2007 © Shughart Thomson && Kilroy, P.C.

SHUGHART THOMSON & KILROY’S TELECOMMUNICATIONS AND NEWTECHNOLOGIES PRACTICE GROUP TELECOM REPORT

Shughart Thomson & Kilroy, P.C.’s Telecommunications and New Technologies Practice Group has substantial experience in regulatory and enforcement proceedings before the Federal Communications Commission (“FCC”) and state regulatory agencies, and in litigation involving telecommunications matters in the federal and state courts. We present below, for your information, various recent regulatory and court rulings affecting the telecommunications industry. We are available to assist you in such matters.

What’s in this edition:

FCC Eliminates Barriers To Competitive Entry In Multi-Unit Buildings ……………………………..Page 2

Update on Statewide Video/Cable Franchising.........................................................................................Page 2

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........................................................Page 3

U.S. Supreme Court Rules that Bare Allegations of Parallel Conduct and Conspiracy are Insufficient To Support The Violations of l Section of the Sherman Act in a Class Action Against Incumbent Local Exchange Carriers............................................................................................................................Page 4

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....................Page 6

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…………………………..…………………….Page 7

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Shughart Thomson & Kilroy, P.C.Telecom Report

Volume V, Issue 4May/June 2007

DC Circuit Upholds FCC’s Order Requiring VoIP Provider 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 Fund Contributions……………………………..…….Page 9

FCC ELIMINATES BARRIERS TO COMPETITIVE ENTRY IN MULTI-UNIT BUILDINGS

The FCC, on May 31, 2007, issued a Report Order and Declaratory Ruling that eliminates barriers to competitive entry into multi-unit buildings in which a new entrant seeks to compete with an incumbent telecommunication provider. The FCC action is intended to prevent new entrants to the video services and telephony markets from being blocked from providing service by competing providers.

The FCC took the following specific actions:

Declared that competitive video service providers must not be forced to cut through sheetrock to connect their cable wiring to cable home wiring inside a multi-dwelling unit. The FCC found that wiring behind sheetrock is “physically inaccessible” for purposes of applying the FCC’s inside wiring rules. The FCC likened sheetrock to brick, cinderblock and similar materials that are used to construct ceilings and hallways.

Declared in response to a petition by Cox Oklahoma Telecom, L.L.C., that telephone companies must have access to an incumbent telephone providers inside wiring subloops in multi-dwelling units at the terminal block in order to install service. The inside subloop typically is used by competing telephone companies to connect to individual end users in multi-unit buildings.

The text of the FCC’s Report Order and Declaratory Ruling was issued on June 11, 2007.

Let us know if you have any questions about the application of this FCC declaratory

ruling.

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UPDATE ON STATEWIDE VIDEO/CABLE FRANCHISING

The growing competition in wireline cable video service and inefficiency in the traditional process of granting franchise agreements by local/municipal authorities has caused a number of states to pass statewide cable/video franchising laws. So far, the following states have granted statewide video franchising laws: Texas, Indiana, Kansas, South Carolina, North Carolina, New Jersey, California, Michigan, Missouri, Georgia, Iowa (requires Governor’s signature), Nevada (requires Governor’s signature), and Florida.

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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 Wisconsin.

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 laws.

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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

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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.

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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 than coincidence.

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 defendants.

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

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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.

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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 has reached:

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.* * * * * *

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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 application;

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.

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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

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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

FUND CONTRIBUTIONS

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.

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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.

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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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attorney-client relationship.  We may have prior client relationships or other potential conflicts that would prevent us from representing you or from treating your communications as confidential.

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 www.telecomattorneys.com.

For your convenience, we also have placed our Telecom Reports monthly from 2004 to the present under the “Newsletters” tab on our www.telecomattorneys.com Web site.

If you have any questions about this Report or our prior Reports, or other recent FCC or state regulatory rulings, or federal or state court decisions affecting telecommunications, or any of our services, please don’t hesitate to contact us.

Shughart Thomson & Kilroy, P.C.1050 Seventeenth Street, Suite 2300Denver, Colorado 80265303.572.9300 (telephone)

Michael L. GlaserDirect: 720.931.8133Email: mglaser@stklaw.com

Michael D. MurphyDirect: 720.931.8137Email: mmurphy@stklaw.com

Phil BledsoeDirect: 720.931.1172Email: pbledsoe@stklaw.com

Howard GeltDirect: 720.931.8143Email: hgelt@stklaw.com

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Copyright © 2007 Shughart Thomson & Kilroy, P.C.

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2007 © Shughart Thomson && Kilroy, P.C.