FCC Issues Report and Order and Further Notice of Proposed Rule Making in Video
On March 5, 2007, the FCC issued its Report and Order and Further Notice of Proposed
Rule Making (“Order and FNPRM”) in its video franchising docket, MB Docket No. 05-311.
You will recall that the FCC took action on December 20, 2006 to adopt the Order and FNPRM,
but did not release the Order at that time. We reported the FCC action in our December Telecom
Newsletter, (Vol. III, Issue 12).
A. New Rules
As we advised you in our December newsletter, the FCC determined that there were
unreasonable barriers to entering into the cable video market and, accordingly, took action to
encourage investment in broadband facilities. Thus, the FCC found that (1) the Local
Franchising Authority’s (“LFA”) failure to issue a decision on a competitive application for
cable services within 90 days to an entity that holds right-of-ways authority and 180 days to an
entity that does not hold such authority constitutes an unreasonable refusal to award a competitor
franchise within the meaning of Section 621(a)(1) of the Communications Act, 47 U.S.C. §
541(a)(1); (2) the LFA’s refusal to grant a competitor franchise because of an applicant’s
unwillingness to agree to an unreasonable buildout schedules constitutes an unreasonable refusal
to award a competitor franchise within the meaning of Section 621(a)(1) of the Act; (3) unless
certain specified costs, fees, and other compensation required by LFA are counted towards the
statutory five percent (5%) cap on franchise fees, demanding these costs, fees and other
compensation could result in an unreasonable refusal to award a competitor franchise; (4) it
would be an unreasonable refusal to award a competitor franchise if the LFA denied an
application based upon a new entrant’s refusal to undertake certain obligations relating to the
public, educational and government (“PEG”) and institutional networks (“I-Nets”); and (5) it is
unreasonable under Section 621(a)(1) of the Act for an LFA to refuse to grant a franchise based
on issues related to non-cable services or facilities.
Furthermore, the FCC preempted local laws, regulations and requirements, including
level playing field provisions, to they extent they permit LFAs to impose greater restrictions on
market entry than rules which the FCC adopted in the March 5th Order and FNPRM. The FCC
also adopted the FNPRM requesting public comment on how its findings in the Order should
affect existing cable franchisees. In addition, the FCC requested comments on local consumer
protection and customer service standards as applied to new cable entrants.
C. Mixed-Use Networks
As we advised you in our December newsletter, the Order and FNPRM addresses the
issue of regulation of “mixed-use networks”. In the Order and FNPRM, the FCC clarified that
FLAs’ jurisdiction applies to the provision of “cable services” over “cable systems”. Under the
Communications Act, “cable service” is defined as “(A) the one-way transmission to subscribers
of (i) video programming or (ii) other programming service and (B) subscriber interaction, if
any, which required for the selection or use of such video programming or other programming
service.” The Act defines a “cable system” as “a facility, consisting of a set of closed
transmission paths and associated signal generation, reception, and control equipment that is
designed to provide cable service which includes video programming and which is provided to
multiple subscribers within a community, but such term does not include (A) a facility that
serves only to retransmit the television signals of one or more television broadcast stations; (B) a
facility that serves subscribers without using any public right-of-way; (C) a facility of a common
carrier which is subject, in whole or in part, to the provisions of Title II of the Communications
Act, except that such facility shall be considered a cable system (other than for purposes of
Section 621(c) to the to the extent such facility is used in the transmission of video programming
directly to subscribers, unless the extent of such use is solely to provide interactive-on demand
services; (D) an open video system that complies with Section 653 of the Act; or (E) any
facilities of any electric utilities used solely for operating its electric utility systems.
The FCC decided that, to the extent a cable operator provides non-cable services and/or
operates facilities that do not qualify as a cable system, it is unreasonable for an LFA to refuse to
award a franchise based on the issues related to such services or facilities. For example, the FCC
may find it unreasonable for LFA to refuse to grant a cable franchise to an applicant for resisting
for an LFA’s demands for regulatory control over non-cable services or facilities. Likewise, the
FCC ruled that an LFA has no authority to insist on an entity obtaining a separate cable franchise
in order to upgrade non-cable facilities. For example, assuming an entity such as local exchange
carrier already has authority to access public rights-of-way, an LFA may not require the local
exchange carrier to obtain a franchise solely for the purpose of upgrading its network. If there is
a non-cable purpose associated with the network upgrade, a local exchange carrier is not required
to obtain a franchise until an unless it proposes to offer cable services. If a local exchange
carrier deploys fiberoptic cable that can be used for cable and non-cable services, this
deployment alone does not trigger the obligation to obtain the cable franchise. The same is true
for boxes housing infrastructure to be used for cable and non-cable services.
Furthermore, the FCC clarified that an LFA may not use it video franchising authority to
attempt to regulate a local exchange carrier’s entire network beyond the provision of cable
services. The entirety of a telecommunication/data network does not automatically convert it to
a cable system once subscribers start receiving video programming. Thus, the FCC found that
the provision of video services pursuant to a cable franchise does not provide a basis for
customer service regulation by local law or franchise agreement of a cable operator’ entire
network, or any services beyond cable services. Local regulations that seek to regulate any non-
cable services offered by video providers are preempted because such regulation is beyond the
scope of local franchising authorities and is not consistent with the definition of cable system in
the Act, as set forth above. The definition of a cable system explicitly states that a common
carrier facility subject to Title II is considered a cable system “ to the extent such a facility is
used in the transmission of video programming . . . .” Moreover, revenues for non-cable services
are not included in the basic calculation of franchise fees.
The FCC’s Order and FNPRM also addresses the LFA’s authority to regulate “interactive
on-demand services.” The FCC held that a facility of a common carrier that is used solely to
provide interactive on-demand services is excluded from the definition of a cable system under
the Act. Interactive, on-demand services are defined as “services providing video programming
to subscribers over switched networks on an on-demand point-to-point basis but does not include
services provided by video programming prescheduled by the programming provider.
Unfortunately, the FCC did not address what particular services may fall within the definition of
“interactive on-demand services”, and did not address the regulatory classification of any
particular video services being offered. The FCC specifically did not address whether video
services provided over Internet Protocol (“IPTV”) are or are not cable services. That issue is
currently scheduled for the FCC’s determination its docket captioned IP-Enable Services, 19
FCC Rcd. 4863 (2004).
We also advised you in our December newsletter, this issue is also the subject of two
lawsuits filed by franchising authorities against entities that are currently providing IPTV. As
we informed you in our January newsletter, the City of Richmond’s action against Cavalier
Telephone, LLC and Cavalier Telephone Mid-Atlantic, LLC and Cavalier IPTV, LLC has been
referred to the FCC for determination. The second lawsuit, filed by the City of Milwaukee
against Wisconsin Telecom, Inc. d/b/a AT&T Wisconsin, AT&T Teleholdings, Inc., is currently
pending before the United States District for the Eastern District of Wisconsin. AT&T has filed
its Motion to Dismiss. The Court is scheduled to rule on AT&T’s Motion in late March 2007.
We still remain of the view that based on our understanding of IPTV that it does not
require a franchise under Section 621(a)(1) of the Act. Indeed, we have written an article on this
subject which will be published in a trade publication in the March-April timeframe but for your
convenience we have also placed it on www.telecommunicationsattorneys.com’s Web site.
While the article does not present an opinion based on exhaustive legal research, you may want
to refer to this article to gain more insight into the issue of whether IPTV requires a franchise.
We recognize the importance of the Order and FNPRM. Accordingly, don’t hesitate to
call us if you have any questions about this FCC Order and FNPRM, or the issue of regulation of
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United States Court of Appeals for the Eighth Circuit Denies Level 3’s Motion
for Summary Judgment Against The City of St. Louis Regarding Fees and Other
Obligations For Accessing Streets and Rights-of-Way
On February 5, 2007, in Level 3 Communications v. City of St. Louis, Missouri, the U.S.
Court of Appeals for the Eighth Circuit (“Eighth Circuit”) reversed a federal District Court’s
grant of summary judgment in favor of Level 3 Communications (“Level 3”) that the City of St.
Louis (“St. Louis”) charged fees for accessing streets and rights-of-way in violation of Section
253(a) of the Communications Act, 47 U.S.C. §253(a). the Eighth Circuit also and affirmed the
federal District Court’s denial of summary judgment on Level 3’s claim under Title 42, Section
1983 of the United States Code, 42 U.S.C. §1983, that the St. Louis has a policy of charging fees
which violates Level 3’s rights of due process.
In affirming the lower federal court’s denial of Level 3 motion for summary judgment on
its claim under Section 253(a) of the Communications Act, the Eighth Circuit construed Section
253 differently from other federal circuit courts. Section 253(a) of the Communications Act (the
“Act”) limits the ability of state and local governments to regulate telecommunications
providers. Section 253(c) of the Act sets forth various state and local government actions that
are not pre-empted under Section 253(a). Thus, Section 253(a) states a general rule of
preemption, and provides an exception or a safe harbor as an affirmative defense to a preemption
rule. In construing Section 253(a), the Eighth Circuit held that only after a party seeking
preemption sustains its burden of showing that a state or local government has violated Section
253(a) by prohibiting or effectively prohibiting entry into the telecommunications services
market, does the burden of proving that such regulation comes within the safe harbor in Section
253(c) fall on the state or local government. This construction is a departure from the views of
the Sixth, Ninth and Tenth Circuits, which have held that a plaintiff suing a state or local
government for preemption under Section 253(a) need not show actual or effective prohibition of
entry into the telecommunications market, but only need show the mere possibility of
The Eighth Circuit’s departure from the approach taken by the Sixth, Ninth and Tenth
Circuits is based upon the Eighth Circuit’s reading of Section 253(a) as requiring preemption
where a state or local government action actually bars any regulations which prohibits
telecommunications services, or effectively prohibits telecommunications services. The Eighth’s
Circuit held that Section 253(a) does not preempt state or local regulations which might, or may
at some time in the future, actually or effectively prohibit telecommunications services.
Moreover, the Eighth Circuit determined that a plaintiff suing a state or local government for
preemption under Section 253 of the Act need not show a complete or insurmountable
prohibition, but must show an existing material interference with the ability to compete in a fair
and balanced telecommunications market.
In this Level 3’s case, Level 3 failed to meet this burden for preemption under Section
253 of the Act when it claimed that the fees it was required to pay the City of St. Louis for
accessing streets and rights of way actually prohibited or had the effect of prohibiting Level 3
from providing telecommunications services. Level 3 had argued that the fees paid were not
actually related to the cost incurred by St. Louis, and because the fees charged bore no relation to
St. Louis’ costs in managing, inspecting, and maintaining rights of way, they were not reasonable
and fair compensation under Section 253(c) of the Act. This is the same argument other litigants
have successfully made to the Sixth, Ninth and Tenth Circuits in seeking protection under
Section 253. According to the Eight Circuit, the bottom line is a litigant suing a state or city on
preemption must prove a violation of Section 253(a), by showing actual or effective prohibition
of telecommunications services, before claiming that there is no exception under Section 253(c).
As to Level 3’s Section 1983 claim, the Eighth Circuit held that Level 3 bore the burden
of establishing that the claim actually involved a violation of a federal right as opposed to a
federal law, and that since Level 3 has not shown any violation of any federal law under Section
253, Level 3 could not claim violation of its due process right.
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FCC Rules that Wholesale Telecommunications Carriers are Entitled to Interconnect and
Exchange Traffic with Incumbent Local Exchange Carriers When Providing Services to
Other Service Providers, Including Voice-Over-Internet Protocol Service Providers.
On March 1, 2007, the Federal Communication Commission’s Wireless Competition
Bureau (“WCB”) granted the petition of Time-Warner Cable (“TWC”) requesting that the FCC
affirm that wholesale telecommunication carriers are entitled to obtain interconnection under
Section 251 of the Communications Act, 47 U.S.C. § 251, with incumbent local exchange
carriers to provide wholesale telecommunication services to other providers, including providers
who offer Voice-over-Internet Protocol (“VoIP”).
In granting TWC’s petition, the WCB found that the Communications Act does not
differentiate between the provision of telecommunications services on a wholesale or retail basis
for purposes of interconnection under Section 251, and confirms that providers of wholesale
telecommunication services have the same rights of any telecommunications carrier under
Communications Act. The WCB further concluded that the statutory classification of the end
user of service, and the classification of VoIP specifically, is not dispositive of a wholesale
carrier’s rights under Section 251.
Further, in making this ruling, the WCB made it clear that the classification of the service
provided to the ultimate end user has no bearing on the wholesale provider’s rights as a
telecommunications carrier to interconnect under Section 251. The classification of whether
VoIP is an information service or a telecommunications service is likewise irrelevant to the issue
of whether a wholesale provider of telecommunications may request interconnection under
Section 251 of the Act. The WCB did not reach the issues in the pending IP Enabled Services
Docket, IP Enabled Services NPRM, WC Docket No. 04-36, 19 FCC Rcd. 4683 (2004),
including whether VoIP is an information service or a telecommunication service.
This ruling makes it clear that a wholesale telecommunication carrier has the right to
interconnect with an incumbent local exchange carrier for the purposes of VoIP services to a
If there are any questions concerning this FCC ruling, please let us know.
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U.S. Court of Appeals for the First Circuit in Universal Communications Systems, Inc., et
al., v. Lycos, Inc., d/b/a Lycos Network, et al., Grants Broad Immunity to Entities Such as
Lycos That Facilitate the Speech of Others on the Internet.
In a decision issued on February 23, 2007, the U.S. Court of Appeals for the First Circuit
(“First Circuit”) held that in Section 230 of the Communications Decency Act (“CDA”), 47
U.S.C. § 230, Congress granted broad immunity to entities such as Lycos that facilitate speech of
others on the Internet. In this case, Universal Communication Systems (“UCS”) and its chief
executive officer brought suit, objecting to a series of allegedly false and defamatory postings
made under false names on the Internet message boards operated by Lycos. UCS identified two
of the false names as having been registered to a Roberto Vilasenor, Jr. UCS also sued Vilasenor
and other posters of the messages, also Lycos and Terra Networks, S.A., Lycos’ corporate parent
at the time of the postings in question. The First Circuit Court determined that Lycos’ activities
in allowing the postings to take place on Internet message boards fell squarely within the
activities set forth in Section 230 of the Communications Decency Act, which grants statutory
immunity to Lycos in operating message boards. UCS’ complaint related to Lycos’ message
boards “Quote.com” which provides stock quotation information and financial data for publicly
traded companies, and “Ragingbull.com” which hosts financially oriented message boards,
including ones designed to allow users to post comments about publicly traded companies. UCS
is a publicly traded company with a ticker symbol of “USCSY”. UCS’ stock ticker symbol
appears in Lycos’ message boards, and they are linked to each other, so that a user who retrieves
stock quote information from Quote.com is also given a link to Ragingbull.com. Individuals
who post messages on Ragingbull.com message boards must register with Lycos. As part of the
registration process, users are required to agree to enter into a subscriber agreement, which,
among other things, requires users to comply federal and state securities laws. Upon registration,
the user obtains a screen name, or false name, and posts messages under this name. There is no
other identifying information about the person who posts the messages. Lycos allows persons to
register under a number of multiple screen names.
Beginning in 2003, a number of postings were made disparaging the financial condition
of UCS on Ragingbull’s message board. UCS identified the postings as made by Mr. Vilasenor
and/or other persons acting in concert with him. As a result, UCS filed a complaint against
Lycos and Terra Networks as well as Vilasenor and others in the federal District Court in the
Southern District of Florida. The complaint alleged that Lycos and Terra Networks had engaged
in cyber-stalking in violation of Section 223 of the Communications Act, 47 U.S.C. Section 223,
had diluted UCS’ trade name under Florida law, and had cyber-stalked under Florida law. In
addition, U.C.S. alleged that Lycos and Terra Networks, along with Vilasenor and others named,
had engaged in fraudulent securities transactions under Florida law. The federal District Court in
Florida transferred the case to the federal District of Massachusetts.
UCS and Terra Networks defended these claims by filing a motion to dismiss and arguing
that the claim asserted against them among others, were barred under § 230 of the CDA.
Section 230 provides that “[N]o provider or user of interactive computer service shall be treated
as the publisher or speaker of any information provided by another information content
provider,” and that “[N]o cause for action may be brought and no liability may be imposed under
any state or local law that is inconsistent with this section,”. The federal District Court in
Massachusetts granted Lycos’ Motion to Dismiss the claims on grounds that § 230 immunizes
Lycos and Terra Networks. Under § 230, unless an exception applies, Lycos is immunized from
a state law claim if (a) Lycos is a provider or user of interactive computer services, (b) the claim
is based on information provided by another information content provider, and (c) the claim
would treat Lycos as the publisher or speaker of that information.
In this case, there were no exceptions to Section 230 applicable to Lycos. The First
Circuit followed the Fourth Circuit, the Ninth Circuit and Tenth Circuit in holding that Section
230 grants broad immunity to providers or users of an interactive computer service. In
particular, the First Circuit held that Web site operators such as Lycos are providers of
interactive computer services, and their message boards do not cease to be information provided
by another information content provider merely because the Web site might have some influence
on the content of the postings. Additionally, the First Circuit stated that immunity extends
beyond publishable liability and defamation laws to cover any claims that would treat Lycos as a
If any of you have any questions concerning this decision, please let us know.
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FCC Conditionally Grants Qwest Communications International, Inc.’s
(“Qwest”) Forbearance Relief From Dominant Carrier Regulation of In-Region,
Intrastate, Inter Lata Communication Services Provided on an Integrated Basis
On February 20, 2007, the Federal Communications Commission (“FCC”) conditionally
granted part of a Petition for Forbearance (“Petition”) (filed by Qwest seeking relief from
statutory and regulatory obligations that applied to Qwest’s provision of in-region, interstate,
interLata telecommunication services on an integrated basis.
Section 272 of the Communications Act of 1934, as amended, 47 U.S.C. § 272, requires
Qwest to provide in-region, interstate, interLata telecommunication services through separate
affiliates that meet the requirements of that section of the Act, and the FCC’s rules which
implement Section 272. The purpose of Section 272 is to prevent dominant local exchange
carriers such as Qwest from controlling long distance service because of a monopoly they hold
on local exchange services in their operating regions. The FCC’s decision to forbear allows
Qwest to provide long distance services through its operating company, Qwest Communications
Corporation, or Qwest affiliates that do not comply with Section 272, without those services
becoming subject to dominant carrier regulation.
In granting Qwest’s Petition, the FCC found that Qwest generally lacked the classical
market power in providing in-region, interstate, interLata telecommunication services. This
finding means that Qwest lacks the ability unilaterally to raise and maintain retail prices of in-
region, interstate, interLata telecommunication services above competitive levels when Qwest
provides such serv ices on an integrated basis. The FCC, however, determined that Qwest had
not presented persuasive evidence that Qwest no longer possesses exclusory market power —
that is — market power that would bottleneck local access facilities, and that Qwest continues to
have the ability to raise competitors’ costs by reason of its control such facilities. When Qwest
provides long distance services on an integrated basis, it actually provides long-distance and
local services and other services bundled together.
Under the Order, the FCC has decided that Qwest will not be required to:
Make tariff filings for in-region, interstate and allow telecommunications services;
Establish an inter-exchange basket under the FCC’s Rules for purposes of reviewing
Follow tariff requirements for dominant international carriers to the extent that Qwest
would be treated as a dominant carrier under Section 61.28(e) of the FCC’s Rules, 47 C.F.R.
Section 61.28, where Qwest offers in-region, international telecommunication services on an
File applications for discontinuance of service and streamline transfers of control requests
provides in-region, interstate, interLata and international services on an integrated basis.
Qwest will not have to file contracts and reports to the FCC with respect to in-region,
interstate, interLata telecommunications service provided on an integrated basis.
Costs and revenues associated with its provision of in-region, interstate, interLata
telecommunication services will be treated as non-regulated for accounting purposes if such
services are provided on an integrated basis.
The FCC also applied conditions to Qwest’s provision of the affected services on an
integrated basis. The conditions are:
Qwest must comply with its commitment to implement special access performance
measurements to make sure that Qwest does not engage in non-price discrimination in its
provisions of special access services, and for Qwest’s offering of DS0L, DS1, DS3 and its
optical networking services. Qwest must provide the FCC with performance measurements
results on a quarterly basis. Qwest’s requirement to provide such metrics will terminate on the
earlier of 30 months and 6 days after the beginning of the first quarter upon the effective date of
the FCC’s order forbearing, and the effective date of the FCC’s order of forbearance, or the
effective date of the FCC’s order adopting performance metrics for interstate special access
Qwest must impute to itself and its tariff rates for access, including access provided for
use of joint use of its facilities where it provides comparable access to unaffiliated exchange
Qwest must comply with its commitment to continue offering, for at least two years
effective date of the FCC’s Order Forbearing, two specific residential calling plans tailored to the
needs of customers who make relatively few interstate long distance calls. More specifically,
Qwest must freeze the permitted charges on its plans, and offer one of these plans with no
monthly fee and not raise the monthly fee by more than $1 on either of these two plans; and
Qwest must comply with its commitment in providing certain monthly usage information
for at lease two years after the effective date of the FCC’s Order to Forebear, to all residential
customers of interstate, inter-exchange services, including those customers who take no bundled
offerings. Specifically, Qwest must provide these customers with date of the call, time of the
call, the place of the call, the number called, the duration of the call, the amount, if any, for the
call. Qwest must provide this information in its billing statements to customers.
The FCC’s Order of forbearance is effective February 20, 2007.
If anyone has any questions about this Qwest order, please let us know.
Shughart Thomson & Kilroy, P.C. provides this report for informational purposes only. Because the
material provided herein is general, it is not intended to be legal advice and should not be relied upon or
used without consulting a lawyer to consider your specific circumstances, possible changes to applicable
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