As of the 2007 legislative year, the following states have under consideration statewide
cable/video service franchising laws: Illinois, Massachusetts, Minnesota (in legislative
committee), New York, Ohio, Tennessee, Washington (postponed), Idaho (postponed), and
The Commonwealth of Virginia and the State of Arizona have reformed video
franchising by standardizing the local authority processes and fees. The Connecticut Public
Utilities Commission and the Oklahoma Attorney General have issued opinions on franchising.
Notwithstanding these actions, legislative initiatives to pass statewide cable/video
franchise laws in the following states have failed in 2007: Colorado and Utah. We anticipate
that similar legislative initiatives would be brought in these states in 2008. Louisiana voted
down a statewide cable/video franchise law in 2006.
We expect more states to pass statewide video franchising laws to improve the process of
obtaining video franchises by competing video service providers in the next few years. In
addition, as we reported in our December 2006 and February/March 2007 newsletters, the FCC
adopted an order on video franchising, which we described in those newsletters. In the order,
The FCC did not explicitly rule that IPTV providers must obtain a franchise before providing
IPTV. The FCC did, however, hold that a “interactive on-demand services” cable system is not
subject to cable franchising under the Communications Act. Thus, the issue of whether IPTV
requires a franchise remains somewhat unclear at that time.
Since competition among video services and telephony providers is increasing, and
because the market for IPTV services is expanding, we will update you on the status of statewide
video franchising laws and the status of IPTV in our remaining newsletters in 2007.
Please let us know if there are any questions about statewide cable/video franchising
* * * * * *
COLORADO COURT OF APPEALS HOLDS THAT A RESELLER OF LONG
DISTANCE SERVICE IS A TELEPHONE COMPANY SUBJECT TO PROPERTY
TAXES AS A PUBLIC UTILITY UNDER COLORADO LAW
In Opex Communications, Inc. v. Property Tax Administrator and the Colorado State
Board of Assessment Appeals, decided May 23, 2007, the Colorado Court of Appeals held that a
reseller of long distance telephone services which does not own or operate or maintain any
telephone network or switching equipment is a telephone company subject to property tax
assessment as a public utility under Colorado law. In this case, Opex Communications, Inc.
(“Opex”) is a non-facilities based reseller of long distance services. It did not own, operate, or
maintain any telephone network or switching equipment. Instead, Opex’s business was based
upon contracts in Colorado with Qwest Communications and Global Crossings which provided
networks to resale long distance services. The contracts did not provide for leasing or
management of equipment or for the bulk purchase of services. Under these contracts, Opex
served more than 4,000 Colorado residential and business customers.
The Colorado Property Tax Administrator (“CPTA”) assessed property taxes against
Opex as a public utility for the tax years 2003-2004 under authority of a Colorado taxing statute
which valued Opex’s Colorado property, primarily consisting of its customer contracts, at
$573,800 for 2003 and $1,299,000 for 2004. Opex objected to the assessments, contending that
it was not a public utility for the purposes of assessing property tax and challenging the valuation
reached by the CPTA.
Following a hearing, a Colorado Board of Assessment Appeals (“CBAA”) issued an
order finding that Opex was a telephone company and therefore a public utility for purposes of
assessing property tax under Colorado law. The CBAA also determined that the CPTA’s
evaluation of Opex’s property for 2003 was correct, but reduced the valuation for 2004 from
$1,299,000 to $607,168.
On appeal, the Colorado Court of Appeals held that Opex was a telephone company
within the meaning of the taxing statute because it directly facilitated two-way communication
between a significant number of unrelated persons or businesses. The essential attributes of the
telephone company include providing a communication service through which customers can
communicate with other unrelated parties in allowing customers to contact other customers who
may be at many different locations. Although Opex was a reseller, the Colorado Court of
Appeals concluded that non-facilities based resellers are telephone companies based upon
decisions in other jurisdictions which were confronted with this question. More specifically, the
Colorado Court of Appeals relied on decisions by the Alabama Court of Civil Appeals and the
Kansas Supreme Court which determined that non-facilities based resellers provide long distance
communications between persons just as traditional telephone companies do, and compete with
traditional telephone companies for customers. Furthermore, the Colorado Court of Appeals
held that a public utility is not defined in terms of whether it owns or controls equipment. The
fact that Opex did not lease or own any equipment, lines or switching facilities did not exclude it
from the definition of a telephone company, because the meaning of telephone company within
the Colorado taxing statute was broad enough to include a reseller’s activities despite lack of
ownership of or control of any hardware.
The Court of Appeals also upheld the valuation for findings by the CBAA, determining
that contracts with customers is a proper approach to determine property tax.
We recommend that pure resale long distance and local exchange carriers check the
property taxing statutes in the states where they provide service for the definition of a public
utility for property taxing purposes.
* * * * * *
U.S. SUPREME COURT RULES THAT BARE ALLEGATIONS OF PARALLEL
CONDUCT AND CONSPIRACY ARE INSUFFICIENT TO SUPPORT THE
VIOLATION OF SECTION 1 OF THE SHERMAN ACT IN A CLASS ACTION
AGAINST INCUMBENT LOCAL EXCHANGE CARRIERS
In Bell Atlantic Corp., et al., v. Twombly, et al., decided on May 21, 2007, the U.S.
Supreme Court held that stating a claim under Section 1 of the Sherman Act, which prohibits
every contract, combination in a form of trust or otherwise, or conspiracy in restraint of trade or
commerce among several states or with foreign nations, requires more than an allegation of
parallel conduct and a bare assertion of conspiracy. In this case, Twombly, et al., represented a
class of subscribers of local telephone and/or high speed Internet services against Bell Atlantic
Corp. (now Verizon), Bell South Corp. (now AT&T, Inc.), Qwest Communications International,
Inc., SBC Communications, Inc. (now AT&T, Inc.), alleging that they conspired to restrain trade
(1) by engaging in parallel conduct in their respective service areas to retard the growth of
competitive local exchange carriers, (2) by agreeing to refrain from competing against one
another, shown by their common failure to pursue attractive business opportunities in contiguous
markets and by a statement by an officer of one of the defendants that competing in another
defendant’s territory did not seem right.
The U.S. District Court for the Southern District of New York originally dismissed this
complaint, concluding that parallel business conduct allegations, taken alone, did not state a
claim under Section 1 of the Sherman Act. The District Court held that the plaintiffs must allege
additional facts tending to exclude independent self-interested conduct as an explanation for
parallel actions. The Second Circuit reversed the District Court, holding that the allegations of
parallel conduct of defendants were sufficient to withstand a motion to dismiss because the
defendants had failed to show that there was no set of facts that would permit the plaintiffs in the
class action to demonstrate that the particular parallel asserted was a product of collusion rather
In its decision, the Supreme Court determined, however, that Section 1 of the Sherman
Act requires enough factual matters to be taken as true in deciding a motion to dismiss to suggest
that an agreement was made. Allegations of parallel conduct and a bare assertion of conspiracy
are not enough to withstand a motion to dismiss.
Additionally, the Supreme Court held that the plaintiff class action representatives’
contention of conspiracy in restraint of trade also failed because the complaint left no doubt that
plaintiff rested their claim of conspiracy to restrain trade on the description of parallel conduct,
and not on any independent allegation of an actual agreement to restrain trade among the
The bottom line is that antitrust cases brought against defendant telephone companies
alleging conspiracy and restraint of trade under Section 1 of the Sherman Act requires allegations
of specific facts that support the claim of conspiracy. A plaintiff cannot rely on a showing of
parallel conduct or interdependence without more. Moreover, labels and conclusions and a
formulaic recitation of a cause of action elements are not sufficient. Finally, factual allegations
must be enough to raise a right to relief above the speculative level on the assumption that all of
the complaint’s allegations are true.
* * * * * *
FCC ISSUES NOTICE OF PROPOSED RULE MAKING REQUESTING COMMENTS
ON ENHANCED 911 LOCATION ACCURACY AND RELIABILITY REQUIREMENTS
FOR WIRELESS CARRIERS AND INTERCONNECT THE VOIP PROVIDERS
The FCC has issued a Notice of Proposed Rule Making (“NPRM”) requesting comment
on the FCC’s tentative conclusions on issues related to enhanced 911 location accuracy and
reliability requirements for wireless carriers and providers of interconnected Voice over Internet
Protocol (“VoIP”) services.
Specifically, the NPRM requests public comment on the FCC’s tentative conclusion that
wireless carriers would be required to meet E911-Phase II location accuracy and reliability
standards at the service level of public service access points (“PSAPs”). The FCC also requests
public comment on whether to defer enforcement as well as other questions regarding enforcing
any rule that may be adopted on the geographic area for compliance with E911-Phase II.
The FCC also requests public comment on the following other tentative conclusions it
• Whether a single, technologically-neutral location accuracy requirement for wireless E911
service should be used, rather than a separate accuracy requirement for network-based and hand
set-based location technologies that are currently in place;
• Whether wireless carriers should comply with a mandatory schedule for accuracy testing and
automatically provide accuracy data to PASPs; and
• Whether providers of interconnected VoIP services that can be used at more than one location
must employ an automatic location technology that meets the same accuracy standards which
apply to providers of Commercial Mobile Radio Services (“CMRS”).
The FCC also requests comments on (1) methods for carriers to improve in-building
location accuracy; and (2) use of hybrid technology solutions to increase location accuracy and
address shortcomings of current technologies employed for location accuracy in E911 calls.
The FCC’s NPRM has not yet been released, but is expected to be publicly available by
June 15. Public comments will be requested as soon as possible after release of the NPRM.
Please let us know if there is any interest in this NPRM.
* * * * * *
TENTH CIRCUIT HOLDS THAT COLORADO PUBLIC UTILITIES COMMISSION
CAN IMPOSE CONSUMER PROTECTION CONDITIONS ON A WIRELESS
CARRIER’S REQUEST TO BE DESIGNATED AS AN ETC
In a two-to-one decision on June 5, 2007, the U.S. Court of Appeals for the Tenth Circuit
held that the Colorado Public Utilities Commission (“CPUC”) can attach conditions intended to
protect consumers on WWC Holding Company’s (“Western Wireless”) request to be designated
as an eligible telecommunications carrier (“ETC”) under Section 214(e)(2) of the
Communications Act of 1934, as amended (the “Act”), when those conditions would affect the
interstate components of the carrier’s wireless services. In this decision, the majority concluded
that the Communications Act does not prevent the CPUC from exercising its express statutory
authority under Section 214(e) in a way that affects interstate components of services offered by
carriers that are otherwise subject to the CPUC’s jurisdiction. The majority also concluded that
Section 214(e) governs ETC designations and does not require state regulatory commissions to
issue rule making before imposing conditions on a carrier seeking ETC designation.
Western Wireless is a mobile phone service provider. In 2003, Western Wireless applied
to the CPUC to receive federal subsidies through an ETC designation for specified areas in
Colorado that were already served by a rural telephone company. Western Wireless, however,
did not seek state subsidies through an eligible provider designation. In acting on Western
Wireless’ application, the CPUC decided to grant the application for ETC designation under
Section 214(e), but found the designation would be in the public interest only if Western
Wireless complied with state-specific consumer protection and operational standards. Thus, the
CPUC ordered Western Wireless to:
• Provide customer care personnel who will be available 24-hours per day, seven days per week by
telephone or by visiting retail store outlets;
• Provide any customer, upon request, with basic universal services within 150 working days of
• Ensure for switches for more than 10,000 customers, that a permanent auxiliary power and
possibly additional battery reserve is installed;
• Ensure, for switches for fewer than 10,000 customers, plus microwave radio sites and other
facilities, that a mobile power source with four or more hours of battery reserve is installed;
• Transmit a signal with a strength level of -104 dBM;
• Establish local calling areas that generally allow free calls within Western Wireless’ customers’
community of interest, including government offices, school districts, libraries, primary centers of
business activity, police and fire departments, and essential medical and emergency services;
• Publish an annual directory of listing of customers with the name and addresses; and
• Document customer trouble reports in reports to the State for the months exceeding eight reports
per 100 customers.
These standards exceed the standards that the FCC has imposed for an ETC designation
set forth in its regulations under 47 C.F.R. Part 54. Under that section, an ETC must first:
• Commit to providing service to any customer making a reasonable request for service;
• Submit a five-year plan for infrastructure and service improvements;
• Demonstrate its ability to remain functional in emergency situations;
• Demonstrate that it will satisfy applicable consumer protection service quality standards,
which are met if the carrier complies with the Cellular Telecommunications and Internet
Association’s Consumer Code; and
• Demonstrate that it offers a local usage plan comparable to the one offered by the
incumbent local carrier in the area, before it can receive an ETC designation.
Western Wireless sought reconsideration of the CPUC’s decision, which was denied.
Western Wireless then filed a complaint in the Federal District Court in Colorado seeking to
enjoin the conditions imposed by the CPUC on Western Wireless’ ETC designation. The
District Court granted Western Wireless summary judgment, holding that the CPUC’s conditions
amounted to an unlawful regulation of an interstate carrier, because Western Wireless’s
“bundles” intrastate and interstate services together in service packages that do not distinguish
between or separately bill for interstate and intrastate calls. The District Court also found that
because Section 214(f) of the Act provides that a state universal service program may adopt
regulations not inconsistent with the FCC’s rules to preserve and advance universal service, the
conditions imposed by the CPUC on Western Wireless seeking universal service subsidies under
an ETC designation must be promulgated through regulations after a rule making. The District
Court concluded that because the CPUC had not adopted regulations that set forth the quality of
service standards included in the conditions it imposed on Western Wireless’ ETC designation,
such standards could not be imposed on Western Wireless as a condition of its ETC designation.
The CPUC appealed the District Court’s decision to the Tenth Circuit. In deciding the
case, the Tenth Circuit majority held that nothing in the Communications Act preempts states
from exercising their authority under Section 214(e)(2) of the Act, which gives states primary
responsibility for deciding which carriers qualifies ETCs to be eligible for federal subsidies from
Universal Service Fund. The majority also held that nothing in the Communications Act
preempts the State from exercising this authority to regulate carriers providing intrastate service
or to designate such carriers as ETCs simply on the basis conditions imposed in an ETC
designation would affect some telephone calls that originate and terminate in different states.
Additionally, the majority held that the Communications Act does not limit a state’s jurisdiction
over a telecommunications carrier because the carrier offers interstate and intrastate service in
“bundles” to individual consumers. Accordingly, the majority reversed the District Court, and
remanded the case for further consideration of additional issues that were raised in the case.
Those issues concern whether the nature and extent of the conditions imposed by the CPUC on
Western Wireless are beyond the bounds of a state’s Section 214(e) authority, or whether they
impermissibly burden the Federal Universal Service Program under Section 254(f) of the
Communications Act. In summary, the majority merely held that federal law does not
automatically preclude the CPUC from exercising authority under Section 214(e) in a way that
affects the interstate component of an ETC designee’s wireless services. The majority also ruled
that the conditions imposed on Western Wireless did not require a rule making proceeding before
the CPUC could impose those conditions. The majority based this conclusion on the State’s
authority under Section 214(e) rather than under Section 254(f) because under Section 214(e)(2)
ETC designations do not require a formal rule making proceeding.
Since this case was decided by a two-to-one split, it is likely that Western Wireless will
pursue further litigation, including but not limited to a petition for rehearing by the Tenth Circuit
en banc, or a petition for certiorari to the United States Supreme Court.
Unless this decision is overturned, state regulatory agencies may impose conditions in
approving an ETC designation, even if the condition affects interstate communications.
Please let us know if you have any questions on this decision.
D.C. CIRCUIT UPHOLDS FCC’S ORDER REQUIRING VOIP PROVIDERS TO MAKE
UNIVERSAL SERVICE FUND CONTRIBUTIONS BUT VACATES FCC ORDER
REQUIRING PRE-APPROVAL OF VOIP TRAFFIC STUDIES AND THE SUSPENSION
OF THE CARRIER’S CARRIER RULE WITH RESPECT TO UNIVERSAL SERVICE
On June 1, 2007, the U.S. Court of Appeals for the D.C. Circuit upheld the FCC’s 2006
Universal Service Contribution Methodology Order (“Order”) requiring Voice Over Internet
Protocol (“VoIP”) providers to make contributions to the Universal Service Fund (“USF”), but
overruled the FCC’s decision in connection with such contributions that require FCC pre-
approval of VoIP traffic studies and the suspension of the carrier’s carrier rule.
In 2006, after a rule making, the FCC issued its Order requiring providers of
interconnected VoIP services to contribute to the USF. Interconnected VoIP services are defined
as (1) services that enable real time two-way voice communications, (2) require broadband
connection from the user’s location, (3) require IP-compatible customer premises equipment and
(4) permit users to receive calls from and terminate calls to the public switch telephone network.
The FCC based its Order on its permissive contribution authority and its ancillary jurisdiction
under Title I of the Communications Act of 1934, as amended. The D.C. Circuit had previously
held that the FCC may regulate under its ancillary jurisdiction when the subject of regulation is
both covered by the FCC’s general grant of jurisdiction under Title I of the Act and is reasonably
ancillary to the effective performance of the FCC’s various responsibilities.
After deciding that VoIP providers must contribute to the USF in the Order, the FCC
established a level of contributions by VoIP providers. In this regard, the FCC determined an
appropriate analogue for VoIP services is wireline toll services, in which services the FCC
presumes that 64.9% of the traffic is interstate and international. The FCC selected wireline toll
based on two industry reports, and the fact that VoIP providers frequently market their service as
a substitute for wireline toll service. Therefore, the FCC established that 64.9% of a VoIP
provider’s revenue as the percentage of which to base such provider’s USF contribution. The
FCC then ruled that interconnected VoIP providers wishing to contribute less may only do so
after the FCC approved their traffic studies. Thus, pre-approval of traffic studies differs from the
rule applicable to wireless providers, who may contribute according to findings of the traffic
study even before the FCC approves the traffic studies. Finally, the FCC suspended the carrier’s
carrier rule, which prevents duplicative USF contributions at the wholesale and retail levels. The
rule accomplishes this result by basing contributions only on end-user telecommunication
revenues. The FCC suspended the rule with respect to VoIP providers for two quarters following
issuance of the Order, stating that if carriers are permitted to invoke the carrier’s carrier rule
immediately to exclude revenues from interconnected VoIP providers, the result would be a net
decrease in the USF in the short term, a result inconsistent with FCC’s obligation to preserve and
advance universal service.
The Court held that the FCC had the statutory authority to require to VoIP providers to
make USF contributions and that the FCC acted reasonably in analogizing VoIP to wireline toll
services for purposes of establishing a presumptive percentage of VoIP revenues generated
interstate and internationally. The Court found, however, that the FCC’s explanation for
requiring pre-approval of traffic studies of VoIP providers and the suspension of the carrier’s
carrier rule was inadequate, and therefore vacated those portions of the Order.
Accordingly, VoIP providers must make contributions to the USF, but do not have to
submit their traffic studies to the FCC in advance if they wish to base their contributions on a
percentage of interstate and international traffic that is less than the 64.9% in the FCC presumes
to be the interstate and international percentage of revenues attributable to wireline toll service.
Also, VoIP do not providers have to make duplicative USF contributions for two quarters, once
directly on their own interstate and international revenues and a second time indirectly in the
form of higher costs passed along from carriers who sell them telecommunication inputs.
If you have any questions about the D.C. Circuit’s decision, 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
laws, rules and regulations and other legal issues. Receipt of this document does not establish an
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For more information about Shughart, Thomson & Kilroy, P.C., and its Telecommunications Practice and
New Technologies Practice, please consult our Web sites at www.stklaw.com or
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