing authorization at Hampton-Norfolk, it said. WHRO-TVs programming will not change, except to the extent needed to serve the needs of Elizabeth City. The proposed allotment at Elizabeth City will give the community its first TV station, HRETA said.

Sinclair Broadcast Group is using Digital Alert Systems DASDEC-II digital EAS/CAP encoding systems at its TV stations, Digital Alert Systems said. Even though the deadline for CAP compliance has been pushed out, both single station and large station groups such as Sinclair are completing their deployment of our DASDEC-II systems, said Bill Robertson, who manages business development for Digital Alert Systems.

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Cable
Another cable operator wants an FCC waiver of an encryption ban for channels on the basic programming tier. Mikrotec wants an exemption for its system in southeastern Kentucky, southwestern West Virginia and southwestern Virginia which would include future expansion there. The waiver should take effect for each node that goes all digital, and the system is converting to digital, the company said in a petition for special relief to the Media Bureau. It cited theft of unencrypted cable service and high costs to send technicians to homes to activate subscriptions and deactivate them. RCN made similar arguments in a waiver request this summer that's pending and expected to be eventually approved by the bureau (CD Aug 17 p4). "Mikrotec experiences extraordinarily high levels of signal theft," with 6.8 percent of homes in an audit of most of the system getting video without paying, the company said: "If Mikrotec can scramble the basic tier," it can remotely "change the mix of services received by subscribers," almost instantly and "without the time and cost of a truck roll."

Comcast took aim at Bloombergs recent pleadings in its FCC complaint regarding Comcasts compliance with the neighborhooding conditions of its NBCUniversal takeover approval. In a surreply filed with the commission this week, the cable operator criticized Bloomberg for including seven new expert declarations and raising several new legal arguments in its reply to Comcast's opposition. That information should have all been in its initial complaint, Comcast said. Bloombergs reliance on such procedural gamesmanship underscores and confirms the fundamental lack of merit in its complaint, Comcast said. Moreover, much of the new material contradicts Bloombergs earlier assertions, Comcast said. And it contradicts the language of the condition the FCC adopted when it approved the deal, Comcast said. Bloomberg offers an entirely new and misguided approach to defining a news neighborhood in the reply, Comcast said. For the first time, Bloomberg has asserted that ratings, advertising, branding and other factors should affect the definition of a neighborhood, rather than relying on the numerical test set out in the condition, Comcast said. Under their new test, a grouping of only two or three channels may constitute a neighborhood even if many more similarly themed channels may be found elsewhere, Comcast said. This absurd result cannot be reconciled with the language of the condition and results in a dramatic and unforeseen expansion of the conditions scope."

HSN Inc.s board approved a plan to buy back up to 10 million shares of its stock and pay a regular quarterly dividend of 12.5 cents per share, the company said.

Mass Media Notes

"In the hope of getting the stalled retransmission consent rulemaking moving," Mediacom said it's considering asking multichannel video programming distributors and broadcasters to commission a panel to render a "disinterested opinion" on the FCC's retrans authority. They'd hire "respected and independent law professors or retired federal judges," Senior Vice President Joseph Young wrote Dave Grimaldi, chief of staff to Commissioner Mignon Clyburn. The Tuesday letter is in docket 10-71 (http://xrl.us/bmerxx). "Frankly, in our view, the case publicly made by the Commission's staff for concluding that the Commission lacks authority would earn a failing grade in most law schools," Young wrote. "What is even more surprising is the Commission's resignation to its claimed powerlessness, even as it professes to regret the harm to consumers that it acknowledges is caused by the existing regime," he said. "The contrast is striking between the Commission's passivity when it comes to retransmission consent and the expansive reading of statutory provisions and legislative history in other contexts for example, the Commission's rule-

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makings regarding terrestrial programming services, data roaming, cell phone tower siting and timing of application decisions by local franchise authorities. When motivated, the Commission has not shied away from crafting a legal basis for the rules it thinks are needed and then making its best case for prevailing in the inevitable judicial challenge. With rare exceptions, the courts have sustained its efforts." There's been little interest at the agency or on Capitol Hill in changing retrans rules, even as there's a blackout between Mediacom and LIN (CD Sept 15 p8). A Media Bureau spokeswoman declined to comment on retrans.

Comments on captioning TV programming that goes online are due Oct. 18, replies Oct. 28, in FCC docket 11-154, the agency said in a Federal Register notice Wednesday (http://xrl.us/bmer3v). Internet Protocol captioning rules must be completed by Jan. 12, the commission said in a rulemaking (CD Sept 21 p12).

Satellite
The America's Broadband Connectivity (ABC) plan for Universal Service Fund reform would "disenfranchise consumers particularly those in rural areas who stand to benefit from the availability of broadband technologies like satellite broadband," said Dish Network. It and sister company EchoStar recently met with an adviser to FCC Commissioner Mignon Clyburn (http://xrl.us/bmerve), an ex parte filing said. The agency is considering ways to reform USF, including the ABC plan. That plan "would misallocate USF support, undermine competition, and deprive rural customers of high-quality and costeffective services offered by competitive providers," Dish said. It pointed to the success of the Rural Utilities Service Broadband Initiative Program that partly subsidized satellite broadband service through a $58.7 million grant to EchoStar subsidiary Hughes Network Systems. Hughes saw more than 95,000 orders for the satellite broadband service from eligible customers, said Dish.

The FCC should update its retransmission consent rules, Dish Network said during a meeting with Media Bureau officials (http://xrl.us/bmerj4). Dish has several retrans agreements expiring in the next several months, and consumers will face "broadcaster-initiated takedowns even as we strive to get fair deals that keep programming costs low," the company said. Broadcasters' anticompetitive tactics, such as tying retrans consent to carriage of unrelated programming, have thwarted Dish's efforts to obtain musthave programming, it said. "Given this increasingly challenging climate, [FCC] action is needed to more clearly define specific conduct that violates the duty to negotiate in good faith, which should help counter the leverage broadcasters enjoy through their monopoly on network programming in their local markets."

International Launch Services plans to launch SES' QuetzSat-1 satellite from the Baikonur Cosmodrome Friday, said SES. The Ku-band satellite will go to 77 degrees west and EchoStar will use the full satellite for direct-to-home service in Mexico and for Dish Network in the U.S., said SES.

Communications Personals
Glen Post, CenturyLink, named to president's National Security Telecom Advisory Committee ... Cox names Rob Smallwood, ex-Microsoft, vice president-enterprise development ... Among members of Healthy MEdia Commission: Caroline Beasley, Beasley Broadcasting; Maria Brennan, Women in Cable Telecom; Kelly Delap, ABC Cable Networks; Lisa Dollinger, Clear Channel; Ellen East, Time Warner Cable; Laura Gentile, espnW; Joan Gilman, Time Warner Cable; Corny Koehl, Harpo Radio.