Current Telecom Developments

May 1, 2015

Petitioners Contest Forbearance Provisions of Title II Order in Third Circuit Court

Full Service Network (FSN), a Pennsylvania-based reseller of telecommunications services, joined TruConnect Mobile, Sage Telecommunications LLC and Telescape Communications last Thursday in filing the eighth legal challenge against the FCC’s February 26 decision to reclassify broadband services as telecommunications services pursuant to Title II of the 1934 Communications Act. However, while petitions filed earlier this month in the D.C. Circuit and Fifth Circuit courts by wireless association CTIA, AT&T, the National Cable & Telecommunications Association and other parties claim that the FCC exceeded its jurisdiction in applying Title II to broadband Internet access services, the appeal submitted to the Third Circuit Court by FSN and the joint petitioners presents the opposite point of view in charging that Title II order does not go far enough to protect broadband competition. Unlike the first seven parties that filed legal challenges against the Title II order, FSN and the joint petitioners advised the Third Circuit that the FCC’s decision to reclassify fixed and wireless broadband Internet access services under Title II is “correct as a matter of law.” Noting that, as a consequence of Title II reclassification, broadband services are now “subject to the common carrier requirements of the Communications Act,” the joint petitioners thus declared that the application of common carrier regulation would boost the ability of competitive ISPs “to engage in competitive offerings of broadband Internet access service to consumers.” The joint petitioners took issue, however, with the FCC’s decision to invoke its forbearance powers “to declare that the common carrier requirements Congress expressly adopted in 1993 and 1996 to open local communications markets to competition are inapplicable to broadband Internet access service.” Adding that the FCC also “failed to address statutory definitions that are also applicable to broadband Internet access service and arbitrarily limited the definition of those services,” the joint petitioners claimed that the Title II order deprived them “of a stable legal framework in which to invest and offer competitive services.” As such, the joint petitioners called on the court to “hold unlawful, vacate, enjoin, and set aside those portions” of the Title II order “that purport to grant forbearance under Section 10 of the Communications Act.” Asking the court to “provide . . . additional relief as may be appropriate,” the joint petitioners further proclaimed “that such forbearance, failure or regulation violates federal law” and is “arbitrary, capricious and an abuse of discretion under the Administrative Procedure Act.”

In This Issue:

Petitioners Contest Forbearance Provisions of Title II Order in Third Circuit Court more

Thune Requests Documents from DISH Network, FCC on AWS-3 Bidding more

ESPN Files Suit Against Verizon Custom TV Service more

Cablevision Markets New Internet-Focused Product to Cord Cutters more

Media Institute Study Depicts “Wide Open” Internet as Engine of Growth more

©2015 Paul, Weiss, Rifkind, Wharton & Garrison LLP. In some jurisdictions, this brochure may be considered attorney advertising. Past representations are no guarantee of future outcomes.

Current Telecom Developments

2

Thune Requests Documents from DISH Network, FCC on AWS-3 Bidding

As the FCC issued a public notice on Wednesday announcing the acceptance of long-form license applications filed by two designated entities (DEs) backed by DISH Network and by other winning bidders in the Advanced Wireless Service (AWS-3) auction, Senate Commerce Committee Chairman John Thune (R-SD) delivered letters to the FCC, DISH Network, and its affiliated DEs to request copies of documents relating to the DE’s bidding activity in the auction. During the AWS-3 auction, which ended in January, SNR Wireless LicenseCo and Northstar Wireless—both very small business DEs in which DISH holds non-controlling stakes of 85%--bid successfully for 702 licenses that qualify provisionally for a 25% bid credit. The deduction would reduce the companies’ combined gross bid by $3.3 billion. AT&T, Verizon and various other parties have since complained that DISH’s interest in the DEs has enabled DISH—one of the largest providers of video subscription services in the U.S.—to benefit from a bid discount program that was designed by the FCC to provide opportunities for small businesses to acquire spectrum through the auction process. Informing the letter’s recipients that the Senate Commerce Committee “has significant questions about whether conduct surrounding the bidding strategies employed by DISH Network and two affiliates adhered to both the letter and intent of the law,” Thune argued: “an examination of how these affiliated companies approached the auction is the only way for Congress to determine whether this three billion dollar price tag was appropriate.” Thune has asked the FCC, DISH and its affiliated DEs to produce the requested documents by May 15. The public notice issued by the FCC, meanwhile, opens a ten-day period during which affected parties may petition the agency to dismiss or deny the Northstar and SNR applications or to grant them with conditions. While pledging that his company will work with Thune, a DISH spokesman declared, “we are confident that we fully complied with all legal requirements for the AWS-3 auction.”

ESPN Files Suit Against Verizon Custom TV Service

One week after Verizon Communications introduced its new “Custom TV” offering for FiOS video customers, the ESPN sports network filed a lawsuit on Monday alleging that the Custom TV service breaches program carriage contract terms between Verizon and ESPN. Targeted at customers who are considering relinquishing their multichannel video subscriptions in favor of free or low-cost online streaming services, the Custom TV service unveiled, on April 17, gives new and current Verizon FiOS subscribers the option of purchasing streamlined channel packages. The offered groupings are built around sports, children’s’ programming and other themes that would supplement a base package of 35 channels. As a stand-alone service, the base channel package consisting of local broadcast channels and various cable networks such as CNN, AMC and the Food Network, is priced at $54 per month, and each custom package of between 10 and 17 channels would add $10 to the monthly price tag. While Custom TV stops short of functioning as an “à la carte” service, the monthly cost could represent a significant discount off of the average household cable bill of $90 per month, as calculated by research firm SNL Kagan. Although a copy of the complaint filed with the New York Supreme Court was not immediately available, an ESPN spokeswoman asserted that Custom TV violates program carriage terms that prohibit distributors such as Verizon from placing ESPN channels into separate, add-on bundles. Charging that Verizon made “a unilateral” decision to place ESPN

Current Telecom Developments

3

channels in separate bundles without first discussing that strategy with ESPN, the spokeswoman urged Verizon executives to “abide by the terms of our contracts.” Undaunted, Verizon maintained “we are well within our rights under our agreements to offer our customers these choices” as “customers have spoken loud and clear that they want choice.”

Cablevision Markets New Internet-Focused Product to Cord Cutters

On the heels of Verizon’s Custom TV offering, Cablevision rolled out its own targeted offering to “cord cutters” with the launch of a new, broadband “Optimum” product last Thursday. The service excludes traditional cable TV service but provides customers with a high-speed Internet connection, a digital antenna and access to Cablevision’s extensive network of Wi-Fi hot spots at a base introductory rate of $34.90 per month. The debut of the new “Optimum Everyday Low Price” service comes as Cablevision continues to sharpen its focus on broadband Internet services as an area of growth that, eventually, may overtake the company’s traditional cable business. As cable TV revenues continue to fall nationwide in the face of “cord cutters” and “cord nevers” who are choosing to access video content through their broadband Internet connections, multichannel video program distributors (MVPDs) such as Cablevision and Verizon are answering this trend with offerings that provide potential or actual cord-cutters with greater choice and flexibility in accessing program content at a lower cost. Declaring that, “as a connectivity company, Cablevision is reimagining its relationship with its customers,” Cablevision COO Kristin Dolan explained to reporters that “our new ‘cord cutter’ packages take a modern approach to traditional triple-product bundles and provide real alternatives that fit new consumer lifestyles.” Designed for “highly price-sensitive customers,” Cablevision’s new Optimum Everyday Low Price package includes broadband Internet access, a Mohu Leaf 50 digital antenna (valued at $69.99) which provides access to free local broadcast television programming over the Internet, and a “Freewheel” wireless handset. Introduced earlier this year by Cablevision, Freewheel provides customers with unlimited voice, text and data services by working exclusively through Wi-Fi hot spots that include the company’s Wi-Fi network in its New York-New Jersey-Connecticut-Pennsylvania service area. For an extra monthly cost of $15, customers may add the new, stand-alone “HBO Now” service that provides online and mobile access to HBO programming. Monthly broadband rates will depend upon service speeds that range from 5 Mbps to 50 Mbps and beyond. Meanwhile, in a separate but related announcement, Cablevision confirmed on Monday that it will market the Hulu online streaming service to cable customers as part of an agreement that gives Cablevision the option of adding the Hulu app to the company’s cable set-top boxes. Dolan heralded the deal as the first partnership of its kind between an online video distributor and an MPVD and said the pact is intended to “facilitate a great content experience” for customers “whatever their preference.” Noting that “even with the rapid growth in streaming, there is a huge audience that consumes television through their cable provider,” Hulu senior vice president Tom Connolly told reporters: “we want to be there for them, too.”

Media Institute Study Depicts “Wide Open” Internet as Engine of Growth

A study published last Friday by The Media Institute ranks the U.S. among the top five nations in which broadband capabilities are underscored by access to a “wide open” Internet.

Current Telecom Developments

4

Titled, Net Vitality: Identifying the Top-Tier Global Broadband Internet Ecosystem Leaders, the study caps five years of research and is described in a Media Institute press release as “the first holistic analysis of the global broadband Internet ecosystem.” Based on 52 criteria that encompass applications, devices, networks and macroeconomic factors, the study identifies the U.S., South Korea, Japan, France and the United Kingdom in no particular order as the top five global leaders in the deployment and usage of broadband Internet networks. In addition to ranking countries quantitatively through assessment of broadband speeds, the Net Vitality Index developed through the report also measures countries “qualitatively to determine how well they are performing in a global competitive environment, gauging the true vitality of a country’s Internet ecosystem.” Observing that the broadband ecosystems of the top tier nations share “a powerful common driving force--innovation,” the study asserts that these countries “have benefited the most when government challenges companies to raise their aspirations and increase the pace of innovation and the scale of investments.” As it stresses that “government has a critical role to play in shaping the goals of Net Vitality through forward-looking policymaking,” the study cautions that “policies focused on one specific element or outcome may . . . miss the mark because they do not focus on impacts to the broader ecosystem.” While noting that much of the advocacy behind the FCC’s recent decision to adopt a Title II approach to the Open Internet was “based on an assumption that new rules are needed to help the U.S. boost its lagging performance in comparison with other countries,” the study nevertheless maintains that “the U.S. leadership position in broadband is strong, impressive and durable.”

* * *

For information about any of these matters, please contact Patrick S. Campbell (e-mail: pcampbell@paulweiss.com) in the Paul, Weiss Washington office. To request e-mail delivery of this newsletter, please send your name and e-mail address to telecom@paulweiss.com.